EIS: over-6-month ASA longstop alone will not kill relief

An advance subscription agreement (ASA) with a longstop date beyond six months is not automatically shut out of Enterprise Investment Scheme relief. HMRC's Venture Capital Schemes Manual now states that where shares are subsequently issued under an ASA and a compliance statement (EIS1) is submitted, the existence of a longstop date exceeding six months will not, of itself, mean the investment is ineligible for EIS relief.GOV Eligibility is assessed on the ASA's terms against the scheme requirements and the manual guidance.

The six-month expectation itself is unchanged. As a general rule HMRC expects the longstop date, by which the subscribed shares must be issued, to be no more than six months from the date the ASA is entered into.GOV ASAs exist to get funds into a company quickly when the share value cannot readily be fixed, so that shares can be issued within a relatively short period; the longer the gap, the greater the risk the arrangement no longer operates as a simple advance subscription for shares issued for the growth and development of the trade. The manual restates that risk analysis as the rationale for the six-month yardstick.

The suitability conditions are likewise unchanged. HMRC will not regard an ASA as suitable for the EIS unless the subscription cannot be refunded in any circumstances, the agreement cannot be varied, cancelled or assigned, it bears no interest, and it sets a longstop date for issue. The payment must be a genuine advance subscription, not in effect a loan, and an ASA used wholly or partly to convert a debt or other obligation into shares is not eligible. The company must show how the timing and terms fit its business plan and planned growth expenditure.

What the revision separates is advance assurance from final eligibility. A company seeking assurance should apply before the ASA is entered into; the service is discretionary and non-statutory, and assurances are not a precondition for reliefGOV. For assurance purposes HMRC remains unlikely to give an assurance where the longstop exceeds six monthsGOV, because conditions anticipated at signing may not reflect true conditions at issue, and it will give no further assurance on post-assurance changes to an agreement — those are considered when the EIS1 is submitted. At that compliance stage, however, the over-six-month longstop is now only one factor in the assessment, not a standalone bar.GOV Relief remains available only from the date of the share issueGOV, and the EIS1 should not be submitted before then.

Legal basis: HMRC Venture Capital Schemes Manual at VCM12025 (advance subscription agreements); Enterprise Investment Scheme income tax relief requirements.