Venture capital schemes, which include EIS, SEIS, and Venture Capital Trusts, enable qualifying companies to raise finance by issuing shares to qualifying investors who are able to claim income tax and capital gains tax reliefs.
The schemes contain a large number of requirements that apply to the investors and to the company issuing the shares.
A number of changes have been announced, which will come into effect from the date of state aid clearance:
- All investments in shares must be made with the intention to grow and develop a business;
- All investors must be ‘independent’ from the company at the time of the first share issue;
- New qualifying criteria will be introduced to limit relief to investments in companies where the first commercial sale took place within the previous 12 years. This rule will apply except where the total investment represents more than 50% of turnover averaged over the preceding 5 years;
- There will be a cap on the total investment a company may receive under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) at £15 million, or £20 million for companies that meet certain conditions demonstrating that they are ‘knowledge intensive’;
- The employee limit for knowledge intensive companies will be increased to 499 employees.
With effect from 6 April 2015, the requirement that 70% of Seed Enterprise Investment Scheme (SEIS) money must be spent before EIS of VCT funding can be raised will be removed.
The government will launch a new industry forum on the operation and use of the venture capital schemes.
These changes, which are in line with new EU rules, revise the conditions that must be satisfied where investors are seeking venture capital reliefs, and will impact companies seeking to raise funds through these schemes.