No. Claiming an R&D tax credit, under the merged scheme or ERIS, does not disturb a company’s EIS or SEIS status, or the standing of its shares as a VCT qualifying holding. Those schemes test what a company does and how big it is: its trade, its activities, its assets, its age, its headcount. A credit paid by HMRC is a tax receipt, not an activity, and none of the conditions a company has to meet turns on whether it claims R&D relief. Research and development is itself one of the activities EIS and SEIS money may be raised for.
Does a payable credit affect the qualifying trade test?
No, because that test asks what a company does, not what it receives. An EIS or SEIS company must exist wholly, ignoring incidental purposes, to carry on one or more qualifying trades — or, where it is a parent company, its group’s business must not be substantially made up of non-qualifying activities. For SEIS the trade must also have begun within the three years before the share issue, and be the company’s first. A qualifying trade is one conducted on a commercial basis and with a view to the realisation of profits, and not wholly or substantially in excluded activities. That list is exhaustive and specific — dealing in land or financial instruments, banking, leasing, property development, farming. Receiving a tax credit is not on it. HMRC judges the test by what directors and employees actually do: its manual says a new company setting up a trade does not fail merely because it is not yet trading, with much of its money temporarily on deposit.
One entry on that list bears on R&D-led companies: a trade consisting to a substantial extent in receiving royalties or licence fees is excluded, unless the fees are attributable to intangible assets of which the company, or a qualifying subsidiary, created the greater part by value. A biotech licensing out a compound it discovered itself is inside that carve-out; one licensing in and sub-licensing is not.
Can EIS or SEIS money be raised for the research itself?
Yes — and that is the strongest answer to the question in the title. Both schemes define the activity money may be raised for as carrying on a qualifying trade, or preparing to carry one on, or carrying on research and development from which the company intends that a qualifying trade will be derived, or which will benefit a qualifying trade it carries on or will carry on. The research has to be under way when the shares are issued, or begin immediately afterwards. A pre-revenue company with no sales can take EIS or SEIS money for the science.
Which limb the money is raised under matters, because the money must then go to that activity and nothing else — within two years of the share issue for EIS, and within three years for SEIS. HMRC’s manual states plainly that preparing to carry on a trade does not cover research and development, an activity in its own right. So a development programme is funded on the research limb, not by presenting the same spend as trade preparation.
Venture capital trusts are drafted differently: for a VCT qualifying holding the activity is carrying on a qualifying trade, or preparing to carry one on, with no research and development limb. A company raising VCT money on a research programme alone therefore has less room, which is worth settling with the fund before terms are agreed. Whether R&D relief is available before trading begins is a separate question: who can claim R&D tax relief sets out the ERIS pre-trading election, the only route to it.
Where does R&D spending change an EIS or VCT outcome?
In the knowledge-intensive tests, where it helps. A knowledge-intensive company must have fewer than 500 full-time equivalent employees rather than fewer than 250, gets a ten-year window from first commercial sale rather than seven, and faces higher investment limits. To get there it must meet an operating costs condition — at least 15% of relevant operating costs spent on research and development or innovation in one of the three preceding years, or at least 10% in each — and either an innovation condition or a skilled employee condition. HMRC’s guidance lets a company use the qualifying expenditure from its R&D claim as the measure of that spend, provided every company in the group is treated the same way. The cost schedule behind an R&D claim does double duty; a company that has never claimed has to build that figure from scratch.
Gross assets are the one place the credit itself is counted. The cap applies immediately before the share issue, on everything that would appear on a balance sheet drawn up at that moment, with no deduction for liabilities. A payable credit counts, whether debtor or cash. For EIS and VCT the ceiling — £30 million immediately before the issue and £35 million immediately after, for shares issued from 6 April 2026 — is high enough that this rarely bites. For SEIS it can: the limit is £350,000, so a credit landing the week before a seed round is worth planning around.
The risk-to-capital condition sits outside all of this. Its factors include the nature of a company’s sources of income, and HMRC’s concern there is assured income streams making up a significant part of a company’s revenue; neither the legislation nor the guidance addresses R&D tax credits.
Does an EIS or SEIS raise reduce the R&D claim?
No. The subsidised expenditure rules were not carried into the merged scheme for accounting periods beginning on or after 1 April 2024, and grant funding no longer reduces relief either. Those rules, while they ran, reached grants, subsidies and expenditure met by another person — what subsidised expenditure means works through the three limbs for a period that began before that date.
The raise can still change the answer by a different route. ERIS is open to SMEs only, and an investor crossing 50% becomes a linked enterprise whose headcount, turnover and balance sheet come in whole — how linked and partner enterprises affect an R&D claim sets out the carve-out that keeps most venture-backed companies inside the definition.
The two regimes meet on paper at advance assurance, where an application asks for the business plan, the financial forecasts and details of every activity with the expected spend on each. A company whose runway depends on R&D credits will show them there. It is a separate service from advance assurance for an R&D claim.
Sources
- ITA 2007 s179 (EIS) and s257HG (SEIS) — a qualifying business activity is carrying on or preparing to carry on a qualifying trade, or carrying on research and development from which it is intended that a qualifying trade will be derived, or which a qualifying trade will benefit; the research must be under way when the shares are issued, or begin immediately afterwards.
- s175 and s257CC with s257AC — the money raised must be employed wholly for the qualifying business activity within two years of the share issue for EIS, and spent for it before the end of the three-year period B for SEIS.
- s181, s189 and s257DA — the trading requirement, and a qualifying trade as one conducted on a commercial basis and with a view to the realisation of profits, not wholly or substantially in excluded activities; s257HF adds, for SEIS, that the trade must be new.
- s192 and s195 — the excluded activities list, and the carve-out where royalties or licence fees are attributable to intangible assets the greater part of which, by value, was created by the issuing company or a qualifying subsidiary.
- s290 and s291 — for a VCT qualifying holding the qualifying activity is a qualifying trade carried on or being prepared for; there is no research and development limb.
- s186, s297 and s257DI — gross assets: £30 million immediately before and £35 million immediately after the issue, for EIS shares and VCT qualifying holdings issued on or after 6 April 2026 (£15 million and £16 million before that date, and still for a specified Northern Ireland company); £350,000 immediately before the issue for SEIS, for shares issued on or after 6 April 2023.
- s252A (EIS) and s331A (VCT) — knowledge-intensive company: 15% of relevant operating costs on research and development or innovation in one of the three relevant preceding years or 10% in each, plus the innovation or skilled employee condition; with s186A and s297A requiring fewer than 500 full-time equivalent employees against 250, and s175A and s294A giving a ten-year initial investing period against seven.
- s157A and VCM8542 — the risk-to-capital condition and the factors taken into account, including the nature of a company’s sources of income and how assured they are.
- VCM12110 — preparing to trade does not cover research and development, which is a qualifying business activity in its own right; and VCM13050 — a new company setting up a trade does not fail the trading requirement merely because a large part of its funds is temporarily held on deposit.
- VCM13110 — gross assets are all the assets that would be shown on a balance sheet drawn up at that time, without deduction for liabilities.
- VCM8163 and VCM8164 — the operating costs conditions, what counts as operating costs, and that a company may instead use the qualifying expenditure from an R&D tax credit claim, on the same basis for every company in the group.
- Apply for advance assurance on a venture capital scheme — the business plan and financial forecasts, and details of all trading and activities and the expected spend on each.
- Merged scheme RDEC reform (policy paper) — the subsidised expenditure rules were not carried forward into the merged scheme, for accounting periods beginning on or after 1 April 2024.
This page describes the rules as they stood at the review date above, as general information rather than advice on your circumstances. For how that distinction works, see our terms; for an answer on your own facts, talk to us.