Guest Blog: Improvements to tax-advantaged VC schemes

Oliver Pumfrey, Senior Director, Life Sciences Tax, FTI Consulting.


HM Revenue & Customs (HMRC) last month released an update to the streamlining of the advance assurance service for tax-advantaged venture capital schemes. The advance assurance service is a valuable tool for companies, helping to facilitate investment by providing more certainty that the tax reliefs promised are available to individual investors.

 The tax-advantaged schemes covered are:

  • the Seed Enterprise Investment Scheme (SEIS)
  • the Enterprise Investment Scheme (EIS)
  • Venture Capital Trusts (VCTs) and
  • the Social Investment Tax relief (SITR)

The growing demand for the service, combined with growing complexity in the rules, have lengthened the time taken by the HMRC's Small Company Enterprise Centre (SCEC) to provide its opinion on a company’s eligibility to receive investment under one of the schemes. It is therefore recognised that the service needs to be improved and the consultation, first issued in December 2016, sought views on how this may be done whilst making a number of suggestions in regard to improvements.

During the initial consultation period, HMRC put the following options up for discussion in regards to the advance assurance service:

  • ‘Do nothing’ approach
  • Withdraw the advance assurance service
  • Restrict access to the service
  • Provide a service for discrete aspects of the rules
  • Introduce standard documents for companies to use to provide certainty

After gathering and analysing responses to the consultation (you can view the BIA's submission here), HMRC decided that the advance assurance facility will continue as a discretionary, non-statutory service, and as such, SCEC may decline to provide an opinion to companies seeking an advance assurance in certain situations. With significant potential exposures to individual taxpayers where reliefs are withdrawn later down the line, the decision to maintain the service was welcomed.

It also concluded against introducing a service to provide an opinion on discrete aspects of a proposed investment. This is due to the view from respondents that such a service would likely increase demand, as companies look to test multiple aspects of a proposed investment in multiple applications.

Changes to the advanced assuarance service

Where companies are relying on a particular interpretation of the law to support an application, the company should prepare and provide a full technical analysis of the relevant law and how its circumstances meet these requirements. SCEC however will not provide an opinion if it deems the company to be testing the limits of the law, only providing an opinion to allay genuine concerns about a company’s eligibility for investment.

As of  2 January 2018, SCEC will not provide advance assurance on speculative applications; this means HMRC will only provide an opinion where the application names the person(s) who are expected to make an investment. Therefore, HMRC expects that before making an advance assurance application, the company has approached potential investors to determine likelihood that they will attract investment. It is important to note that this does not commit the company to raising money only from those investors but it does mean that HMRC expect there to be a reasonable expectation that funds will be raised.

In the interim, HMRC have stated they are working on improving the existing guidance on the advance assurance service to create clearer and more comprehensive guidance. This is expected to be released before April 2018 and will include a checklist, proposed by the BIA, that will help companies identify the documents and information they need to provide for advance assurance.

The renewed focus on the efficiency of the advance assurance service is welcomed by all including companies, their investors and, no doubt, HMRC themselves. Receiving assurance that all appropriate rules are met often influences the timeline of the fundraising process. We hope to see the suggested improvements make tangible differences to companies looking to move forward in a timely manner.


Further changes included in the Finance Bill 2017-18

Following last year's Patient Capital Review, there will be further changes to the VC schemes themselves. Through the current Finance Bill, a new risk-to-capital condition will apply to SEIS, EIS and VCT to exclude tax motivated investment where investment risk is mitigated, with reference to two key questions on:

  • Whether the company has long-term objectives to grow and develop, and
  • Whether there is significant risk that there could be a loss of capital greater than the net return.

HMRC have provided draft guidance in the Venture Capital Schemes Manual on the application of these new rules which will be revised shortly after Royal Assent of the Finance Bill, expected in Spring 2018, which is when this rule is effective.

HMRC continue to explore the possibility for using standard documents in specific circumstances, particularly with fund managers and very small companies.

EIS was also subject to a number of other measures in the Finance Bill including:

  • Doubling the limit on the amount individuals may invest under EIS in a tax year to £2m, provided at least £1m is invested in one or more knowledge-intensive companies.
  • Raising the annual investment limit for knowledge-intensive companies receiving EIS/VCT money to £10m from £5m (the lifetime limit will remain at £20m however).
  • Allowing knowledge-intensive companies to use the date when their turnover first exceeds £200,000 in determining the start of the initial investing period under the permitted maximum age rules, instead of the date of first commercial sale.
  • Amending the definition of a ‘relevant investment’ to ensure all investments, including all risk finance investments made before 2012, are counted towards the lifetime funding of £20m for knowledge-intensive companies.



This blog post has been written by FTI Consulting. Please contact Oliver Pumfrey on 020 3727 1260 / for further details.


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