Don’t worry – the venture capital tax reliefs are not likely to be abolished, but those of us who work with growth companies seeking investment through the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) are not looking forward to the 22 November Budget.
Rumours are rife that the Treasury intend to curb the venture capital tax reliefs – they have a view that they don’t deliver value for money to the British taxpayer and they want changes.
‘Asset-backed’ investment is clearly in their sights, and there are suggestions that ‘Film & TV production’ may be added to the list of excluded activities. The whole Patient Capital Review though is flawed from the outset in that it uses data from 2015, before the November 2015 rule changes kicked in. Since then, many scheme providers with so-called ‘protected’ or ‘low risk’ offerings have withdrawn from the market. Data from the EIS Association suggests that the asset-backed EIS offers are substantially down this year already.
Those of us who work with genuine start-up and early stage businesses, such as university spin-outs and high-tech companies who are often doing important research, are of course worried that the Chancellor is in danger of throwing the baby out with the bath water. Too often, tax legislation aimed at clamping down on perceived abuse has a detrimental effect on everyone else. The venture capital tax reliefs exist to encourage individuals to invest equity finance in unquoted, trading companies, the SMEs and start-ups that are the backbone of British industry and research. This will be even more vital to the economy post-Brexit, and needs to be supported, not shackled by increasingly complex legislation.
There will be changes to EIS legislation in the Budget, but I hope the Chancellor looks very carefully at what he does, and ensures that any new restrictions are precisely targeted so as not to cause collateral damage to the very businesses he professes to want to encourage.
David Brookes, Tax Partner, BDO LLP is the author of the forthcoming Venture Capital Tax Reliefs (3rd edition) (Bloomsbury Professional). For further information, see: https://www.bloomsburyprofessional.com/uk/venture-capital-tax-reliefs-9781526502452/