A company raising money under a venture capital scheme will have restrictions on the amount it can raise and the number of people it can employ under new rules announced in today's Budget.
The changes will apply, in varying ways, to all investors under the Enterprise Investment Scheme (EIS), the Corporate Venturing Scheme (CVS), and the Venture Capital Trust (VCT) scheme, as well as firms attracting investment as a result of those schemes.
The changes state a company raising money in this way must have fewer than 50 full-time employees at the date on which shares or securities are issued.
In addition, a new investment limit will also apply to a company raising money under venture capital schemes.
For an investment to qualify for relief (under EIS or CVS) or to be treated as a qualifying holding of a VCT, the company must have raised no more than £2m in the year ending on the date of the investment.
If the limit is exceeded, none of the shares or securities within the issue will qualify for relief under the EIS or CVS, or rank as a qualifying holding of a VCT.
Elsewhere, a change has been made to extend the meaning of a “qualifying 90% subsidiary”.
Current rules state when a qualifying trade is carried on by a subsidiary firm, that company must be a direct qualifying 90% subsidiary of the parent.
The changes will allow a qualifying trade to also be carried on by subsidiaries which are 100% subsidiaries of direct 90% subsidiaries of the parent.
The Budget also includes details, specifically for VCTs, of changes to the 70% qualifying holdings rule, which currently states a VCT must have at least 70% of its investments in qualifying holdings to retain approval.
This has been altered so when a VCT makes a cash realisation on the disposal of an investment which has been part of its qualifying holdings for at least six months, the disposal will be ignored for the next six months. This will give the VCT up to six months to reinvest or distribute the disposal proceeds.
The measures will all take effect from April 6 this year.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Scott Sinclair on 020 7034 2636 or email [email protected].IFAonline
Achievements, charity work and other happy snippets
'A win for advisers'
Unconstrained multi-asset fund managed by Talib Sheikh
Who made the cut?
Transferring out of DB scheme