2.3 How and when money raised by the share issue must be used

The money raised by the share issue can be used either for the purpose of an existing qualifying trade or for the purpose of preparing to carry on such a trade, providing the trade, or the preparation for it, is carried on wholly or mainly in the UK. If the company is preparing to trade, the trade must start within two years of the shares being issued.

Alternatively it can be used to carry on research and development intended to lead to such a qualifying trade being carried on.

The money raised by the share issue must also be employed for the purposes of the trade or research and development within certain time limits. At least 80 per cent of it must be employed within 12 months of the shares being issued (or the trade commencing if that is later). And the remainder must be employed within the next 12 months.

If these requirements are not met then the investors will not be eligible for relief on the cost of their shares, and any relief given will be withdrawn. It is therefore important that companies do not raise money under the EIS unless they are reasonably confident of meeting these requirements.