The Next Alexa? Surfing the IP Challenges for Artificial Intelligence
13 September 2018
Tax relief for investors under both the SEIS and EIS hangs on the trade qualifying under the legislation. Sometimes we can find a ideas to bring the trade within the legislation. Answering questions relating to trading status is a specialist area for us.
The legislation relating to what is or what is not a qualifying trade is the same for both SEIS and EIS tax relief. The money raised by an SEIS/EIS share issue must be used for a qualifying trade.
Generally, most trading companies will be regarded as carrying on a qualifying activity for SEIS purposes if:
The types of activities which will not qualify for SEIS or EIS include:
Excluded activities are subject to caveats which may mean that the trade can qualify for SEIS/EIS.
A company can carry on some excluded activities, but these must not be a ‘substantial’ part of the company’s trade. HMRC defines ‘substantial’ as more than 20% of the company’s activities.
Providing services ancillary to excluded activities may be okay. So, for example providing advisory services in the financial sector is acceptable, even though financial activities themselves are excluded. The HMRC have gone on record as stating: “The provision of services, such as advice on financial matters, is not covered by the exclusion”.
However, the trade of supplying an individual to perform an excluded activity may not be a qualifying trade. Cases show the trade of supplying an accountant was within the “supply of accountancy services”. Therefore accountantcy is not a qualifying trade.
Dealing in commodities is excluded. However, if you purchase a commodity as a raw material for your manufacturing operation, you are not disqualified even though you:
Receiving royalty or licence fees is excluded. However, this is waived where the royalties or licence fees are attributable to the exploitation of ‘relevant intangible assets’.
“Intangible assets” has the meaning under normal UK accounting practice. An asset is a relevant intangible asset if it has essentially been created by the company which has issued the shares. Hence software development is a qualifying trade for SEIS and EIS.
If you consider your trade is borderline, apply to HMRC for advance assurance that your entire SEIS proposal complies on form SEIS AA. HMRC is normally bound by an assurance if the form provides:
HMRC will want to review your Articles of Association and any shareholders’ agreement or investment agreements. We draft or review these documents to make sure they comply.
Gannons gave us suggestions for how we could change the trade to bring it within a qualifying trade for EIS purposes.
We were not sure of whether our trade qualified for SEIS. Gannons gave us peace of mind by obtaining an HMRC clearance.