Budget widens availability and benefits of EIS and VCT schemes

24-Mar-2011  |  Corporate, Financial Institutions & Services, Life Sciences & Healthcare


In yesterday's Budget, the Chancellor announced a raft of measures to boost corporate business in the UK. From a small and medium sized enterprise (SME) and venture capital perspective, one of the most positive changes is a considerable expansion of the tax relief available under the enterprise investment scheme (EIS) and a relaxation of the qualifying conditions for investee companies under both the EIS and the venture capital trust (VCT) legislation.

Broadly, the changes proposed (which are subject to EU State Aid approval) are as follows:

EIS

  1. With effect from 6 April 2011, qualifying investments under the EIS scheme will attract income tax relief at the rate of 30% of the investment amount, up from 20%. The cap on investment qualifying for the relief will remain, subject to the points below, £500,000 (equating to a maximum saving of income tax for the tax year of £150,000).
  2. With effect from 6 April 2012, the maximum qualifying investment for a tax year will increase to £1,000,000 (equating to a maximum income tax saving of £300,000).

EIS and VCT

  1. The conditions for an investee company to qualify for investment under the EIS and VCT rules will also be relaxed from 6 April 2012, with the maximum (full-time or part-time equivalent) employee threshold increased from 50 to 250, and the gross assets cap increased from £7m to £15m (before the investment). It would also seem that the restriction on the company's gross assets after the investment (currently £8m) is to be abolished entirely.
  2.  A company will be able to take up to £10m in total annual investment under the EIS, VCT and corporate venturing schemes, again from 6 April 2012 (an increase from the current limit of £2m).
  3. However, the changes also include a restriction on the ability of certain companies whose businesses comprise principally exploitation of "feed in tariffs" or similar incentives for energy generation to qualify for EIS or VCT investment, unless commercial electricity generation commences by 6 April 2012.

Taken as a whole, the above changes represent a considerable widening of the availability and benefits of the EIS and VCT schemes. As the Chancellor noted, access to equity capital in the current financial environment can be crucial for small businesses - expanding the incentives and choices for the providers of such capital is one way in which the tax system can help.

Lawyers Robert Young