Section I of 8
Why most rejections happen
The reasons are fewer than you think, and almost all of them are avoidable.
HMRC does not publish refusal data for advance assurance applications. From the outside, the decision can feel arbitrary – a long wait, then a one-paragraph letter, often citing a single test the founder had not realised was in play. In practice, the reasons cluster tightly. Six recurring patterns account for the great majority of refusals: excluded activities, non-qualifying use of proceeds, problematic share terms, weak risk-to-capital narratives, control and independence drift, and document inconsistencies.
None of these are technicalities. Each is grounded in a specific HMRC test, set out in the Venture Capital Schemes Manual. Each can be diagnosed in advance.
And each can be either corrected, or – where the underlying facts do not allow correction – presented in a way that addresses HMRC's concern head-on, rather than hoping the caseworker does not notice.
The six patterns, in rough order of frequency
iAn excluded activity disclosed inadvertently
Usually in the pitch deck or business plan, not the application form. A passing reference to royalties, property income, leasing, or financial trading can take a borderline case off the table.
iiUse of proceeds that reads as acquisition or debt repayment
HMRC funds must be used for the growth and development of a qualifying trade. "We'll use the funds to buy out an early investor" or "to pay down a director loan" is, in the official phrasing, a non-qualifying purpose.
iiiShare terms with preferential rights, redemption, or pre-arranged exit
Investor-friendly terms common in venture deals – liquidation preferences, redemption rights, drag-along structured as a put – can disqualify shares from being SEIS or EIS-eligible without the founder realising.
ivA risk-to-capital narrative that is generic or contradicted elsewhere
HMRC reads the risk-to-capital condition as a substance test, not a box-tick. A boilerplate paragraph, or one that contradicts the financial model, will be read as the application not meeting the spirit of the scheme.
vA control or independence position that has changed since incorporation
A holding company introduced for tax planning, a parent that took control in a previous round, a director who is also the controlling shareholder of a related entity – all of these can defeat the independence test even when the company itself looks clean.
viDocument inconsistencies that contradict the founder's own answers
A trade described one way in the application, another way in the pitch deck, and a third way in the articles. HMRC reads everything you send, looks for the inconsistencies, and treats them as the most honest version of what you've said.
How HMRC actually reads an application
It helps to picture the process from the other side of the desk. An HMRC caseworker in the Venture Capital Reliefs team typically reviews several applications per day. They read the covering letter first, the application form second, and the supporting documents only as far as needed to corroborate or contradict what the first two have already told them.
That order matters. A covering letter that lands the qualifying conditions cleanly – naming the trade, the use of proceeds, the share class, the risk-to-capital position, the independence position – sets the reading frame for everything that follows. A covering letter that is vague, generic, or focused on the founder's story rather than the qualifying conditions forces the caseworker to reconstruct the case from the documents. They will, but they will be looking for the gaps as they go.
The pitch deck is where most cases are lost. It is not part of the formal application, but HMRC reads it, and they read it with a different lens than the investor it was written for. A line about an acquisition strategy reads to an investor as ambition; to a caseworker, it reads as a non-qualifying use of proceeds. A line about a recurring royalty stream reads to an investor as recurring revenue; to a caseworker, as a flag against the excluded-activities test. Concretely: a slide titled "Phase 2: roll-up acquisitions funded by future rounds" reads to an investor as a credible growth strategy. To a caseworker, the same slide reads as a planned non-qualifying use of any funds raised under SEIS or EIS. The phrase has not changed. Only the reader has.
Patterns and tests are not the same thing
The six patterns are how refusals show up in the real world. The nine tests are how HMRC reasons internally. The rest of this Playbook walks the nine tests in turn, and shows which patterns each one catches.
You can read it cover to cover, or read the sections most relevant to your company. Either way, do not submit before you have read all nine.
The investor reads your deck for the opportunity. HMRC reads it for the disqualifications. You should read it for both.