Oxford Technology today (9 June) confirmed HM Revenue & Customs had returned venture capital trust status to two of its vehicles after withdrawing its approval in March, in a move which placed close to £300,000 in investor tax relief in jeopardy.
In a stock exchange announcement issued this morning, Oxford Technology confirmed HMRC has set aside a decision it made on 7 March to withdraw approval for its Oxford Technology VCT and Oxford Technology VCT 3.
The move means VCT status will be restored immediately and tax relief will not be recovered. However, the funds are not fully in the clear and HMRC has said it will “reconsider afresh the issue of withdrawal of VCT approval.”
The HMRC u-turn comes after legal action was taken to challenge the sudden pulling the plug on the two VCTs status, which could have resulted in a hefty tax bill for investors.
Removal of VCT status would mean investments no longer benefit from 30 per cent up front tax relief and gains will no longer be exempt from capital gains tax. HMRC stated it would specifically reclaim ‘front-end’ tax relief paid out within the past five years, the minimum holding period to qualify for the relief.
This put at risk up to £298,500 worth of income tax relief claimed on a top-up fundraising of £995,000 for the Oxford Technology 3 VCT between 2007 and 2010.
Back in March, FTAdviser reported HMRC took action against the two trusts over a breach of a rule that limits investment in a single company to 15 per cent of total assets.
The first of the Oxford Technology VCTs first invested £125,000 in then start-up Scancell Holdings, which has developed a vaccine for melanoma which is in clinical trials, in 1999, and has made subsequent investments including participating in a discounted rights issue in August 2013.
While the total invested by the fund was less than 10 per cent of the fund (£491,000), rises in the share price of Aim-listed Scancell resulted in a breach of the 15 per cent rule. Oxford Technology notified HMRC of the inadvertent breach in October 2013.
Bosses at Oxford Technology said: “The effect of this is that the VCT status of OT1 and OT3 is, at the moment, to be treated as not having been withdrawn so that shareholders need not take any steps in relation to this matter.
“If, in the light of the further representations HMRC decide that VCT approval should not be withdrawn then that will conclude the matter so far as the shareholders’ tax position is concerned.
“If, on the other hand, HMRC decide that such approval should be withdrawn, then shareholders will be notified accordingly and will need to consider what steps they should take.”
