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Home | News & events | Legal updates | Venture Capital Schemes: Budget 2010 Update
Venture Capital Schemes: Budget 2010 Update
25 March 2010
Legislation to implement previously announced changes to the UK’s venture capital schemes will be introduced in a Finance Bill as soon as possible, in the next Parliament.
As previously noted in our previous article about EIS, VCTS and CVS, the Pre-Budget Report (“PBR”) 2009 announced a number of changes to the UK’s Enterprise Investment Scheme (“EIS”) and Venture Capital Trust (“VCT”) scheme in order to comply with European Union “state aid” rules.
Draft legislation was published at the time of the PBR 2009 and Budget 2010 announced that these changes will now be implemented by way of a Finance Bill as soon as possible in the next Parliament.
The changes are as follows:
- The current rule that requires at least 50% of a company’s qualifying activities to be in the UK will be replaced with a requirement to have a permanent establishment only.
- Companies “in difficulty” will no longer be eligible for investment. A company is “in difficulty” if it would be reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (the “Guidelines”).
The Guidelines provide a number of detailed situations in which a company will be regarded as “in difficulty” but the general principle is that a firm is “in difficulty” where “it is unable, whether through its own resources or with the funds it is able to obtain from its owner/shareholders or creditors, to stem losses which, without outside intervention by the public authorities, will almost certainly condemn it to going out of business in the short or medium term.” - Replacement of the current requirement that VCTs must be listed in the UK with a requirement that their shares must be traded on an EU “Regulated Market”.
- A new requirement for VCTs to hold at least 70% of their qualifying holdings in “eligible shares”, broadly non-redeemable ordinary shares. Crucially the definition of “eligible shares” will change to allow VCTs to include shares which may carry certain preferential rights to dividends.
The new “eligible shares” requirement will only have an effect on money raised by VCTs after the date of Royal Assent, whereas the other changes will take effect from the date of Royal Assent, irrespective of when the money was raised under the EIS or VCT investment.
In the PBR 2009 a further proposed change was announced which would have replaced the current “gross assets” and “number of employees” tests with a “small enterprise” definition by reference to the relevant EC guidelines.
However, this change has now been dropped and the Government has committed to working with the venture capital industry to review whether the employee requirement should be raised to either 100 or 250 employees; whether the gross assets limit should be raised to £15 million before, and £16 million after, the investment; and whether the annual investment limit should be raised to £5 million for qualifying companies.
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