On 6 July 2011 HM Treasury issued a consultation document titled
Tax-advantaged venture capital schemes, although it is mainly aimed
at the Enterprise Initiative Scheme (EIS). Its purpose is to gather
views on a new scheme for early stage investment by Business
Angels, to be known as the Business Angel Seed Investment Scheme
("BASIS"), and on a variety of other reforms which are
intended to improve the effectiveness of the EIS and VCT
The consultation is split into three main themes.
Support for seed investment via BASIS
In recognition of the lack of funding to early stage companies,
particularly high tech and/or innovative businesses, greater
incentive is needed than currently exists under EIS and VCT
schemes. Coupled with the need for funding it is recognised
that such companies would also benefit from business advice and
expertise. As a result, it is proposed that enhanced but
unspecified relief should be available for investment by a specific
category of people (Business Angels) in a specified range of
companies (seed – stage companies). The
consultation seeks views on how to define both of these.
So far as a seed stage company is concerned the general approach
is to view a company which would qualify for EIS purposes but which
in addition has not yet commenced trading as qualifying for BASIS.
The document seeks answers to a number of questions regarding the
acceptable level of activity and timescales for use of funds.
The possibility is also raised of at least an element, up to
30%, of the funding being by way of loan capital rather than pure
equity. This is a welcome aspect.
It is proposed that the definition of a Business Angel should
revolve around someone with experience of this type of investment
who will be providing direct support or advice to the
company. Recognising this may be unduly restrictive, for
example by eliminating syndicated investment from qualifying, views
are sought on where otherwise the line can be drawn.
The extent of the tax relief and/or incentives is also left
rather vague, although, in fairness, views upon these are also
With a view to simplifying the unnecessarily arcane rules
surrounding current EIS and VCT relief the following measures are
to be implemented:-
The definition of qualifying shares for EIS purposes will
mirror those now in place for the purposes of VCT investment.
In relaxing the myriad of tests as to whether an investor is
"connected" with the company, there will be disregarded
non-convertible loans made by a shareholder in calculating whether
the 30% interest test has been breached.
In addition, views are sought upon further simplifications in
relation to the following:-
The extent to which the current rules on the use of
anti-dilution clauses should be relaxed;
To the extent that the current EIS rules inhibit commercially
beneficial mergers how this should be addressed;
Given the notoriously difficult rule regarding the timing of
subscription and issue of shares, the extent to which there is a
need for a formalised period of grace; and
the extent and priority to which should be given a review of
the excluded activities lists.
Changes in all of these areas would be welcome at a practical
level and would remove much of the burden and expense surrounding
the mechanics of investing without exposing the relief to
Improving the focus of existing schemes
Improving the focus is the Treasury's description of
narrowing the scope of current reliefs. This focuses on two
uses of the schemes which HMRC regard as unacceptable and contrary
to their original intention:-
companies which are lacking in any commercial substance which
carry out low risk quasi lending activities; and
companies which are initially qualifying but onto which are
attached shortly afterwards larger non-qualifying trades.
Provided the provision covering elimination of these activities
is in itself narrowly drawn, the Treasury's position should not
In addition, the document provides further commentary and draft
legislation to supplement the Budget 2011 announcement relative to
the exclusion from April 2012 of trades based substantially around
the receipt of feed-in tariffs.
Finally, by way of a sweep-up, the document invites evidence of
areas where further improvements to the schemes can be made of how,
otherwise, the funding gap can be bridged.
Responses to this consultation are invited by 28
September 2011. Should you wish to discuss the same
further or have any submissions that you would wish to make then
please do not hesitate to contact the writer.
A link to the consultation document can be found here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The recent case of Petroleo Brasiliero v E.N.E. Kos 1 Limited is a timely example of how the historical principles of bailment remain highly relevant today and how the law on bailment is still developing.
After three years of consultation, new Companies House registration requirements have now come into force and apply to charges created on or after 6 April 2013 by companies and limited liability partnerships registered in England and Wales.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”