What Does Knowledge Intensive Mean in EIS?

The Enterprise Investment Scheme (EIS) offers higher investment thresholds and, therefore, tax allowances and benefits for investors in knowledge-intensive companies (KICs) and knowledge-intensive funds that engage in these businesses.

A KIC is, essentially, an organisation that is otherwise eligible for the EIS but operates in an area such as development, research or innovation – and is carrying out qualifying activities at the time the shares are issued.

HMRC has strict requirements that dictate whether a company is considered a KIC, and it is essential for both investors and businesses raising investment financing to understand these conditions and verify whether they apply in full.


Criteria for an EIS-Eligible Company to Be Considered Knowledge-Intensive

The first set of rules relates to the size and structure of the business. It must comply with at least one of the following conditions:

  • Spending at least 15% of operating costs on activities such as innovation, research or development within one or more of the previous three operating periods.
  • Spending at least 10% of operating costs on the same activities in all of the previous three financial years.

Further, a company must comply with both of the following mandated requirements or meet the skilled workforce condition below:

  • Being engaged in activities that are intended to develop intellectual property at the date of the share issue.
  • Showing that in the next decade, the work of the company and the intellectual property it owns will form the primary or largest aspect of the business’s operations.

If a business can evidence compliance with the minimum proportional spending on eligible activities and does not meet both of the conditions above linked to intellectual property, it may be treated as a KIC if it employs at least 20% of its staff within higher skilled roles.

Those employees should be full-time and represent skills requiring educational accreditations of at least a master’s degree level. Staff included in this group must be directly involved in activities associated with innovation, research or development – or all three.

What Is the Benefit of Being a KIC for EIS Fund Raises?

From the company’s perspective, the advantage of being a verified KIC is that they can raise considerably more capital financing within the same period – while offering investors attractive tax treatments that incentivise investment into early-stage and unlisted enterprises.

As a quick summary:

  • A KIC EIS company can attract £10 million in capital funding annually – double the threshold for EIS businesses that are not KICs.
  • They can raise up to £20 million in total investment funding – rather than the £12 million lifetime limit placed on other EIS firms.

Note that these thresholds include all investment funding raised through state-funded schemes and from venture capitalists, private investors and KIC funds.

KIC vs Non-KIC EIS Treatments and Eligibility Thresholds

KICs have greater flexibility in terms of their trading history and can apply for EIS status within ten years of making their first commercial sale. This period is three years greater than for other EIS organisations, meaning a KIC might be better established and with more experience within the relevant sector and still offer greater tax advantages for investors.

A KIC remains eligible for EIS treatment provided it has up to 500 full-time employees – double the 250-workforce limit for non-KIC EIS-eligible businesses.

For investors, the tax allowances and reliefs available are equally higher, meaning they can stand to benefit more from making investments into EIS-qualifying businesses or funds and maximise their income tax relief.

The annual investment limit per investor is doubled from £1 million to £2 million, making the available income tax relief £600,000 per year, increased from £300,000 for non-KIC investments.

Many investors prefer to select companies with as much trading history as possible since this may reduce some of the calculated risks of investing in younger businesses and those who don’t have sufficient track records to prove the viability of their business model.

The dual benefits of up to ten years of trading experience, double the tax reliefs, and greater annual investment allowances collectively make KICs desirable EIS investments. However, compliance standards are rigid, and if a KIC subsequently fails to meet the HMRC requirements, it could potentially lose this status.

Applying to HMRC for KIC Status Before an EIS Raise

One of the positive aspects of the KIC categorisation process is that a business doesn’t necessarily need to apply until they are at the point where they wish to proceed with a capital investment raise. HMRC doesn’t grant KIC status or present a risk of removing this unless a company wishes to confirm an investment project that exceeds the standard EIS thresholds.

Companies need to jump through multiple hoops and present a variety of detailed information to HMRC for scrutiny and analysis before they can confirm their position as a KIC. The benefits are considerable, so HMRC will undertake a comprehensive assessment before making any decisions.

Therefore, in most cases, a company will not begin the KIC application process until they are ready to start a capital raise due to the time pressures involved and the potential for this to need to be repeated in the future.

As with any EIS application, HMRC offers Advance Assurance. While this doesn’t mean that HMRC will automatically approve an application for EIS eligibility or KIC status, it provides investors with a reasonably high likelihood that the conditions for approval will be met.

How Do EIS Businesses Prove They Meet the KIC Criteria?

We’ve mentioned the extensive approval process, and it is fair to say that any company that believes it qualifies as a KIC must be prepared to submit a large amount of documentation. HMRC may request:

  • Business cases, reports on progress and achievements made, and copies of applications made that relate to patents and trademarks.
  • Independent evaluations of the business showing that the company will primarily rely on using intellectual property assets to conduct its trade within the next ten years.
  • Copies of evidence showing that a minimum number of staff hold master’s or doctorate degrees.
  • Accounting schedules verified by an accredited accountant detailing expenditures on eligible research and development activities over the last three years, supported by verified accounts.

For more information about any of the details within this guide, to learn more about KICs and the EIS, or for help assessing your investment prospects and opportunities, please get in touch with EMV Capital at any time.

Leave a comment

The reCAPTCHA verification period has expired. Please reload the page.


Don’t invest unless you’re prepared to lose all the money you invest. This is a high risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more.