UK scaleups should HMRC-proof their business plans before a slow, hot summer

News of the big tech valuation reductions in the U.S. might have you holding your breath as a startup founder. The change in narrative may suggest a slow summer ahead, and speculative investment will prove unpopular.

That said, KPMG’s latest venture capital report reveals a rich environment for British startups to succeed. Scaleups raised over £6.9 billion between January and March alone. Competition will be hot.

In response to this new environment, founders should do everything they can to make investment decisions easier for VCs and angels. In the U.K., the HMRC’s Enterprise Investment and Seed Enterprise Investment Schemes (SEIS and EIS) present one of the best ways to do this, as they offer tax-relief benefits to early-stage investors, which could give them the nudge to take the plunge.

That said, EIS and SEIS applications are no simple business. In fact, about 23% fail (in some years, it has been about 40%.) Because the funding comes from taxpayers’ money, HMRC is very careful about who it allows to use the schemes.

There’s no tricking a system only meant for those classified as “high-risk” businesses. As a result, you’ll need to prove your business is real, and as many forget, you’ll also need to present a strategy for success.

Your business plan will be the first place HMRC looks for this proof. Here’s how to prepare it ahead of an application.

Clarity is key

The first step to HMRC-proof your business plan is to present everything with perfect clarity. You should demonstrate an unerring ability to showcase market gaps and the potential solutions that might fill them. This is of especial importance in the current market.

As the application demands, founders must provide “details of all trading or other activities to be carried on by the company.” There’s no space to tip-toe around the fine details. HMRC will not be fooled. Avoid jargon, demonstrate how your business provides the solution to a problem in a clear and calculated way, and show how you plan to make money. Use evidence.

One of the most common reasons we see applications disqualified is “continuation of trade.” This refers to attempts to bypass SEIS eligibility, which involves a two-year age gap.

One group of Swedish founders we met wanted to scale their operation in the U.K. using SEIS. Their application failed (despite our 99% success rate) because HMRC discovered the company had operated for over two years, just under a different IP address. It’s for this exact reason HMRC demands such rigorous business plans from its EIS and SEIS applicants.

Certain other activities could also exempt you from the schemes — banking, insurance, money-lending, debt-factoring and hire-purchase financing, to name a few. Make sure you cover all bases. Only clear descriptions of your revenue streams will assure the people who assess your application.