2.4 Trading activities

The trade must be conducted on a commercial basis with a view to the realisation of profits.

Most trades qualify, but some do not. Those that do not are termed 'excluded activities' and are:

  • dealing in land, in commodities or futures in shares, securities or other financial instruments
  • dealing in goods, other than in an ordinary trade of retail or wholesale distribution
  • financial activities such as banking, insurance, money-lending, debt-factoring, hire-purchase financing or any other financial activities
  • leasing or letting assets on hire, except in the case of certain ship-chartering activities
  • receiving royalties or licence fees (though if these arise from the exploitation of an intangible asset which the company itself has created, that is not an excluded activity)
  • providing legal or accountancy services
  • property development
  • farming or market gardening
  • holding, managing or occupying woodlands, any other forestry activities or timber production
  • shipbuilding
  • coal production
  • steel production
  • operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment
  • operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home
  • providing services to another person where that person's trade consists, to a substantial extent, of excluded activities, and the person controlling that trade also controls the company providing the services

A company can carry on some excluded activities, but these must not be 'substantial' part of the company’s trade. HM Revenue & Customs take 'substantial' to mean more than 20 per cent of the company’s activities.

There is no requirement that the qualifying company is resident in the UK, but for shares issued on or after 6 April 2011, the company must have a ‘permanent establishment’ in the UK.

If the company fails to meet these requirements throughout the period referred to at paragraph 1.2.1, relief will be withdrawn from investors.

Please note that companies that have raised money under the Scheme are required by law to inform their Small Company Enterprise Centre (SCEC) office (see paragraph 2.5) if they fail to meet any of the above requirements, or an investor 'receives value' (see Part 1) from the company or an associate, within 60 days of the event which led to that failure.