Venture capital and EIS consultation begins

HM Treasury has begun consulting on the future of seed and early-stage investment in the UK after the government announced reforms to the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) in March's 2011 Budget.

Whitehall officials are seeking industry views and evidence on a new scheme for seed investment, the Business Angel Seed Investment Scheme (BASIS), and on a number of reforms to the EIS and VCTs.

The 12-week consultation aims to seek public comment on: additional support for seed investment via the creation of the new scheme; simplification of the current schemes; and, refocusing of the current schemes to ensure they remain appropriately targeted.

Businesses, investors, representative bodies and others interested in tax-advantaged venture capital schemes in the UK have been asked to comment on the reforms. The consultation process will run until 28 September this year.

In the Budget, the Chancellor George Osborne announced changes to the EIS and VCTs, which included raising the rate of EIS income tax relief to 30 per cent from April 2011. The proposals are hoped to make the scheme, which aims to improve access to capital for small and medium-sized enterprises in growing industries, more attractive.

As part of the reforms, from April 2012 the government will increase the annual EIS investment limit for individuals to £1 million, increase the qualifying company limits to 250 employees and gross assets of £15 million (EIS and VCT), and increase the annual investment limit for qualifying companies to £10 million (EIS and VCT).

Feed-in tariff (FITs) businesses have come under further scrutiny. From April 2012, FIT businesses will be added to the excluded activities list, meaning investments made in these companies will no longer receive the same tax benefits; however, as part of the consultation, draft legislation on the changes has been opened for comment.

David Gauke, exchequer secretary to the Treasury, says, ‘The government wants to make the UK the best place in Europe to start, finance and grow a business and we know that a vital part of this is ensuring access to a wide range of sources of finance.

‘We are proposing a new, targeted scheme to encourage greater investment by business angels in start-ups and entrepreneurs’ businesses. This, alongside our reform of the EIS and VCTs, is part of our plan to increase the competitiveness of the UK tax system, demonstrating that Britain is open for business.’

Association of Investment Companies director general Ian Sayers comments, ‘The government has rightly identified small business funding as a political priority and is seeking to broaden the range of companies which VCTs can invest in. It is negotiating with Europe to deliver a framework, which will significantly increase VCTs’ investment options and enhance their ability to fund small UK companies.

 Sayers adds, ‘Our goals will be to ensure that any changes allow VCTs to deliver the government’s priorities while also maximising their commercial vitality. The detailed rules should ensure that VCTs can continue to offer an attractive investment proposition for retail investors and allow them to direct capital profitably to businesses which need it.’

The government’s consultation document can be read via the Treasury website.

Todd Cardy

Todd Cardy

Todd was Editor of between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital.