Why Get Advance Assurance?
Advance Assurance is not mandatory, but it gives investors peace of mind that their investment will qualify for EIS tax relief. Without it, many will be unwilling to invest.
Step 1: Ensure Your Business Qualifies
Before starting the application, confirm your company meets EIS eligibility criteria:
- Less than £15 million in gross assets.
- Fewer than 250 full-time employees.
- Trading for fewer than 7 years.
- Conducting a qualifying trade (not excluded sectors like financial services or property development).
Step 2: Prepare the Required Documents
HMRC expects to see detailed information. Gather the following:
- A cover letter requesting Advance Assurance.
- A completed Advance Assurance form.
- A copy of your latest business plan.
- A detailed description of your trade.
- A copy of your company’s memorandum and articles of association.
- A list of the proposed investors (names not always required, but helpful).
- Details of any previous investments under EIS or SEIS.
Step 3: Submit Your Application to HMRC
Send all documentation to HMRC either by post or via email. Turnaround time is typically 4-6 weeks.
Step 4: Respond to Further Information Requests
HMRC may ask follow-up questions or request more detail. Be prompt and comprehensive in your response.
Common Reasons for Rejection
- Non-qualifying Trade: Activities like finance, property, and legal services are excluded.
- Lack of Investor Details: Not naming potential investors, especially where HMRC suspects the round is speculative.
- Insufficient Business Plan: HMRC wants to see a clear explanation of your business model, use of funds, and growth strategy.
- Company Already Trading for Too Long: Companies more than 7 years old (or 10 for knowledge-intensive companies) often fail eligibility.
- Poorly Structured Articles of Association: Articles must not contain provisions that conflict with EIS conditions (e.g. preferential rights).
Tips for Success
- Use HMRC’s current checklist.
- Include a compelling and detailed business plan.
- Be honest about your intentions and structure.
- Consider seeking expert help—like from Nest—to ensure you meet all criteria.
Conclusion
Advance Assurance is a must-have when raising EIS-qualifying funds. It enhances your credibility, boosts investor confidence, and saves time in the long run. At Nest, we help startups prepare watertight Advance Assurance applications, avoiding common pitfalls and increasing your chances of success on the first try.
