Budget 2015: VCT/EIS cap ‘could be issue’

Budget 2015: VCT/EIS cap ‘could be issue’

The tax-incentivised investment industry could be marginally hampered by the chancellor George Osborne’s move to cap the age of businesses which can be targeted by the sector.

In the chancellor’s Budget today, he said rules would require that the companies being invested in by venture capital trusts (VCTs) or enterprise investment schemes (EISs) “must be less than 12 years old when receiving their first EIS or VCT investment”.

This was caveated by saying there would be an exception where “the investment will lead to a substantial change in the company’s activity”.

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Paul Latham, managing director at Octopus Investments, the largest provider of VCT and EIS in the UK, said welcomed the overall tone of the Budget but added the cap on the age of a business could have an impact.

“As always, as a result of today’s legislative tweaks, there will be inevitably some companies that just miss out on funding that are on the cusp of the qualifying criteria,” Mr Latham said.

“However, EIS and VCT have been, and will continue to be, a critical source of funding for UK smaller companies and high growth small businesses.”

Jason Hollands, a managing director at Tilney Bestinvest, said at present there were no restrictions on the age of an investable business.

“Currently there are no restrictions on the age of a business that can receive VCT financing and the date of inception is in itself irrelevant to a company’s funding requirements,” he said.

“VCTs can currently invest in long-established businesses, for example, in support of a management buy-out, or to provide development capital for expansion and with it job creation.”

Ben Yearsley, head of research at Charles Stanley Direct, said the 12-year cap was “the only thing which might be a concern” out of the tweaks to VCTs and EISs.

“At the moment it isn’t clear whether VCT/EIS managers would be able to set up a new business to buy the old one,” he said.

He said the VCT and EIS industry did invest in businesses which were “much longer standing” than 12 years.

Elsewhere, Mr Hollands said it was “unclear” whether the cap of £15m of tax-advantaged funding a business can receive - which will rise to £20m - was in addition to the existing £5m cap.