Enterprise Investment Scheme and Venture Capital Trusts scheme extension
Published 22 November 2023
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Who is likely to be affected
This measure will affect companies and individual investors using the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme, fund managers and other promoters and advisers associated with the EIS and VCTs.
General description of the measure
The EIS and VCT legislation contain sunset clauses which limit Income Tax relief to shares issued before 6 April 2025. This measure extends those sunset clauses to 6 April 2035, continuing the availability of Income Tax relief for investors in qualifying companies and VCTs.
Policy objective
The measure ensures that the UK will continue to provide generous tax incentives to encourage private investment into those smaller, younger companies which would otherwise struggle to access the finance they need to grow and develop.
Background to the measure
This measure was announced at Autumn Statement 2023.
Sunset clauses were introduced to the EIS and VCT scheme in 2015 along with broader reforms of the EIS and VCTs. The EIS and VCT scheme were subject to an evaluation exercise undertaken in 2022 as part of HMRC’s tax relief evaluation plan and the findings will be published in Autumn 2023.
Detailed proposal
Operative date
The changes will apply to qualifying investments made on or after 6 April 2025.
Current law
The relevant current EIS law is contained in Part 5 of the Income Tax Act (ITA) 2007.
The relevant current VCT law is contained in Part 6 of the ITA 2007.
Proposed revisions
Legislation will be introduced in Autumn Finance Bill 2023 to replace the existing dates within the sunset clauses of 6 April 2025 with the new end dates of 6 April 2035.
The changes would take effect in accordance with regulations made by HM Treasury. These changes are subject to domestic and international subsidy obligations being met.
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Nil | Nil | Nil | Nil | Nil | Nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
Extending the sunset clauses will mean that individuals who wish to invest in VCTs or companies using the EIS will continue to be able to do so and will not see any change to what they currently do now. It is estimated that approximately 100,000 individual investors are likely to benefit from this measure annually.
The measure is not expected to impact on family formation, stability or breakdown.
Customer experience is expected to remain broadly the same as this measure does not alter how individuals interact with HMRC.
Equalities impacts
It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a positive impact on businesses who raise capital using the EIS and from VCTs. The measure will impact businesses, fund managers and other promoters and advisers using or associated with the EIS and VCTs by providing certainty as to the continued availability of the schemes and helping companies plan their future funding rounds.
This measure is expected to have a negligible impact on business administrative costs. One-off costs could include businesses having to familiarise themselves with the changes. There are not expected to be any continuing costs.
Customer experience is expected to remain broadly the same as this measure does not change how businesses interact with HMRC.
There are not expected to be any impacts on civil society organisations.
Operational impact (£ million) (HMRC or other)
The costs to HMRC of implementing these changes are anticipated to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from the statutory Compliance Statements submitted by companies using the EIS and the annual returns of investors and investments made by VCTs.
Further advice
If you have any questions about this change, please contact Alex Buckley by email: [email protected].