The Enterprise Investment Scheme ("EIS") is designed to help smaller, higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in such companies. The Venture Capital Trust ("VCT") regime is designed to encourage individuals to invest indirectly in a range of small higher-risk trading companies whose shares and securities are not listed on a recognised stock exchange.
With a view to further encouraging investment on higher risk activities and helping small, higher-risk UK companies, the Government, in its draft Finance Bill 2012, sets out plans to:
increase the relief available under the EIS and VCT regime; and relax a number of investee company qualifying conditions. Most of the changes should take effect from April for the tax year 2012/2013 and thereafter. BENEFICIAL CHANGES
The following changes, some of which may be subject to state aid approval, increase the value of the tax relief schemes and enlarge the range of companies which will be able to offer EIS and VCT qualifying investment options.
Applicable to both EIS and VCT
The gross assets threshold, which is currently capped at £7 million gross assets pre-investment, will increase to a limit of £15 million gross assets pre-investment. The current level of gross assets post-investment will increase from £8 million to £16 million. The maximum number of full-time employees that a company may have will increase to under 250 from under 50. The aggregate annual amount which can be invested in a company under the venture capital tax schemes will increase from £2 million to £10 million. Applicable to EIS only
The annual threshold for qualifying EIS investment under the scheme will be increased to £1 million from £500,000. Applicable to VCT only
The annual threshold of £1 million for investment by an individual VCT in a single company will be removed (currently, sums larger than this have to be contributed by more than one VCT). However, a £1 million restriction will continue to apply where the company is a member of a partnership or joint venture and it is that body which carries on the VCT qualifying trade. Definitions of "connected person" – applicable to EIS only
Rules relating to "connected persons" are to be amended such that loan capital held in the investee company by an investor is not to be taken into consideration when calculating whether that person holds more than a 30% interest in the company.