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by Undo Capital
December 15, 2025
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What Is the Use of Funds Test (SEIS/EIS)?

The use of funds test is the SEIS/EIS rule requiring companies to spend investment money on qualifying growth activities within HMRC’s specified timeframe.

Use of Funds Test (SEIS/EIS) Meaning

The use of funds test meaning centres on ensuring SEIS/EIS capital drives genuine commercial growth. To define the use of funds test in practice, companies must apply SEIS/EIS investment toward activities such as product development, hiring, marketing, R&D or scaling operations, never for acquiring shares, repaying loans, or providing investor guarantees. HMRC also requires that these funds be deployed within a set period (usually two years) to maintain eligibility. A clear use of funds test definition matters because misuse or delays can invalidate tax relief for investors. The use of funds test stands for purposeful, compliant and growth-focused capital deployment.

Learn more about SEIS/EIS rules at UndoCapital.

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Disclaimer: Our services are designed to assist startups and businesses with company formation, legal agreements, and funding-related documentation. We do not provide investment advice, financial advice, or tax advice, nor are we regulated by the Financial Conduct Authority (FCA). Participating in startups and early-stage enterprises carries inherent risks, including limited liquidity, absence of dividends, potential loss of investment, and dilution. Any decisions regarding investments should be made independently by the investor as part of a well-diversified portfolio.