What is the 'initial investing period' ?

📘 Overview

This guide explains the rules on the Enterprise Investment Scheme (EIS) time limits for receiving investment. It covers the key definitions, how HMRC evaluates timelines, and the exceptions that may apply. The aim is to help you understand not only the rules but also how they might apply in practice.

Overview: What This Article Covers

What the initial investing period is
How HMRC defines a first commercial sale
Two key exceptions that allow investment after the initial period
The financial health requirement
Practical implications for tech start-ups

What Is the Initial Investing Period?

The initial investing period is the time window during which a company must receive EIS investment for it to qualify under the scheme.

For most companies, this period ends seven years after the company’s first commercial sale.

Knowledge-intensive companies (KICs), typically those focused on research, development or innovation, have a 10-year period.

From 6 April 2018, KICs may start this 10-year clock when annual turnover first exceeds £200,000, instead of using the date of their first commercial sale.

What Is a First Commercial Sale?

A first commercial sale is the first significant sale a company makes, excluding test-market sales. It does not necessarily align with the start of trade for tax purposes.

It must also include sales from subsidiaries and from trades that have been acquired or transferred into the company.

Examples of what counts as a first commercial sale:

A sale made by the issuing company
A sale made by a 51 percent owned subsidiary, even if the sale occurred before joining the group
A sale from an acquired or transferred trade

What does not affect the definition:

The company’s incorporation date
When the company first raised funds

Exceptions to the Initial Investing Period

Some companies may still qualify for EIS investment after their initial investing period has ended if they meet one of the following exceptions.

1. ✅ Follow-On Funding (Condition A)

A company may raise follow-on funding under EIS if:

It previously raised SEIS or EIS funding during its initial period, and
The new funding supports the same activity as the original investment, and
The need for follow-on funding was foreseen in the original business plan

For investments made before 18 November 2015, HMRC takes a more flexible approach. In those cases, companies can demonstrate that the follow-on funding supports the same activities as the initial investment, even if this was not explicitly planned at the outset.

2. 📊 Entering a New Product or Geographic Market (Condition B)

A company may still qualify if it is entering a new product market or a new geographic market, provided that:

The new investment is at least 50 percent of the company’s average turnover over the last five years, and
The new market entry represents a significant change in the business

This exception is not designed as a workaround for missing the initial investing period. HMRC reviews applications under Condition B carefully to ensure the change is meaningful and not a minor expansion.

🔍 Financial Health Requirement

To qualify for EIS, a company must not be considered in difficulty. HMRC will generally look at:

Whether accumulated losses exceed half of subscribed share capital
Whether the company appears viable and able to attract external investment

For many tech start-ups, research and development costs can create substantial accounting losses. HMRC may allow the business to show that certain R&D costs could have been capitalised under UK accounting standards, which can improve the financial health position.

For more detail, please see our related guide: Does financial health matter?

What This Means for Tech Start-Ups

A few practical steps can help ensure you stay within EIS rules:

💡 Key Considerations

Plan early: Know when your initial investing period starts and ends.
Document thoroughly: Business plans should outline any foreseeable follow-on funding requirements.
Consider growth strategy: If you are aiming for a significant market expansion, check whether Condition B could apply.
Track finances carefully: Keep clear records of R&D expenditure and seek advice on how this affects your financial health assessment.

Summary: Key Points to Remember

Most companies have seven years from their first commercial sale to receive EIS investment.
Knowledge-intensive companies have 10 years, and from 6 April 2018 may use the date turnover exceeds £200,000.
A first commercial sale includes sales from subsidiaries and acquired trades.
Two exceptions allow investment after the initial period: follow-on funding and new market entry.
Companies must not be in difficulty when raising EIS funding.

EIS can be an invaluable funding route, but the rules are technical and tightly defined. Please contact us for advice tailored to your company’s circumstances.