The VCT and EIS sector should be left alone in the upcoming Conservative Budget as the sector needs a period of stability after a raft of regulatory change in recent years, says Ben Beaton, partner at Triple Point Investments.
VCTs and EISs have been subject to many regulatory changes in the past, and though the “constant tweaking” of regulation might be beneficial to raise more institutional money, any other big change could be hard for advisors to keep up with.
The Conservatives have annoounced a Budget for 8 July.
“VCTs and EIS are a useful source of funding for small businesses and sectors which are looking to grow,” says Beaton, and over the past few years “we have seen how this funding has helped the renewable energy sector to develop in the UK.”
He adds: “Changes to the VCT legislation that the Government has introduced recently are useful as we believe they help the sector to evolve, but the sector will also benefit from a period of stability to absorb the changes and select new businesses for funding.”
In the 2015 Budget speech, George Osborne announced changes to the products “to ensure they are compliant with the latest state aid rules and increasing support to high growth companies”.
The government will also introduce a cap of £15m on total investment received from venture capital schemes, increasing to £20m for “knowledge-intensive companies”, such as firms dealing in intellectual property. It is also proposing to increase the staff limit for such businesses to 499, from the current cap of 249.
In addition, future EIS or VCT cash injections will be limited to firms less than 12 years old, other than where the investment will lead to “a significant change in a firm’s activity”.
The changes this year came on top of last year’s changes, where the government stopped VCTs and EISs from benefitting from government subsidies on renewable energy.
Rather than more regulation, Beaton urged on the need for new products for both the EIS and VCT sector, as demand currently significantly outstrips supply.
The VCT sector raised £429m in the 2014-15 tax year, the fourth highest level ever recorded, according to the Association of Investment Companies.
VCTs paid out the highest level of annual aggregate dividends in their history over the past year, totalling £240.3m in the 12 months to 31 March.
Last year also saw the largest funds raised since 2005-06. VCT funds under management increased from £3.22bn to £3.46bn over the year to April 2015, the AIC figures show.