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Chilton Taylor
Head of Capital Markets

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VCT and EIS – to allow investment in non UK businesses

As expected, the Budget 2010 proposes to legislate in the forthcoming Finance Bill for four measures agreed with the European Commision to comply with state aid requirements. The most important of these is  that with effect from Royal Assent, provided the issuing company has a permanent establishment in the UK, it can invest EIS or VCT funds into qualifying trades  anywhere in the world, thus opening the schemes to more international companies but subject of course to existing restrictions such as  on the number of  employees, gross assets and funds raised over  a 12 month period from the venture capital schemes.

Importantly, proposed additional legislation which would have restricted the schemes even further than they have already been over recent years appears to have been dropped. Instead, the Budget Report includes a clear statement of  support for the VCT and EIS schemes and their  improvement and these can of course assist suitably qualifying AIM companies.

“The Enterprise Investment Scheme and Venture Capital Trusts are a vital component of the Government’s strategy to support investment in small companies, with over 17,000 companies benefiting from over £10.5 billion of investment raised through the schemes since their inception. The Government confirms the changes required as a condition for state aid approval and announces that, following  consultation, the European small enterprise definition will not be introduced. In addition, in light of new evidence from the Rowlands Review of the structural gap facing SMEs looking for finance, the Government believes there may be a case for reviewing the investment criteria for these schemes. The Government will work with industry to examine the evidence base for modifications to the schemes, including increasing: the employee limit to either 100 or 250 employees; the gross assets limit to £15 million before the investment, and £16 million after; and the annual investment limit to £5 million for qualifying companies.”

This statement would appear to be a good result for AIM and all those many bodies including Baker Tilly who have campaigned for improvement to the VCT and EIS legislation as they are a vital source of finance to address  the equity funding gap.

HMRC have confirmed that CVS will not be extended and will come to an end on 1 April 2010, i.e. it will only apply to shares issued by midnight on 31 March.