Advising both investor and investee company clients on how to structure investments, reorganisations and exits in a way which complies with the VCT and EIS legislation. Whilst the last couple of years has been a challenging time, the tax-advantaged venture capital sector has continued to go from strength to strength with huge amounts of money flowing into EIS and VCT investments, although there is growing uncertainty on the horizon.
If you could make one change to tax, what would it be?
Currently, the VCT and EIS legislation has a ‘sunset clause’ which means that a lot of the key tax reliefs for those schemes will cease for shares issued on or after 6 April 2025. This was an EU requirement at the time of the last state aid approval in 2015, but it is something I would remove immediately. With less than three years to go, this is causing huge uncertainty for investors and investee companies who are not sure either if their investors’ funds will benefit from the full range of tax reliefs after that date, or whether the companies can raise further EIS/VCT funding rounds after that date. Immediate certainty that the schemes will continue in full from 6 April 2025 would be hugely welcome. The schemes are hugely beneficial to the UK economy and should be supported to function in the best way that they possible can.
What do you know now that you wish you’d known at the start of your career?
Mistakes happen. We all make mistakes in all areas of our lives so it’s completely unrealistic to expect yourself never to make a mistake at work. The critical part is raising the fact that you’ve made a mistake with an appropriate person as soon as you know it’s occurred. Most mistakes, or their consequences, can be rectified in one way or the other, but it’s those mistakes that are covered up that cause the most damage to firms, clients and the individuals involved.
Has a recent tax case caught your eye?
The FTT’s recent decision in Inferno Films Ltd [2022] UKFTT 141 (TC) is an interesting one which helpfully clarifies certain elements of the ‘risk to capital’ condition in the EIS and VCT legislation. Inferno was a start-up film production company whose investment memorandum initially focused on the production of a single film, but also set out an intention to develop further films. HMRC argued that this focus showed that it is was either a ‘single project’ company or a vehicle through which finance was to be provided for a series of individual projects, neither of which would have been EIS-eligible.
The FTT took the view that, given the early-stage nature of the company, it was ‘perfectly natural’ for the focus in the investment memorandum to be on the immediate project, and ‘this focus did not detract from the Appellant’s long-term objectives to grow and develop its film production trade’.
This, along with other conclusions in the judgment about the ‘risk to capital’ condition, is a helpful clarification of the fact that focusing on an initial project with a long-term aim, the details of which may be vague at the initial stage, is perfectly acceptable. It confirms that the EIS/VCT legislation does not require companies to have a highly developed, detailed, step by step approach at the outset as to how they are going to achieve their long-term aims.
What should look out for later this year?
Hopefully an announcement about the removal of the ‘sunset clause’! Failing that, the conclusions of the Treasury Committee’s inquiry on the venture capital market will potentially be key in shaping the government’s EIS/VCT policy over the coming years and are definitely something to look out for. It would be nice if any changes improved the schemes, rather than restricted them further.
You might not know this about me but...
I’m one of the directors at my local parkrun. I’m passionate about the benefits that parkrun brings to society and volunteering is a great way for me to get out early on a Saturday morning and do something completely different from the day job. My two eldest sons, aged six and four, love helping out and running at junior parkruns too, so it’s definitely a family affair!
Advising both investor and investee company clients on how to structure investments, reorganisations and exits in a way which complies with the VCT and EIS legislation. Whilst the last couple of years has been a challenging time, the tax-advantaged venture capital sector has continued to go from strength to strength with huge amounts of money flowing into EIS and VCT investments, although there is growing uncertainty on the horizon.
If you could make one change to tax, what would it be?
Currently, the VCT and EIS legislation has a ‘sunset clause’ which means that a lot of the key tax reliefs for those schemes will cease for shares issued on or after 6 April 2025. This was an EU requirement at the time of the last state aid approval in 2015, but it is something I would remove immediately. With less than three years to go, this is causing huge uncertainty for investors and investee companies who are not sure either if their investors’ funds will benefit from the full range of tax reliefs after that date, or whether the companies can raise further EIS/VCT funding rounds after that date. Immediate certainty that the schemes will continue in full from 6 April 2025 would be hugely welcome. The schemes are hugely beneficial to the UK economy and should be supported to function in the best way that they possible can.
What do you know now that you wish you’d known at the start of your career?
Mistakes happen. We all make mistakes in all areas of our lives so it’s completely unrealistic to expect yourself never to make a mistake at work. The critical part is raising the fact that you’ve made a mistake with an appropriate person as soon as you know it’s occurred. Most mistakes, or their consequences, can be rectified in one way or the other, but it’s those mistakes that are covered up that cause the most damage to firms, clients and the individuals involved.
Has a recent tax case caught your eye?
The FTT’s recent decision in Inferno Films Ltd [2022] UKFTT 141 (TC) is an interesting one which helpfully clarifies certain elements of the ‘risk to capital’ condition in the EIS and VCT legislation. Inferno was a start-up film production company whose investment memorandum initially focused on the production of a single film, but also set out an intention to develop further films. HMRC argued that this focus showed that it is was either a ‘single project’ company or a vehicle through which finance was to be provided for a series of individual projects, neither of which would have been EIS-eligible.
The FTT took the view that, given the early-stage nature of the company, it was ‘perfectly natural’ for the focus in the investment memorandum to be on the immediate project, and ‘this focus did not detract from the Appellant’s long-term objectives to grow and develop its film production trade’.
This, along with other conclusions in the judgment about the ‘risk to capital’ condition, is a helpful clarification of the fact that focusing on an initial project with a long-term aim, the details of which may be vague at the initial stage, is perfectly acceptable. It confirms that the EIS/VCT legislation does not require companies to have a highly developed, detailed, step by step approach at the outset as to how they are going to achieve their long-term aims.
What should look out for later this year?
Hopefully an announcement about the removal of the ‘sunset clause’! Failing that, the conclusions of the Treasury Committee’s inquiry on the venture capital market will potentially be key in shaping the government’s EIS/VCT policy over the coming years and are definitely something to look out for. It would be nice if any changes improved the schemes, rather than restricted them further.
You might not know this about me but...
I’m one of the directors at my local parkrun. I’m passionate about the benefits that parkrun brings to society and volunteering is a great way for me to get out early on a Saturday morning and do something completely different from the day job. My two eldest sons, aged six and four, love helping out and running at junior parkruns too, so it’s definitely a family affair!
.jpg?sfvrsn=335a554c_0 "300 x 250 (MPU)")