State aid approval granted for EIS and VCT rule changes

The European Commission has given state aid approval for the latest Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rule changes contained in the  Finance (No 2) Bill 2015 (Schedules 5 and 6).The changes are in line with the UK’s proposals which are currently being legislated for in the Finance Bill and include:
  • a requirement for companies to raise their first investment under EIS, VCT or other risk finance investment within seven years of making their first commercial sale, or 10 years for knowledge-intensive companies. This age limit will not apply to companies raising an investment where the amount of the investment is at least 50% of the company's annual turnover, averaged over the previous five years;
  • a new cap of £12 million on the total amount of investments a company may raise under EIS, VCT or other risk finance investment, or £20 million for knowledge-intensive companies;
  • a new rule to prevent companies from using EIS and VCT investments to acquire a business, whether through asset purchase or share purchase, also applying to non-qualifying VCT holdings;
  • removal of the requirement to spend 70% of seed enterprise investment scheme money before EIS or VCT funding can be raised.
In the Finance Bill Committee debate on 13 October, the Financial Secretary to the Treasury indicated that  further technical amendments would be introduced to the Finance Bill at Report Stage to ensure the rules work as intended.

He also announced that the government is keen to introduce increased flexibility to the EIS and VCT schemes to enable them to be used for ‘replacement capital’, i.e. the purchase of shares from existing shareholders “where the amount invested in newly issued shares is at least equal to the amount invested in secondary shares". The intention is for this change to be introduced through secondary legislation at a later date, subject to state aid approval.

For further details please speak to your usual contact at Moore Stephens.