Knowledge-intensive companies have received a boost in the Autumn Budget – annual investor limits have increased up to £2 million provided that £1 million is directed into these companies. This is in addition to the existing extended limits for investee businesses that are knowledge-intensive, that include being able to raise a total qualifying investment of £20 million rather than the normal limit of £12 million and the employee workforce being up to 500 rather than 250.
In light of these enhancements we thought it would be helpful to recap what a knowledge-intensive company is.
Two conditions must be met for a company to qualify as ‘knowledge-intensive’. The first condition is operational expense and must always be met. The second can be achieved either through the innovation condition or skilled employee condition
1) Operational cost condition – compulsory requirement
To meet the operational cost requirement, the company must demonstrate either one of the following:
• At least 15% of the company’s operational costs have been spent on research and development (R&D) or innovation in at least one of the previous three years.
• At least 10% of the company’s operational costs have been spent on R&D or innovation in each of the three previous years.
The second and third conditions, of which only one needs to be met alongside the operational cost condition, are:
2) Innovation condition
This requires that the company is creating or in the process of creating intellectual property.
3) Skilled employee condition
This sets out that at least 20% of the company’s employees hold higher education qualifications (i.e. masters or higher) and are directly involved in the company’s R&D.
Knowledge-intensive companies are predominately higher value-add, through the enhancements to investor and investment limits, the UK government is enabling these companies to continue to benefit from risk-capital further into their business development, giving them a better chance of building the UK business champions of tomorrow.
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