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What is Qualifying Trade (SEIS/EIS)?

A qualifying trade is a trade that is eligible for SEIS and EIS tax relief. The legislation works on an exclusion basis: most trades qualify unless they are on the list of specifically excluded activities such as property development, financial services, and legal or accountancy services.

Example

A SaaS company building project management software is a qualifying trade. A property development company buying land to build houses is an excluded trade. A company that provides IT consulting (80%) and also owns some rental property (20%) may struggle because the non-qualifying part is on the borderline of being substantial.

How Qualifying Trade (SEIS/EIS) Works in Practice

The qualifying trade requirement is one of the most important conditions for both SEIS and EIS. It determines whether a company's core business activity makes it eligible to raise investment under these schemes. The rules are set out in the Income Tax Act 2007 and are interpreted by HMRC through their Venture Capital Schemes Manual.

The legislation uses a negative list approach. Rather than specifying which trades qualify, it lists trades that are excluded. If your trade is not on the excluded list, it qualifies. The excluded trades are: dealing in land, in commodities or futures, in shares, securities, or other financial instruments; dealing in goods otherwise than in the course of an ordinary trade of retail or wholesale distribution; banking, insurance, money-lending, debt-factoring, hire-purchase financing, or other financial activities; leasing or receiving royalties or licence fees (as the main activity); providing legal or accountancy services; property development; farming or market gardening; forestry or timber production; operating or managing hotels, guest houses, or similar establishments providing accommodation; operating or managing nursing homes or residential care homes; coal or steel production; shipbuilding; and generating energy where the company receives subsidies such as Feed-in Tariffs, Contracts for Difference, or Renewable Obligation Certificates.

The qualifying trade must be carried on commercially and with a view to making a profit. A hobby or non-commercial activity does not qualify, even if it is not on the excluded list. The company must also have a permanent establishment in the UK, though it can trade internationally. If the company has not yet started trading but is preparing to do so, it can still qualify provided it begins trading within 2 years of the relevant share issue.

For companies with mixed activities, the key question is whether the non-qualifying activities form a 'substantial' part of the overall trade. HMRC generally interprets 'substantial' as 20% or more. This is assessed by looking at several factors including revenue, time, costs, and assets employed. If less than 20% of the overall business relates to excluded activities, the company should still qualify.

Step by Step

When a company applies for advance assurance, HMRC's Small Company Enterprise Centre reviews the description of the trade to determine whether it qualifies. They look at what the company actually does (not just what it says in its articles of association or SIC code), how it generates revenue, and whether any excluded activities form a substantial part of the business.

For straightforward cases such as a technology company, manufacturing business, or retail operation, the qualifying trade test is easily met. For businesses that operate near the boundaries of excluded activities, HMRC may ask detailed questions. For example, a property technology company might need to demonstrate that it provides software services rather than engaging in property development. A financial technology company might need to show it provides technology to financial services firms rather than providing financial services itself.

Practical Tips

If your trade is near the boundary of an excluded activity, prepare a detailed note for HMRC explaining exactly what your company does and why it qualifies, referencing specific HMRC guidance
Review the HMRC Venture Capital Schemes Manual (VCM30020) for detailed examples of what HMRC considers qualifying and non-qualifying trades
If you have multiple revenue streams, keep records of the revenue, costs, time, and assets attributable to each, so you can demonstrate the non-qualifying proportion is below 20%
Consider restructuring mixed-trade businesses so that the qualifying and non-qualifying activities are in separate companies, allowing the qualifying company to raise SEIS/EIS investment
Get your qualifying trade analysis confirmed by a tax adviser before applying for advance assurance, particularly if your business model is unusual or innovative

Common Mistakes to Avoid

Assuming your trade qualifies without checking the excluded list, particularly for businesses near the boundaries such as property tech, fintech, or energy companies
Not considering that letting or licensing intellectual property as the main activity is an excluded trade, which can catch companies that primarily earn royalties
Failing to account for the 20% substantial test when a company has both qualifying and non-qualifying revenue streams
Confusing the SIC code registered at Companies House with the qualifying trade test - HMRC looks at actual activities, not the registered code
Not documenting the qualifying trade analysis for HMRC, especially for businesses that could be seen as borderline

Frequently Asked Questions

Is software development a qualifying trade?

Yes. Software development, SaaS businesses, technology companies, and IT services are all qualifying trades and are among the most common types of business raising SEIS and EIS investment. The trade must be genuinely commercial and carried on with a view to profit.

My company does consulting and some property letting. Does it qualify?

It depends on the proportion. If the property letting is less than 20% of overall activity (measured by revenue, time, assets, and costs), the company should still qualify. If property letting is a substantial part of the business (20% or more), the company will not qualify. Consulting services themselves qualify as long as they are not legal or accountancy services.

Can a company that is not yet trading qualify?

Yes. A company that is preparing to carry on a qualifying trade can qualify, provided it actually begins trading within 2 years of the relevant share issue. Research and development activity before launching a product counts as preparing to trade.

Does my company need to trade in the UK?

The company must have a permanent establishment in the UK, but it can trade internationally. A UK company that sells globally qualifies. A company with no UK presence and no UK permanent establishment does not, even if its trade would otherwise be qualifying.

What about energy companies?

Energy generation is excluded only where the company receives subsidies such as Feed-in Tariffs, Renewable Obligation Certificates, or Contracts for Difference. An energy company that does not receive such subsidies, or one that provides energy technology or services rather than generating energy itself, can qualify.

Source: HMRC VCM30020 - Qualifying Trades

SEIS is a UK government scheme that offers investors 50% income tax relief, CGT exemption, and loss relief when they invest in qualifying early-stage companies. Companies can raise up to £250,000 under SEIS.

EIS (Enterprise Investment Scheme)

EIS is a UK government scheme that offers investors 30% income tax relief, CGT deferral, CGT exemption after 3 years, and loss relief when they invest in qualifying companies. Companies can raise up to £5 million per year under EIS.

SEIS/EIS Advance Assurance

Advance assurance is a confirmation from HMRC that a company should meet the conditions for SEIS or EIS, based on the information provided. It gives investors confidence that their investment will qualify for tax relief before they commit their money.

Knowledge-Intensive Company (KIC)

A knowledge-intensive company (KIC) is a company that meets specific criteria around research and development spending and skilled workforce, qualifying it for enhanced EIS limits: up to £10 million per year (vs £5m standard), £20 million lifetime (vs £12m), and £2 million per investor per year (vs £1m).

SEIS3/EIS3 Compliance Certificate

An SEIS3 or EIS3 compliance certificate is a document issued by HMRC to individual investors confirming that the shares they purchased qualify for SEIS or EIS tax relief. Investors need this certificate to claim income tax relief on their Self Assessment return.

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