Edge cases and judgement calls

The cases where the canonical example does not apply, and what to do instead.

Section V was a clean case. Most real applications carry at least one complication: a company that has not yet made its first sale; a small non-qualifying revenue stream alongside the main trade; a group structure with a parent and a subsidiary; an R&D-intensive business that qualifies as a Knowledge Intensive Company; a combined SEIS-and-EIS round in the same fundraise; or a trade that operates from premises and reads as property-adjacent without actually being a property business.

The pages that follow address six of these edge cases, each in the same shape: the question that founders bring, the working answer, and the failure mode to watch for. None of these treatments is exhaustive – each case is the subject of its own detailed HMRC guidance, and several reward professional advice. The goal here is to flag the issue, give the working answer for the typical version of the case, and identify when the standard heuristics from Sections II to V break down.

Read the cases that match your situation. Skip the ones that do not. If your case is not listed at all, the closing principle for hard cases covers what to do next.

Tests I, IV, VI · the no-sales-yet case.

What do you write where the application form asks for the date of first commercial sale, when the company has not made one?

Plenty of companies apply for advance assurance before their first paying customer. SEIS in particular is designed for exactly this stage. The application form's "first commercial sale" field still has to be answered, but the answer is short: "The Company is pre-trading. The trading clock has not yet started." That sentence, in the form and again in the covering letter, closes the field without inviting the caseworker to look for a date that does not exist.

Two consequences follow. The trade description does more work. Without revenue evidence, the description in the covering letter and business plan is the primary signal that the planned trade is qualifying. The development activity itself – software being built, products being designed, IP being created – is described in present tense and identified as the intended qualifying activity from first sale onwards. The risk-to-capital statement also does more work. The growth-and-development limb is straightforward (the company exists precisely to develop and commercialise the trade), but the capital-at-risk limb has to lean on the development stage itself: no revenue, no proven product-market fit, dependency on the engineering build, dependency on the first round of customer acquisition working.

Test I · the small side stream.

What if a small part of the company's revenue comes from an activity that, if it were the whole business, would not qualify?

The Test I rule is that excluded activity must not form a substantial part of the trade. Substantial is not a fixed percentage in the legislation, but the working interpretation is that incidental excluded activity – small in scale, ancillary to the qualifying trade, not the reason the company exists – does not defeat the application. The decisive question is whether a reasonable reader of the business plan would describe the company as carrying on the qualifying trade. If yes, the side stream is incidental and the application can proceed. If no, the side stream is the trade, or part of it, and substantive restructuring is needed before applying.

The working approach in the application: name the side stream, quantify it, and explain why it is incidental. The covering letter and business plan disclose the activity in plain terms – what it is, what percentage of revenue and gross profit it represents over the last twelve months, why it is structurally minor (ancillary to a customer relationship, a legacy service that is being wound down, a service offered to existing customers only, and so on). Disclosed and bounded, incidental activity is rarely a problem; undisclosed and discovered, it is the cleanest possible refusal.

Tests V, VII, VIII · parent and subsidiaries.

Can a company that has a subsidiary, or that is part of a group, apply for SEIS or EIS?

The general rule is that SEIS and EIS are available to single companies, with limited exceptions for genuine qualifying subsidiaries. If the applicant is the parent, the trade can be carried on through one or more qualifying subsidiaries – a "qualifying subsidiary" being a 51%+ owned company carrying on a qualifying trade, where no arrangements exist that could pass control elsewhere. The size and age tests are then assessed on the group, not the parent alone. If the applicant is itself a subsidiary, the standard rule is that it must not be controlled by another company. A subsidiary applicant defeats Test VIII unless the structure has been specifically restructured beforehand.

The working approach in the application: explain the structure in the covering letter rather than letting the caseworker reconstruct it from the cap table and articles. "The Company is the parent of a single wholly-owned trading subsidiary, [Name] Ltd., through which the qualifying trade is carried on. Group-level gross assets and employee counts are within the relevant SEIS/EIS limits as set out below." One paragraph. Caseworker has the structure on first read.

EIS only · extended limits for R&D-heavy businesses.

When is a company eligible to apply as a Knowledge Intensive Company under EIS, and what does it gain?

Knowledge Intensive Company status is an EIS-only path that gives R&D-heavy businesses access to a longer trading-age window (up to ten years from first commercial sale rather than seven), higher annual EIS limits, and a higher gross assets threshold. To qualify, the company must meet specific operating-costs-on-R&D tests over a three-year window, or have skilled-employee or innovation criteria met instead. The HMRC manual sets out the precise tests; a working summary is that genuine deep-tech, biotech, and serious R&D-driven software businesses will usually qualify, and pure SaaS businesses without meaningful R&D spend will usually not.

The working approach in the application: state KIC status explicitly in the covering letter, name which limb of the test the company satisfies, and back the claim with specific numbers in the financial model. "The Company qualifies as a Knowledge Intensive Company under the operating-costs limb: R&D expenditure has exceeded 15% of annual operating costs in each of the last three financial years, as set out in the financial statements at Appendix C, and 10% in at least one of those years." A KIC application that does not explicitly invoke the status will be assessed against the standard EIS limits and may be refused on age grounds even when it would have qualified.

What KIC status does not do: it does not soften the excluded-activities test, and it does not soften the risk-to-capital test. A KIC carrying on an excluded activity is still excluded. A KIC without a credible growth-and-risk statement is still refused on Test IV. The benefits are extended trading age, higher headroom, and more permissive operating-cost treatment, nothing else.

Tests II, III, IX · the two-tranche raise.

How does the application work when the round is partly SEIS and partly EIS?

A single fundraise can include both SEIS and EIS investment, but the schemes must be cleanly distinguished. SEIS shares must be issued before EIS shares – same day is fine, but the ordering and timing must be documented. The two tranches are typically structured as two issues of the same ordinary share class on the same day, with the SEIS issue resolved and recorded first, then the EIS issue immediately after. Each tranche has its own scheme-specific limits to track: SEIS up to the £250,000 lifetime cap, EIS within the annual and lifetime EIS limits.

The working approach in the application: two applications, one covering letter, two distinct use-of-proceeds breakdowns. The covering letter names both schemes and the amount for each, confirms the ordering, and references two separate use-of-proceeds sections – one labelled "SEIS proceeds" and one labelled "EIS proceeds". Total spend is the same, but the breakdown shows which scheme is funding which line items. Most caseworkers prefer this clarity to a single combined breakdown; it makes verification straightforward.

Test I · operating from premises without being a property trade.

Can a company that operates from premises – a restaurant, a gym, a clinic, a coworking space – qualify, given that dealing in land is an excluded activity?

Operating from premises is not the same as dealing in them. A restaurant that occupies a leased site to sell food and service carries on a qualifying trade; the property is the venue, not the trade. A coworking business that sublets desks for short periods is closer to the excluded line and reads to HMRC as something that needs more careful framing. The decisive factors are: who owns the underlying property (typically a third-party landlord, not the company); whether the company's revenue derives from a service delivered at the site or from rent and licence fees alone; and whether the value of the business sits in the trade rather than the real estate.

The working approach in the application: describe the trade in service terms, not occupancy terms. A gym is not "a fitness facility at 12 High Street"; it is "a personal training and group fitness service operated from leased premises, generating revenue exclusively through membership subscriptions and class fees." A restaurant is not "a 60-cover dining venue"; it is "a hospitality business preparing and serving food, generating revenue through food and beverage sales." The premises are an operational input, named in passing; the trade is the service.

The six cases above cover most of the complications a founder will encounter in practice, but they are not exhaustive. Acquired-out-of-administration cases, foreign-domiciled parents, businesses with prior VCT or other state aid funding, recent investor secondaries, regulated financial services activities, and trades where the qualifying-or-excluded line genuinely turns on case-specific facts – each can need treatment beyond what a working summary supplies. Two further areas sit deliberately outside this Playbook's scope. The first is the body of anti-avoidance rules HMRC applies under the disqualifying-arrangements regime: circular funding patterns, replacement-capital structures, value-extraction planning, reciprocal investments, and arrangements whose main purpose is tax relief rather than enterprise capital. The second is investor-level eligibility: the 30 per cent connection test, paid director exceptions, associate and spouse attribution, business angel rules, and nominee or trust structures – each of which can disqualify an individual investor from claiming relief even where the company is fully eligible. Both areas are central to a complete SEIS or EIS analysis but each requires fact-specific legal review rather than founder self-help. The principle is to recognise when the case has moved past the heuristics rather than to fit it into them awkwardly.

If you have read the relevant edge case above and the answer to your situation is still ambiguous, the application is no longer a self-service exercise. The cost of professional advice is small relative to the cost of a refusal – and a refusal on a hard case is harder to come back from than a refusal on a clean one, because the second submission has to explain both the substantive position and what changed since the first attempt. The next section, on when to self-submit and when to get help, sets out the three tiers Seisly offers for exactly these situations. The point worth making here is structural rather than commercial: the Playbook has been written to equip a founder to handle clean cases. It does not pretend to equip a founder to handle every case.