Autumn Statement 2016: SEIS, EIS and VCT

Given the substantial changes which were introduced during the course of 2015 in respect of the various tax advantaged venture capital schemes – Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) – no substantive changes were expected in the 2016 Autumn Statement and indeed none have been made.

However, the Chancellor has announced that legislation will be introduced in the next Budget which is intended to clarify or modify certain aspects of the schemes. Although we are still waiting for clarification, the changes will focus on the following:

Streamlining advance assurance:

The government will consult on options to streamline and prioritise the advance assurance procedure.

With applications for advance assurance now taking between six to eight weeks, this commitment is likely to be welcomed by investee companies, their advisors and HMRC.

Although it is yet to be seen what changes may be suggested by the government, it is likely that a consultation is likely to focus on matters such as whether applications can be distinguished depending on their level of complexity, standardised documentary requirements and whether electronic filing is possible.

SEIS and EIS share conversion rights:

The question of the interplay between SEIS/ EIS relief and share conversions (for instance, on a floatation) has been a vexed one, with HMRC’s view being that a conversion into a new class of share will constitute a disposal for SEIS/ EIS purposes.
The Chancellor has announced that the 2017 Budget will address this question directly for shares issued after 5 December 2017. Again, clarity on this issue will be welcomed by the investment community.

Flexibility for follow on investments made by VCTs:

The government will look to provide additional flexibility for follow-on investments made by VCTs in companies with certain group structures to align with EIS provisions, for investments made on or after 6 April 2017.

There is little detail as yet of what this provision will mean in practice.

Share for share exchanges and VCTs:

The Chancellor has announced the introduction of a power to enable VCT regulations to be made in relation to certain share for share exchanges to provide greater certainty to VCTs. Again, there is no further detail as to what this will entail.
The government has also announced that it will not be introducing flexibility for replacement capital within the tax-advantaged venture capital schemes at this time and this will be reviewed over the longer term. Although the government’s policy aim, to provide growth capital, is no doubt correct, providing a degree of flexibility for replacement capital will continue to attract lobbying from the investment community.