Changes to EISs and VCTs

April 24th, 2015

Budget 2015 announced a number of changes to the tax-advantaged venture capital schemes – the EIS, SEIS and VCTs – to ensure that they continue to be effective in supporting higher-risk small and growing businesses to access finance, and that they are sustainable going forwards.

Draft legislation has now been published setting out the new rules which will:

  • require that all investments are made for the purpose of business growth and development;
  • require that all EIS investors are independent from the company at the time of the first share issue (excluding founder shares);
  • introduce new qualifying criteria to limit relief to companies whose first commercial sale took place within the previous 12 years unless the company has received a previous investment under SEIS/EIS/VCT (follow-on funding is not restricted). This rule will apply except where the total investment represents more than 50% of annual turnover averaged over the preceding 5 years;
  • cap the total investment a company may receive at £20million for companies that meet certain conditions demonstrating that they are ‘knowledge intensive’ and £15million for other qualifying companies; and
  • increase the employee limit for knowledge-intensive companies to 499 employees


The above changes are subject to State Aid approval but it is intended that they will take effect at the earliest legislative opportunity after approval is secured.

In addition, from 6 April 2015, the government will remove the requirement that 70% of SEIS money must be spent before EIS or VCT funding can be raised.

These new rules will all apply in addition to the current rules on the tax-advantaged venture capital schemes. Therefore, qualifying EIS and VCT companies will still be able to receive up to £5 million annual investment under the schemes. The new limits on the age of qualifying companies and the total amount of investment that they can receive will affect which investments are treated as ‘qualifying investments’ (or form part of qualifying holdings for VCTs) under the schemes. The changes will not affect other conditions for VCT qualifying status.

Interested parties are invited to comment on the draft legislation via email by 15 May 2015.

While it is estimated that more than 95% of companies qualifying under the current rules will continue to remain eligible for tax-advantaged investments, some companies may find that they no longer qualify for support under the scheme.

While it is unusual for the government to introduce changes that limit the availability of tax relief with retrospective effect, to be certain of securing tax relief investors should be cautious about making investments which exceed the new capped limits from 6 April 2015.