The EIS and VCT consultation - Sowing the seeds for growth?

In its 2011 Budget, the Government announced a substantial increase in 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 venture capital trust (VCT) legislation. The Government also announced that it would consult on providing further support for seed investment and start-ups and on proposals to simplify and refocus both the EIS and VCT schemes.

On 6 July, HM Treasury published the promised consultation document. We have set out an overview of the proposals below, and the link following the overview provides more detailed commentary, including discussion of some interesting points of practice arising from the consultation document for both the prospective new and revised relief schemes and for the existing rules.

Business Angel Seed Investment Scheme

The consultation proposes a new standalone scheme for seed investment, the Business Angel Seed Investment Scheme (BASIS). As the name suggests, the scheme targets business angel investors with the aim of ensuring that companies in the pre-start-up or “seed” phase get the support that they need by way of both investment and expertise. It is proposed that the scheme would be a more targeted version of EIS, but standing alongside the existing venture capital schemes.

Simplification of the EIS and VCT schemes

As part of the Government's wider tax simplification strategy, it proposes to simplify the existing EIS and VCT schemes. Subject to the outcome of the consultation, initial changes will be made in Finance Bill 2012 with further simplification measures proposed for inclusion in later Finance Bills.

Refocusing the EIS and VCT schemes

Given the widening of the availability and benefits of both the EIS and VCT schemes announced at Budget 2011, the Government is keen to ensure that the focus of the schemes remains upon genuine high risk capital investment. The consultation sets out proposals to achieve this aim, principally by restricting the availability of relief for certain arrangements that are perceived as exploitative.

The Government's recognition of the importance of encouraging investment in small businesses is welcomed. Taylor Wessing plans to respond to the Government’s request for assistance and feedback in relation to the consultation and we encourage those likely to be affected by the proposals to involve themselves in the process.

Read our detailed analysis of the tax-advantaged venture capital schemes consultation

Further information

A reminder of the changes announced at Budget 2011

View the consultation document

Lawyers Robert Young, Peter Jackson, James Meakin