Venture Capital Reliefs
Venture capital schemes remain a vital source of funding for growing businesses – from start-ups to those quoted on the Alternative Investment Market (AIM). However, the complexity of the schemes, and their related pitfalls, continue to increase.
Odiri Tax Consultants is a leading adviser on venture capital reliefs. We are recognised specialists in this complex area of legislation and we are often able to establish whether or not advance assurance (which is usually vital to attract investors) is likely to be received from HMRC before commencing detailed work.
The attractions of the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) are obvious:
- they entitle individuals to 30 per cent income tax relief on amounts subscribed for new shares in EIS-qualifying companies or VCTs; and
- if held for a qualifying period (three years under EIS; five years for VCT), gains on disposal are also exempt from capital gains tax.
EIS and VCT funds have become an increasingly important source of funding to smaller growing companies, caused by low interest rates and increasing restrictions on other tax-efficient investment opportunities for individuals.
However, recent changes to the venture capital schemes have opened them up to larger companies that can, for example, use the monies raised to expand overseas. The changes can also allow certain overseas companies to take advantage of such funds, for example, to expand into the UK.
The Seed Enterprise Investment Scheme (SEIS) introduced an even more tax-beneficial scheme with income tax relief at 50 per cent for investors in small, newly established businesses (broadly, carrying on a trade no more than two years old). If your company has no more than £200k of gross assets and fewer than 25 ‘full-time equivalent’ employees it may be able to benefit.
However, generous HMRC-approved tax savings come at a price. To protect their aims of encouraging risk-investment in growing businesses, the EIS, SEIS and VCT rules contain a myriad of conditions and anti-avoidance provisions. Tax reliefs may incentivise individuals to invest in these schemes, but potential participants should also familiarise themselves with the commercial risks involved in investing in unquoted companies. Odiri Tax Consultants can guide you through this complex area.
We can help you avoid some of the pitfalls and mitigate the risks of falling within the anti-avoidance provisions, and can assist with obtaining HMRC advance assurance that your company meets the conditions for EIS or SEIS status. If required, we can assist with your compliance obligations to give the necessary certification to your investors in order for them to claim tax relief.
Please do not hesitate to discuss our services and how your business could benefit.