Draft financial services bill unveils VCT changes

Changes to the venture capital trust (VCT) and enterprise investment schemes (EIS) have been announced in the government’s draft financial services bill.

Under draft financial services bill proposals, VCTs will see their £1m limit on investment in a single company lifted.

The thresholds for the maximum size of a company invested in by an EIS or VCT are also set to be raised, as will the maximum annual amount that can be invested by an individual company.

New legislation will see the employee number limit increased to 250 employees or fewer, up from the current 50 employers limit.

The size threshold for a company will be lifted to £15m from £7m, and to £16m after investment up from £8m.

The maximum annual investment amount is also to be lifted to £10m from its current £2m, while the annual amount that can be invested under an EIS is set to rise £1m. The increases to company size and annual investment amount limits will take effect after April 6, 2012.

Lower risk companies for investment under an EIS or VCT will be vetted through a disqualifying purpose test, while share acquisitions in another company will no longer be a qualifying activity for schemes, nor will the feed-in tarrif or other similar subsidies.

In the draft financial services bill, the Treasury says: “Smaller, higher risk companies tend to face barriers in raising equity finance, and tax relief is given under the EIS and VCT schemes to incentivise such investment.

“If companies carrying out lower risk activities can obtain investment under the schemes, the schemes may fail to serve their purpose.”

However, electricity generated by companies operating in anaerobic digestion or hydro power, companies operated by community interest companies and cooperatives will not be affected.

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