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Any time spent selling its produce and
services during the market research
stage would not count. A new cap of £12
million has also been introduced on the
total amount of investments a company
may raise under VCT or other risk finance
investment. Any risk finance investments
used by a business previously owned by
another company will count towards the
total funding limit.
Why has the government
changed the rules?
In the March 2015 budget, the
government announced that it intended
to implement measures to bring VCT
schemes and social investment tax relief
in line with current EU regulations.
What is the real impact for
businesses and are pubs the
biggest victims of these changes?
The government has stated that the new
rules should have a negligible effect on all
businesses, not just those in the hospitality
industry. A business can still obtain
investment, but what is not permitted, is
for VCT investment to be used to purchase
the business.
More than 95% of the businesses which
were eligible for VCT investment prior to
November 2015 will remain eligible under
the new scheme.
VCT schemes are considered to be a
form of “state aid” as they offer highly
favourable tax-advantaged investment.
The only real impact the government
predicts will be on individual VCT investors
who had been expecting to make particular
investments into companies, and will no
longer be eligible for tax relief on certain
investments.
State aid is prohibited under EU law as
it is believed to affect free trade between
Member States.
The new rules do not appear to
substantially affect the way in which
VCTs work.
The new rules are intended to ensure that
investment by these trusts abides with
European Commission guidelines, which
generally encourages investment in small
and medium businesses rather than
those that are already established.
So, despite the concern, the impact
appears to be a bit of a storm in a teacup.
The government clearly understands
that there is an important place for VCT
schemes. The focus remains on investment
in small and medium sized businesses.
Susanna Gilmartin (above, left) is a Partner and Rahanna Choudhury (above, right)
is Trainee Solicitor, Employment, at Thomson Snell & Passmore LLP