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Budget: entrepreneurial tax predictions

Changes likely to SEIS, EIS and VCT schemes

The Chancellor is likely to deliver further changes to certain tax incentives relating to investment in particular the Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) scheme.

It has been well publicised that certain VCT providers expect changes around the sort of assets into which they can invest, on the back of a recent consultation paper published by HM Treasury in August which expressed concern that capital preservation is central to the focus of too many VCT investments.

These changes could have a widespread impact, particularly if this is paired with a reduction in income tax relief (potentially from 30% to 20%) which can be key to incentivising this investment. While this would clearly be felt most in London, there would also be a potential negative impact in Scotland.

It is also expected that the SEIS and EIS schemes will see some further changes over the coming years and indeed maybe on Wednesday, and while many may not see this as necessarily a good thing, some changes would, I am sure, be welcomed by investors, companies and advisors alike.

Any tax system should be simple, easy to interpret and transparent and, unfortunately, following a number of amendments, certain elements of these schemes have become complex to understand.

The income tax relief, and subsequent capital gains tax exemption is valuable to investors, but for companies, managing and navigating the rules can be challenging. Failure to interpret the rules correctly can see company status challenged, with subsequent clawback of income tax relief being one negative outcome.

A few ‘quick wins’ could be delivered as follows:

  1. Simplify and streamline the advance assurance process through an online portal with a clear step by step process. On a positive note, we understand that the process of taking this online is ongoing with trials being rolledout by HMRC.
  2. Allow for greater transparency around qualifying trades and qualifying uses of money, by providing some clear ‘red lines’. In certain situations, the only way to achieve absolute clarification is seeking direct comment from HMRC’s Enterprise Centre which can be time consuming.
  3. Consider the ‘follow-on’ rules introduced in late 2015 alongside the interaction with share options, giving concession to investors who, for example, also have unapproved options which they may want to exercise. Currently, any exercise would preclude the said investor achieving EIS relief on a subsequent funding round.
  4. Clarify the reason for the need for SEIS & EIS funding rounds running concurrently to be closed on separate days, and if there is no requirement, remove it from the legislation.

Overall, the SEIS/EIS/VCT rules continue to act as a fantastic incentivisation technique for investors to provide valuable seed and follow-on capital to companies who are hungry to grow and develop within their specialist area.

At Johnston Carmichael, we continue to see some excellent results from this, and would encourage the Chancellor to continue to incentivise this investment opportunity. Some simple finessing should see these schemes continue to be accessible to all.

Andrew Holloway is head of entrepreneurial tax at Johnston Carmichael



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