KICs and EIS: What founders need to know

If you’re raising investment through the Enterprise Investment Scheme (EIS), then you may have come across knowledge-intensive companies (KICs). Knowing exactly what they are, and how they qualify, could revolutionise your raise, and change your growth plans and potential. 

For founders building businesses rooted in research, development, or technological innovation, this status could be a game-changer — allowing you to raise more money, from more investors, over a longer period. 

Quick note: you only need to apply as a KIC if you need the extra flexibility it offers — say, your company has been trading for more than seven years and wouldn’t qualify under standard EIS rules. Don’t worry, we’ll unpack all of that in more detail below.

But what actually qualifies a business as a KIC, why does this classification exist, and how can founders take advantage of it?

What is a KIC?

A knowledge-intensive company is a business that is recognised by HMRC as a company that has a particular focus on innovation, research, or technology. 

Although these are companies that might take longer to develop a product or generate revenue, they aren’t industry-specific, and could range from biotech companies developing research to IT companies building software.

Because of the extended research and development (R&D) timeframe these companies generally require, HMRC provides more flexibility around the standard rules set out under EIS, in terms of age, size, and how much they can raise.

In other words, KICs get more support and breathing room.

Why are KICs treated differently under EIS?

Innovation-driven companies are often high-risk but high-reward. They are essential in boosting the UK economy and influential in our standing in a global market, but can often take years to generate revenue or create a viable product. 

To encourage investors to back these businesses, and to support the companies themselves, the UK government has expanded the EIS eligibility criteria for KICs, so more are accepted into the investment scheme, so investors can receive the tax relief available.

EIS vs KIC: How the rules differ

It’s important to note that if you qualify for standard EIS, you don’t need to apply as a KIC. 

This pathway is only available to companies who exceed the regular EIS eligibility requirements, but would be included under the more broad requirements for a KIC.

What makes a company a KIC?

To be classed as a KIC, the company must satisfy all of the following criteria: 

1. Age or revenue criteria

As a KIC, you have a 10-year window to gain EIS. The point at which this starts can be:

• From your first commercial sale

OR

• From when your annual turnover surpassed £200,000 (if your first commercial sale was more than seven years ago).

2. Employee threshold

You must have fewer than 500 full-time equivalent employees

3. Operating costs condition

This ensures your business qualifies by investing enough money in research and development (R&D) or innovation. 

You must show that: 

• At least 15% of your operating costs were spent on R&D or innovation in any one of the last three years
  
  OR
  
  
• At least 10% per year over the last three years
  
  This can also be forward-looking if your business is under three years old (i.e. you plan to meet these criteria over the next three years).

• The skilled employee condition: At least 20% of your workforce must be carrying out R&D, and hold a relevant master’s degree or higher. This work needs to continue for three years post-investment.
  
  
• The innovation condition: You must be developing IP, and expect that to become the company’s main source of income over the next 10 years.

You only need to meet one of those two.

What counts as R&D or innovation?

Whilst you naturally might picture science labs and petri dishes when thinking about R&D and innovation, the scope for what’s included is surprisingly broad. 

HMRC wants to see that your work is novel, technically challenging, and aimed at solving problems, and that you’re actively investing resources into this work. 

Even if you’re not strictly in tech or science, you may still qualify if innovation is central to the work you do.

How to apply for EIS as a KIC

Applying as a KIC should only be done if you exceed the standard EIS criteria, and require the broader eligibility rules set out under KICs to qualify. 

In addition to the standard advance assurance application, you’ll also need to supply: 

• Evidence of your R&D spend over time
  
  
• Employee role descriptions and qualifications
  
  
• Plans displaying how your IP will generate revenue
  
  
• A detailed breakdown of how you meet the criteria

Different businesses will have varying weightings on the above, dependent on how the business operates. It’s important to understand what you are expected to prove in order to qualify, especially as your business grows.

Learn more

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