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In the last budget in March, chancellor Alistair Darling announced VCTs would benefit from an exemption from VAT from 1 October 2008 onwards. After the latest announcement, however, VCTs will now be able to claim back VAT paid over the past three years at least.

The AIC has estimated that as much as £30m in back VAT could be recovered as a result of the decision.

The move follows on from the European Court of Justice decision last year that paying VAT on VCTs was unlawful. The case was brought by the AIC and JPMorgan Claverhouse.

Ian Sayers, deputy director general at the AIC, said the decision was greatly welcomed as it demonstrated the government's support for the role VCTs play in the financial system.

"VCTs make an important contribution to the economy by investing in smaller, potentially high-growth businesses that promote innovation, industrial change and modernisation of working practices. VCTs provide invaluable capital and expertise to young and start-up companies."

Accountants PKF said the decision was not only good news for investors, but would also bolster the value of funds.

Debbie Jennings, VAT director at PKF, said: "This is a great result for VCTs and shows that HMRC is applying VAT exemptions too narrowly in certain areas. Any fund manager that has charged VAT to VCTs on fund management can now reclaim that VAT.

"Claims against HMRC can normally only be made by fund managers - but VCTs should be able to then claim a refund from their fund manager. The good news for investors is that this should increase the value of the funds in which they are invested."