24th March 2016
The Enterprise Investment Scheme (“EIS”) was introduced by the Government to encourage investment in smaller higher risk trading companies. Similarly, Venture Capital Trusts (“VCTs”) are investment vehicles which are designed to provide private equity finance for smaller expanding companies.
The 2016 Budget confirmed the need to clarify some of the legislative changes to the EIS and VCT rules, which were introduced in the Finance (No.2) Act 2015.
One of the changes introduced by Finance (No.2) Act 2015 was a permitted maximum age requirement, imposing an age limit on business activities of companies raising risk finance. This age limit is 7 years from the date of the first relevant commercial sale and 10 years in the case of a “knowledge intensive company”.
The age limit will however not apply in certain circumstances. One such case is where the total amount of State Aid risk finance investment, including the current investment, in the 30 day period up to and including the investment date, is at least 50% of the average turnover. For this purpose, the average turnover is calculated as 20% of the turnover for the 5 year period ending immediately before the last accounts filing period, or if later, 12 months before the investment date. Legislation will be introduced in Finance Bill 2016 to clarify that generally, this 5 year period will end immediately before the beginning of an investee company’s last accounts filing period.
Legislation will also be introduced to clarify the application of the operating costs condition that must be met by knowledge intensive companies for the maximum age requirement not to apply.
These changes will take effect for shares issued under EIS and investments made by VCT’s on or after 18 November 2015, however investee companies may opt to use the existing rules until 5 April 2016.
From 1 July 2016, companies receiving any form of state aid (including EIS and VCT investment) over €500,000 will be required to report this to HMRC.