The Government has launched a consultation into the effectiveness of tax-advantaged venture capital schemes. This also explores the possibility of extending investment limits for EIS and VCTs on par with the European Commission’s guidelines on State aid.
The three main schemes providing relief for investment into small and growing companies are;
- Seed Enterprise Investment Scheme (SEIS)
- Enterprise Investment Scheme (EIS)
- Venture Capital Trusts (VCT’s)
The European Commission has developed rules to ensure that where State aid exists, it is properly targeted on genuine market failure and common European goals.
1. Total investment limit
The new rules propose that government support to a company is no greater than €15 million in total.
EIS and VCT allow companies to benefit from up to £5 million of tax incentivised investment a year (a maximum on all State aided risk capital measures), with no limit on cumulative investment, but with a test on gross assets that limits the types of companies that might qualify for investment.
2. Age limit
The new rules also propose that companies should be less than 7 years old (as measured by their first commercial sale) when benefiting from State aid intervention. The rules allow for follow-on funding. In addition, a caveat exists for the age limit of a company.
The key aim of the consultation is to gather relevant evidence to ensure that all the schemes can be maintained with minimum changes to scheme rules. To do this the UK must be able to demonstrate that the overall effect of the legislation results in the type of targeted support that the EU Commission is looking to encourage. The government believes that the schemes adhere to the principles underlying the new guidelines, but if it is not possible to demonstrate this, it may be necessary for the UK to make some amendments to the existing legislation.
The evidence gathered will be used to support discussions with the EC to ensure that the tax-advantaged schemes continue to remain in line with the updated State aid guidelines.