What does HMRC mean by Trading, Date of Trading, and a New Qualifying Trade?
What is trading?
Before you can submit your Advance Assurance Application you need to find out when you actually started to trade.
Frustratingly there is no clear definition of trading aside from the general observation that it would involve “undertaking activities with a view to a profit”. HMRC use the analogy of a shop: if you have something on the shelf that someone could buy even if they don’t, you can turn the sign to ‘Open’ and that’s you trading.
When did I start trading?
To qualify for SEIS, the date you started trading must be within 2 years of the date of issue of the SEIS shares. For EIS share issue the time limit is 7 years from the date of first commercial sale (please note this is not the date of first trade), and for a Knowledge Intensive Company the time limit moves up to 10 years.
Therefore, you need to quantify the date you started trading as per the slightly ambiguous definition above. To help you, it is important to note, this start date of trading will always be before (or most often equal to) the date you first received revenue. On the Advance Assurance Application Form, for EIS applications, it actually asks for the Date of First Commercial Sales. This date indicates your start of trading and it is something that needs to be consistent throughout your application form, business plan, financial forecast, and bank statements/accounts. It is also important to note, the date you start trading will almost always be different to the age of the Company (the date of incorporation). And if you haven't started trading yet then great! You will just have to demonstrate this in the documents attached to your application
Careful! If you are running consultancy work through the Company to help keep the lights on, HMRC may see this as a trading even though the product isn’t ready, as revenues will show on your financials.
What counts as a "new qualifying trade"?
The SEIS regime includes rules to prevent structures that circumvent the core requirement which is “the Company raising the capital must be a genuine start-up”. A new qualifying trade is defined as a trade that has not been carried out by the company, or any other person or Company, for longer than 2 years at the date of issue of the shares.
This means if the trade was operating in a different company and you have bought the intellectual property of that company to develop it further and even take it to market, then you need to ensure that it still satisfies these time limit rules. The time limit for SEIS/EIS eligibility refers to the trade and not the company, the start of trade date doesn’t reset when you transfer the intellectual property.
For example, if you buy a marketplace platform that has customers trading on the platform and therefore has produced revenue prior to you buying the platform, then the start date of trading will be taken as the date the platform facilitated its first sale, not the date you bought the marketplace platform!