Are you raising investment for your UK startup? If so, your investors may ask one question before they write a cheque: does the proposed share issue qualify for EIS?
This is where EIS advance assurance becomes a crucial part of your fundraising strategy. It gives potential investors written confirmation from HMRC that, based on the information provided, your proposed investment is likely to qualify for the Enterprise Investment Scheme.
It is not a guarantee. But it can make your funding round smoother, more credible and easier to progress.
EIS advance assurance is a pre-application process with HM Revenue & Customs. You provide details of your company, proposed investment round, share structure, business plan and intended use of funds. HMRC then reviews the proposal and confirms whether the investment appears likely to meet the relevant EIS conditions.
In simple terms, it answers this question:
“Based on the information available today, is this company and proposed share issue likely to qualify for EIS?”
The assurance relates to the proposed investment: not to whether an individual investor personally qualifies for tax relief. Investors still need to meet their own conditions, and your company must continue to comply with the scheme rules after the shares are issued.
It is also important to distinguish between EIS advance assurance and formal EIS approval. Advance assurance comes before the investment. After the shares are issued, your company must still submit an EIS compliance statement before investors can receive the relevant certificates and claim tax relief.
You can read the official HMRC guidance on applying for venture capital scheme advance assurance.
For many angel investors and early-stage funds, EIS tax relief is an important part of the investment case. It can help offset some of the risk involved in investing in a young, growing company.
However, investors will not want to rely solely on your pitch deck or verbal assurances. They will want evidence that the proposed share issue is likely to be eligible.
A positive advance assurance letter can help you:
The commercial reality is straightforward: investors may be interested in your company, but they may not commit capital until they understand whether EIS relief is available.
And whilst advance assurance does not replace due diligence, it can be a vital piece of evidence that your raise has been prepared properly.
The application needs to be complete, consistent and supported by evidence. A typical process involves the following steps.
Before applying, review the main EIS conditions. These include the nature of your trade, the age and size of your company, your group structure, the proposed share terms and how you will use the investment.
Your company will generally need to be an unquoted UK company with a qualifying trade and a genuine ambition to grow. Certain activities are excluded or restricted, including some financial services, property development and other specified sectors.
The company must also satisfy the risk-to-capital condition. This means investors must be exposed to a genuine risk of losing their capital, whilst your business must have long-term growth and development objectives.
HMRC will usually expect details of potential investors, particularly where you are raising money directly from individuals.
You may need to provide names, addresses and intended investment amounts. Depending on how your round is structured, HMRC may also expect evidence from a fund manager, crowdfunding platform or business promoter.
This is one reason why applying too early can be unhelpful. A completely speculative application, with no credible investor interest, may not receive the response you are hoping for.
Your application should normally include:
Your documents must tell the same story. If the pitch deck says you are raising £1 million for product development, but your application refers to £750,000 for hiring and marketing, HMRC may raise questions.
Applications are now made using HMRC’s online venture capital schemes advance assurance service. If an accountant or adviser applies for you, the company must provide appropriate authorisation.
HMRC will then review the information. It may issue advance assurance, ask for further details or decline to provide assurance.
HMRC is not assessing whether your business is a good investment. It is reviewing whether the proposed company and share issue are likely to satisfy the EIS legislation.
The review commonly focuses on five areas.
HMRC will consider whether your company meets the relevant conditions relating to age, gross assets, employees, independence and UK establishment.
It will also assess whether your main activity is a qualifying trade. For a technology or fintech startup, your application should explain precisely what you do, how revenue is generated and where the commercial activity takes place.
This is a key area of the advance assurance EIS process.
You need to demonstrate both:
Your business plan should therefore explain your market opportunity, competitive position, scalability, hiring plans, product development and route to revenue. It should not present the investment as risk-free or imply that investors are guaranteed an exit.
The shares generally need to be ordinary shares issued for genuine commercial purposes. HMRC may examine whether the proposed terms include preferential rights, redemption arrangements or other provisions that could undermine EIS eligibility.
Your term sheet, Articles, shareholder agreement and pitch materials should be aligned before submission.
HMRC will want to see how the investment supports the growth and development of your company. A clear budget is essential.
Explain how much will be allocated to research and development, software development, recruitment, sales, marketing, premises and other operating costs. If the funds will be used by subsidiaries or other group companies, explain the structure and the commercial reason.
Advance assurance only reflects the information available when HMRC reviews your application. It does not remove your responsibility to remain compliant after the investment.
If the share terms, investors, company structure or use of funds change materially, you may need to make a new application or seek further advice.
HMRC states that it aims to respond to most applications within 15 working days, whilst complex cases may take up to 40 working days.
In practice, you should allow around four to eight weeks from preparing a complete application to receiving a decision. Queries, missing documents, complex group structures and non-standard share arrangements can all extend the timeline.
Start the process before your funding round reaches its final stages. Waiting until investors are ready to sign can put unnecessary pressure on your company: and may delay the completion of the raise.
Applications may be declined or delayed because:
A refusal is not necessarily the end of the road. You may be able to amend the proposal and reapply. However, it is far better to identify structural problems before investors are waiting for an answer.
EIS advance assurance does not guarantee investment. It does something more practical: it removes a significant point of uncertainty.
With a well-prepared application, you can approach investors with a clearer proposition, more coherent financial forecasts and greater confidence that the proposed share issue has been reviewed against the relevant conditions.
This, in turn, can support a smoother due diligence process and help you focus conversations on the real opportunity: your product, market and growth potential.
At Price & Accountants, we support founders with SEIS and EIS setup, share structure reviews and funding compliance. We can also help you prepare forecasts, review your use of funds and ensure your application documents present a consistent commercial case.
Are you preparing to raise investment, or have investors already asked for EIS advance assurance? Contact Price & Accountants to discuss how we can help you get your funding round on the right track.
No. Advance assurance is HMRC’s indication that the proposed investment is likely to qualify based on the information submitted. After the shares are issued, your company must still submit the relevant compliance statement.
HMRC will usually expect prospective investor details where a company is raising directly from investors, especially if it has not used a venture capital scheme before. The exact evidence required depends on how your funding round is structured.
SEIS advance assurance is a similar process for the Seed Enterprise Investment Scheme. SEIS is generally aimed at smaller and earlier-stage companies, whilst EIS can apply to larger qualifying fundraising rounds. You need to assess which scheme is appropriate for your company and proposed investment.
No. Investors must satisfy their own conditions, and your company must continue meeting the scheme requirements. Changes to your business, share terms or use of funds could affect eligibility.
