Advance subscription agreements

Q: When is relief available and what about advance assurance?

Relief starts at issue. SEIS or EIS relief is only available from the date the shares are issued, and the compliance statement (SEIS1 or EIS1) should not be submitted before that date. Paying under the ASA earlier does not bring relief forward. Apply for assurance first. If the company wants advance assurance, HMRC says it should apply before the ASA is entered into. Advance assurance is a discretionary, non statutory service and is not compulsory. No second opinion on changes. Once assurance has been given and the ASA signed, HMRC will not give further assurance on proposed changes; it will look at them only when the compliance statement is submitted. Before applying, the company must be registered with HMRC and have a Unique Taxpayer Reference, which goes on the application with its company registration number (VCM60020). The scheme limits and investor reliefs are covered in Seed Enterprise Investment Scheme and Enterprise Investment Scheme.

Q: How does an ASA work in practice?

Illustration only. A pre revenue company obtains SEIS advance assurance covering a proposed ASA, then signs it with three angel investors who pay £60,000 in total. The ASA has no refund right, no interest, cannot be varied or assigned and has a long stop date five months later. If a round completes at £2.00 a share, the investors receive shares at the round price less a 10% discount, £1.80, giving 33,333 shares in total. If no round happens, the shares are issued on the long stop date at a price based on the fallback valuation. Either way the shares are ordinary shares, the company files the SH01 and then submits the SEIS1 after the issue.

Q: What mistakes come up most often?

A refund clause. Even a refund if the round fails takes the ASA outside HMRC's conditions. A long stop date beyond six months. It makes advance assurance unlikely. Converting existing loans through an ASA. HMRC treats this as ineligible. Issuing preferred shares at conversion. The shares must meet the ordinary share conditions of the scheme. Varying the ASA later. Changes after signature are outside HMRC's conditions and outside the assurance already given. Filing the compliance statement too early. It cannot be submitted before the shares are issued. Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant's fees with Solar Protect. Read how our cover works or get a quote.

An advance subscription agreement (ASA) is a contract under which an investor pays money to a company now in return for shares issued later, usually at the price of the next funding round less a discount, or on a fixed long stop date if no round happens. Unlike a convertible loan, the money is never repayable, which is why HMRC will accept an ASA for SEIS or EIS if its terms are simple, carry no interest, cannot be refunded or varied and set a long stop date that HMRC generally expects to be no more than six months away.

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What is an advance subscription agreement?

HMRC’s Venture Capital Schemes Manual describes ASAs as a way to raise funds quickly at a time when the value of shares cannot easily be ascertained (VCM12025 for EIS and VCM33025 for SEIS). The investor pays the subscription money into the company at an early stage, and the shares are issued at a later date.

The key difference from a convertible loan note is that the investor is not a creditor. There is no loan, no interest and no right to be repaid. The investor has paid for shares in advance and is waiting for them to be issued.

How is the share price set?

The ASA defines the events on which shares are issued and the price for each:

A qualifying round. If the company completes an equity round before the long stop date, the ASA money is converted into shares at the round price, often reduced by a discount.
An exit or insolvency event. Some ASAs provide for issue just before a sale or winding up, at a stated price.
The long stop date. If nothing else has happened, the shares are issued on that date at a fallback price, commonly worked out from a stated valuation.

Discounts and valuation caps are common in the market, but HMRC expects ASA terms to be simple, says that more complex agreements carry a higher risk that the scheme rules will not be met, and says that an ASA must not function as an investment instrument offering other benefits, such as investor protection. Every extra feature is therefore a point HMRC may question.

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What conditions does HMRC apply for SEIS and EIS?

HMRC will not consider an ASA suitable for SEIS or EIS unless the agreement:

does not permit the subscription payment to be refunded in any circumstances;
cannot be varied, cancelled or assigned;
bears no interest; and
has a long stop date by which the shares must be issued.

HMRC also says the payment must not in effect be a loan, and that an ASA used wholly or partly to convert a debt or other obligation into shares will not be eligible. The company must be able to show how the timing and terms of the ASA fit its business plan and planned spending on growth and development.

The ASA has to deliver shares that themselves qualify. For both schemes the shares must be ordinary shares without preferential rights to assets on a winding up, without a right to be redeemed and without the kinds of preferential dividend right described in the legislation (section 173(2) of the Income Tax Act 2007 for EIS, section 257CA(2) for SEIS). They must also be subscribed wholly in cash and fully paid up when issued. An ASA that converts into a preferred class with a liquidation preference therefore fails, however tidy the rest of the drafting.

Why does the long stop date need to be short?

HMRC says that, as a general rule, it expects the long stop date to be no more than six months from the date the ASA is entered into, and that where it is longer HMRC is unlikely to give advance assurance. Its reason is that conditions expected when the ASA is signed are less likely to reflect the true conditions when the shares are eventually issued, and the qualifying tests are applied at that later date.

That is why the fallback valuation at the long stop date needs real thought. If the round has not happened by then, the shares are issued at the fallback price and the investor becomes a shareholder on those terms.

When is relief available and what about advance assurance?

Relief starts at issue. SEIS or EIS relief is only available from the date the shares are issued, and the compliance statement (SEIS1 or EIS1) should not be submitted before that date. Paying under the ASA earlier does not bring relief forward.
Apply for assurance first. If the company wants advance assurance, HMRC says it should apply before the ASA is entered into. Advance assurance is a discretionary, non statutory service and is not compulsory.
No second opinion on changes. Once assurance has been given and the ASA signed, HMRC will not give further assurance on proposed changes; it will look at them only when the compliance statement is submitted.

Before applying, the company must be registered with HMRC and have a Unique Taxpayer Reference, which goes on the application with its company registration number (VCM60020). The scheme limits and investor reliefs are covered in Seed Enterprise Investment Scheme and Enterprise Investment Scheme.

What company law and accounting points arise?

An ASA commits the company to issue shares, so treat it as the grant of a right to subscribe. Directors need authority under section 550 or section 551 of the Companies Act 2006 before granting such a right (section 549), and the grant of a right to subscribe for ordinary shares counts as an allotment of equity securities for pre emption purposes (section 560), so pre emption rights must be offered or disapplied. When the shares are issued, a return of allotment is due within one month (section 555); see allotting shares.

For the accounts under FRS 102, paragraph 22.3 defines a financial liability to include a contract under which the company is or may be obliged to deliver a variable number of its own shares. Where the number of shares depends on a future round price, the ASA is likely to fall within that definition until the shares are issued, even though the money will never be repaid.

How does an ASA work in practice?

Illustration only. A pre revenue company obtains SEIS advance assurance covering a proposed ASA, then signs it with three angel investors who pay £60,000 in total. The ASA has no refund right, no interest, cannot be varied or assigned and has a long stop date five months later. If a round completes at £2.00 a share, the investors receive shares at the round price less a 10% discount, £1.80, giving 33,333 shares in total. If no round happens, the shares are issued on the long stop date at a price based on the fallback valuation. Either way the shares are ordinary shares, the company files the SH01 and then submits the SEIS1 after the issue.

What mistakes come up most often?

A refund clause. Even a refund if the round fails takes the ASA outside HMRC’s conditions.
A long stop date beyond six months. It makes advance assurance unlikely.
Converting existing loans through an ASA. HMRC treats this as ineligible.
Issuing preferred shares at conversion. The shares must meet the ordinary share conditions of the scheme.
Varying the ASA later. Changes after signature are outside HMRC’s conditions and outside the assurance already given.
Filing the compliance statement too early. It cannot be submitted before the shares are issued.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.