What is a knowledge intensive company?

Knowledge intensive companies (KICs) can get more funding through venture capital schemes than other types of companies. We'll look at this in terms of the Enterprise Investment Scheme (EIS).

Should we apply as a KIC?

You only need to apply as a KIC if:

• you need to raise more money than the usual EIS limits allow
• your company is older than the usual EIS limit allows
• your investors want to make use of the higher investor limit

You should apply as a KIC if your company is carrying out research, development or innovation at the time you issue shares and:

• your company meets the qualifying conditions for EIS
• your company qualifies as a KIC (see further into this guide)
• it's been less than 10 years since either your first commercial sale or your annual turnover exceeding £200,000
• your proposed investment is over the EIS limits but within the KICs limits

What are the differences for a KIC?

Do we qualify as a KIC?

To qualify as knowledge intensive the company and its qualifying subsidiaries must have less than 500 full-time equivalent employees when the shares are issued and either:

• be carrying out work to create intellectual property and expect the majority of its business to come from this within 10 years
• have 20% of employees carrying out research for at least 3 years from the date of investment - these employees must be in a role that requires a relevant Masters or higher degree.

Operating costs conditions

The company must spend money from its overall operating costs on research, development or innovation. This should be either:

• 10% a year for 3 years
• 15% in one of 5 years

If the company is at least 3 years old, you must have done this in the 3 years before investment.

If the company is less than 3 years old, you must do this in the 3 years following investment. You'll need to submit a schedule, supported by accounts to show that you have.

How do we apply for KIC status?

You can ask HMRC to confirm that you qualify as a KIC as part of an advance assurance application, however HMRC will only give an opinion if you need to raise more money than the usual EIS limits allow.

You can apply for KIC status as part of the normal EIS compliance statement process following the issue of your shares. There is a specific section on the EIS1 form regarding knowledge intensive status.

The qualifying criteria for both EIS and KIC status are complex and can be confusing, so please do not hesitate to contact us for advice before issuing your shares.