I trained as a chartered accountant straight from A levels and then specialised in tax after qualifying in 1994. I found the problem solving nature of tax work most engaging and still do! I advise a wide variety of clients on their tax affairs but a large proportion of my work has been helping companies to raise venture capital funding and advising on M&A transactions.
I started specialising in venture capital taxes in about 2001 working with Mavis Seymore at BDO. Mavis was one of the founders of the EIS Association and wrote the first edition of the Venture Capital Taxes book. There were some big changes when the legislation was re-written into the Income Tax Act 2007 and I was fortunate to be involved with the re-drafting of the legislation as a representative of the CBI. There were also the introduction of Seed EIS in 2012 and a number of changes to the legislation to ensure compliance with EU State Aid rules and also to refocus the relief from 2015 to 2018. The changes introduced the “risk to capital” rules and the age limit which were intended to re-focus the relief back onto early stage businesses requiring growth capital and prevent the relief being used to invest in low risk or heavily asset backed trades. The restrictions and limits were relaxed for so-called “knowledge intensive companies” which was a welcome change.
There have been various trends in EIS/VCT backed companies such as a phase of solar and green energy businesses, before energy and gas production was added to the excluded activities list. Currently the relief is tightly focussed and is being used to help businesses raise risk capital for growth. The main challenge, particularly for VCTs, is the difficulty with follow-on funding for companies that are outside their initial investing period of 7 years (or 10 years for knowledge intensive companies). The EU definition of “undertakings in difficulty” mean that if a company has raised capital and spent it they can meet the definition of being in difficulty and VCTs or EIS funds are not then able to provide additional investment when it is needed.
HMRC have recently updated their processes and now both advance assurance applications and completion of compliance statements are online rather than sending emails with attachments.
There was widespread concern that the “sunset clause” in the EIS legislation meant that it would come to an end in 2025 but the Chancellor confirmed in September 2022 that the relief would continue but we are awaiting further details. The venture capital reliefs continue to have cross-party support which will hopefully ensure their longevity.
Despite Brexit, the EIS State aid regulations still apply to the EIS and VCT schemes. Possibly a new Northern Ireland agreement with the EU will resolve this. The EU definition of “undertakings in difficulty” is particularly problematic at the moment for companies raising “follow on funding”. Technology and life sciences companies spend a lot of time and money at the outset developing their products – cutting off their funding because they have spent more than half of the money raised really doesn’t make any sense at all.
