HMRC has published new guidance on changes to how it processes enterprise investment schemes (EIS) advance assurance applications and EIS compliance statements for investments made on or after 6 April 2015 in companies that exceed the prescribed age and investment limits. With immediate effect, HMRC will not process advance assurance applications in respect of companies that, in general:
are more than seven years old and have not received a risk finance investment in the past (which includes any investment received under the SEIS, EIS or VCT schemes – more details on what a risk finance investment is can be found in the HMRC manual at VCM12030);
have received more than £10m risk finance investment funding (formerly known as risk capital investment funding).
(The guidance uses a limit of £10m to make allowance for fluctuating exchange rates. Investments that exceed the £10m limit may still qualify, depending on the exchange rate on the date an investment was made.)
While HMRC will still process forms EIS1 compliance statements in respect of investments into companies that exceed either of these limits, HMRC said investors should be aware that it may have to recover any tax relief claimed on investments made on or after 6 April 2015.
HMRC may also have to check that investors claiming tax relief under EIS are ‘independent’, i.e. must be independent from the company and hold no other shares in the company at the time they first invest in the company unless:
the individual has made a previous risk finance investment in the company;
the existing shares were issued to the individual when the company was founded;
the existing shares were acquired when a pre-formed dormant company was bought ‘off the shelf’.
HMRC has also set out the new information that will now be requested to support advance assurance requests and forms EIS1 along with the reasons why the changes have been made.
The guidance also explains the risk that investments made by venture capital trusts (VCT) on or after 6 April 2015 in companies exceeding these limits may count as non-qualifying holdings and advises that VCT fund managers might wish to manage investments outside the above limits within their non-qualifying holdings.
HMRC has published new guidance on changes to how it processes enterprise investment schemes (EIS) advance assurance applications and EIS compliance statements for investments made on or after 6 April 2015 in companies that exceed the prescribed age and investment limits. With immediate effect, HMRC will not process advance assurance applications in respect of companies that, in general:
are more than seven years old and have not received a risk finance investment in the past (which includes any investment received under the SEIS, EIS or VCT schemes – more details on what a risk finance investment is can be found in the HMRC manual at VCM12030);
have received more than £10m risk finance investment funding (formerly known as risk capital investment funding).
(The guidance uses a limit of £10m to make allowance for fluctuating exchange rates. Investments that exceed the £10m limit may still qualify, depending on the exchange rate on the date an investment was made.)
While HMRC will still process forms EIS1 compliance statements in respect of investments into companies that exceed either of these limits, HMRC said investors should be aware that it may have to recover any tax relief claimed on investments made on or after 6 April 2015.
HMRC may also have to check that investors claiming tax relief under EIS are ‘independent’, i.e. must be independent from the company and hold no other shares in the company at the time they first invest in the company unless:
the individual has made a previous risk finance investment in the company;
the existing shares were issued to the individual when the company was founded;
the existing shares were acquired when a pre-formed dormant company was bought ‘off the shelf’.
HMRC has also set out the new information that will now be requested to support advance assurance requests and forms EIS1 along with the reasons why the changes have been made.
The guidance also explains the risk that investments made by venture capital trusts (VCT) on or after 6 April 2015 in companies exceeding these limits may count as non-qualifying holdings and advises that VCT fund managers might wish to manage investments outside the above limits within their non-qualifying holdings.
