The House of Commons Treasury Committee has published a new report on the venture capital tax reliefs. The committee’s key recommendation to government is to give certainty to investors and business start-ups by extending the expiry date for the enterprise investment scheme (EIS) and venture capital trusts (VCTs). At the same time, the government should take the opportunity to address issues around diversity within the schemes, regional inequality, and barriers to scaling up business growth.
The committee found that the venture capital schemes had contributed to making UK venture capital competitive internationally, with the tax reliefs ‘a big draw to the venture capital market for investors’. The committee emphasises the importance of not only retaining the tax reliefs, but also providing assurance in advance that the reliefs will not expire in April 2025. Testimony from one investment fund suggested that the expiry ‘is set to destroy an entire asset class in 2025, massively narrowing channels to capital for UK early-stage businesses’.
In March 2023, the chancellor indicated the government’s ‘firm intention’ to extend both schemes beyond the 6 April 2025 deadline, with further details to be made available ‘in due course and in good time’. The committee had questioned whether the Northern Ireland protocol represented a barrier to extension (with the UK either needing to reach different arrangements for Northern Ireland or otherwise ask the EU for state aid approval) but the chancellor said the government ‘does not recognise this characterisation’.
The report also found three critical issues to be addressed:
The venture capital market is highly unrepresentative of the gender and ethnic diversity of the UK, with less than 5% of total venture capital investment in companies with female founders and less than 2% of funding going to black and ethnic minority-led businesses. The committee has a clear view on this point: ‘Venture capital firms are dominated overwhelmingly by white men, and the recipients of venture capital funding are even more unrepresentative of the wider UK population in terms of gender and ethnicity’. As a starting point, the committee asks the Treasury to make provision of diversity statistics an eligibility requirement for all three schemes and recommends that venture capital funds are created with the specific purpose of promoting greater diversity in venture capital allocation.
London, Oxford and Cambridge receive around 80% of all venture capital investment. The committee notes that businesses outside these regions typically take longer to become established and are disadvantaged by the EIS and VCT company age limit conditions. These limits should be revised accordingly, says the committee.
Funding limits on the schemes restrict the capacity for businesses to scale up, attract further investment and drive growth. The committee urges the Treasury to consult on higher funding limits and consider options for widening access to UK domestic capital.
The House of Commons Treasury Committee has published a new report on the venture capital tax reliefs. The committee’s key recommendation to government is to give certainty to investors and business start-ups by extending the expiry date for the enterprise investment scheme (EIS) and venture capital trusts (VCTs). At the same time, the government should take the opportunity to address issues around diversity within the schemes, regional inequality, and barriers to scaling up business growth.
The committee found that the venture capital schemes had contributed to making UK venture capital competitive internationally, with the tax reliefs ‘a big draw to the venture capital market for investors’. The committee emphasises the importance of not only retaining the tax reliefs, but also providing assurance in advance that the reliefs will not expire in April 2025. Testimony from one investment fund suggested that the expiry ‘is set to destroy an entire asset class in 2025, massively narrowing channels to capital for UK early-stage businesses’.
In March 2023, the chancellor indicated the government’s ‘firm intention’ to extend both schemes beyond the 6 April 2025 deadline, with further details to be made available ‘in due course and in good time’. The committee had questioned whether the Northern Ireland protocol represented a barrier to extension (with the UK either needing to reach different arrangements for Northern Ireland or otherwise ask the EU for state aid approval) but the chancellor said the government ‘does not recognise this characterisation’.
The report also found three critical issues to be addressed:
The venture capital market is highly unrepresentative of the gender and ethnic diversity of the UK, with less than 5% of total venture capital investment in companies with female founders and less than 2% of funding going to black and ethnic minority-led businesses. The committee has a clear view on this point: ‘Venture capital firms are dominated overwhelmingly by white men, and the recipients of venture capital funding are even more unrepresentative of the wider UK population in terms of gender and ethnicity’. As a starting point, the committee asks the Treasury to make provision of diversity statistics an eligibility requirement for all three schemes and recommends that venture capital funds are created with the specific purpose of promoting greater diversity in venture capital allocation.
London, Oxford and Cambridge receive around 80% of all venture capital investment. The committee notes that businesses outside these regions typically take longer to become established and are disadvantaged by the EIS and VCT company age limit conditions. These limits should be revised accordingly, says the committee.
Funding limits on the schemes restrict the capacity for businesses to scale up, attract further investment and drive growth. The committee urges the Treasury to consult on higher funding limits and consider options for widening access to UK domestic capital.
