Section II of 8
Test 1: Trade type and the excluded-activities test
Test one · high leverage. Whether your company carries on a qualifying trade, and whether any part of what it does falls inside the list of excluded activities HMRC will not fund.
What the test is for
SEIS and EIS exist to channel risk capital into small trading companies. The schemes are explicit about which trades count and which do not. The qualifying trade definition is broad – most genuinely trading companies meet it – but the list of excluded activities is specific, and any substantial element of an excluded activity inside a company's trade is enough to disqualify the whole company from the scheme.
The threshold is "substantial", not "any". An incidental excluded element – a small ancillary revenue line, a side use of premises, a one-off royalty receipt – is usually acceptable if it can be quantified and shown to be a minor part of what the company does. Founders routinely misread "any mention" as fatal. It is not. What is fatal is an excluded activity that is, or could become, a meaningful part of the trade and that has not been addressed in the application.
The excluded list runs to around twenty categories. The ones founders most often trip on are: dealing in land, commodities, futures or financial instruments; banking, insurance, and money-lending; legal and accountancy services; property development; operating or managing hotels, nursing homes, or residential care; farming and market gardening; forestry and timber production; ship-building; coal and steel; receiving royalties or licence fees, unless those royalties arise from the company's own qualifying intellectual property; and the generation, export, or supply of electricity, heat, or fuel that attracts a public subsidy.
How HMRC reads for it
The application form asks you to describe your trade in your own words. HMRC reads that description, then reads your business plan and pitch deck against it, looking for words and concepts that map to the excluded list. They are not looking for an exact match. They are looking for a substantial element. The threshold is whether the excluded activity, if pursued at scale, would amount to more than a trivial part of what the company does.
The most common failure mode is a founder who genuinely runs a qualifying trade but whose pitch deck or business plan mentions an excluded activity as a side stream. A SaaS company that mentions taking a share of payment processing volume as a revenue line. A media company that mentions licensing its brand for royalties. A wellness brand that mentions buying and developing a retreat property. None of these necessarily disqualifies the company on the facts. All of them disqualify the application as written.
What good looks like
A trade description that names the qualifying activity in plain English, states what the company sells and to whom, and explains how it makes money in a sentence the caseworker can match against the qualifying trade definition without reaching for the manual. If your business has a side stream that is or could be read as excluded, address it directly: name it, quantify it (in percentage of revenue terms), and explain why it is incidental rather than substantial.
Common failure modes
The royalty trap.
Royalty income is excluded unless it derives from intellectual property the company has itself created. A media company licensing third-party IP for royalties is excluded. A software company licensing its own platform is not – but the application has to say so explicitly.
The property-adjacent trap.
Operating premises (a coworking space, a clinic, a retreat) is excluded if the trade is the operation of the property. The same activity is qualifying if the trade is the service delivered from the premises. The line is real but invisible to most founders, and depends on how the trade is described.
The financial services drift.
A fintech that "facilitates payments" or "offers credit" reads as money-lending or financial services unless the language is precise about what the company actually does – provides software, takes per-transaction software fees, never holds client money.
The marketplace/agency ambiguity.
Many marketplaces describe their model as "taking a percentage of each transaction." That phrase reads to HMRC as either a financial intermediary or a dealer in goods, depending on context. The qualifying framing is "subscription" or "platform fee", paid by the operator of the listing rather than the buyer. A rewrite that works: "the company licenses its marketplace platform to independent vendors on a flat monthly subscription, with a usage-based fee component tied to listing volume rather than transaction value."
The energy subsidy line.
Any company that generates, exports, or supplies electricity, heat, or fuel and expects to receive a public subsidy (Feed-in Tariffs, Renewable Heat Incentive, Renewables Obligation Certificates and the like) is excluded for that part of the trade. A clean-tech company that sells equipment is fine. One that operates installations and harvests subsidy is not.
An edge case worth naming
Knowledge-Intensive Companies (KICs) get a different EIS treatment – older trading age, more headroom on raise limits, more permissive on operating costs going into proceeds. KIC status has its own tests (R&D spend thresholds, skilled employee ratios, innovation criteria) and is worth claiming if you meet them. But KIC status does not soften the excluded-activities test. A KIC carrying on an excluded activity is still excluded.
The trade is not what your company does. The trade is what your company says it does, on the page.