 Changes to tax advantaged venture capital schemes are good news for SMEs and their investors
6 December 2011: PKF Accountants & business advisers welcomes the Government’s announcements today on tax advantaged venture capital schemes and, particularly, its change of tack on refocusing the reliefs.
Marios Gregori, tax partner at PKF, comments: “Most of the draft legislation confirms previous announcements about the increases in subscription thresholds and other limits. But the one area of true concern for the industry was the Government’s proposals about ‘refocusing’ the tax reliefs available. Thankfully, the Treasury has listened to the concerns of the industry and dropped its more draconian proposals so as not to kill off this growth sector.”
In a consultation issued in the Summer, the Government had suggested removing valuable Enterprise Investment Scheme (EIS) tax reliefs from companies that have certain characteristics – such as those with a single employee, those that subcontract most of the company’s work or those that invest in intangible assets. Its overall aim was to ensure that companies were not set up solely for the purpose of accessing valuable tax reliefs for the investors.
Marios Gregori says: “The new ‘disqualifying arrangements’ rules are more generic than the original proposals but should still block truly abusive arrangements. However, they should also ensure that genuine businesses do not fall foul of highly prescriptive rules simply because of the way they are administered. This is no time to make investing more difficult, and it is good news for both small companies and their investors.”
Other measures affecting the sector from April 2012 include:
An increase in the amount that an individual can invest in EIS shares and obtain the associated reliefs to £1m (from £500,000).
Relaxing the ‘investor connection test’ for EIS relief by ignoring loans made by the investor to the company and applying the 30% test only to the ordinary share capital, issued share capital or voting power.
Increasing the thresholds for EIS qualifying companies so that they can have up to 249 employees, gross assets of up to £15m (£16m after the share issue) and raise up to £10m a year under EIS or VCT.
Allowing qualifying EIS shares to carry preferential dividend rights providing they are not cumulative and meet other timing conditions.
Allow a VCT to invest more than £1m in any company, subject to more restrictive rules for companies operating in partnership or joint venture arrangements.
A company which generates or exports electricity and receives a feed-in tariff under a UK Government or similar overseas scheme will no longer qualify as an EIS company.
Marios Gregori says, “The tax reliefs for EIS and VCT investments actually do what they are intended to do – boost investment in high risk businesses. It is refreshing to see that the Government recognises this and has decided not hamper entrepreneurs with over prescriptive rules.”
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For further information, please contact: Andy Konieczko, 020 7065 0537, andrew.konieczko@uk.pkf.com
Notes to Editors:
1. PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk
2. PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
3. PKF (UK) LLP is a member firm of the PKF International Limited (PKFI) network of legally independent member firms. The PKFI member firms have around 2,200 partners and more than 21,000 staff in around 125 countries.
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