Introduction Details of Schedule
2.Paragraph 1 introduces the changes to be made to Part 6 of the Income Tax Act 2007, dealing with the VCT scheme.
3.Paragraphs 2 and 3 amend the conditions which a VCT must meet in order to obtain VCT approval, to prevent a VCT from making an investment in any company in excess of the maximum amount permitted in a 12-month period by State aid rules applying to risk capital investment. This applies in respect of any investment made by the VCT on or after the date on which Finance Act 2012 is passed.
4.Paragraph 3(4) describes which previous investments in a company are to be taken into account and includes not only previous VCT, Enterprise Investment Scheme (EIS) investment or Seed Enterprise Investment Scheme (SEIS) investment but also any other any other risk capital investment which constitutes a State aid.
5.Paragraph 5 removes the restriction that prevents a VCT investing more than £1million per annum in any single company. The restriction continues to apply where the company is a member of a partnership or joint venture that carries on the qualifying trade. This takes effect in respect of shares or securities issued on or after 6 April 2012.
6.Paragraph 6(2) increases the annual amount of investment that a company may raise under the VCT schemes from £2million to £5million. The increase is subject to State aid approval and will take effect in respect of shares or securities issued on or after 6 April 2012, subject to a Treasury appointed day order,
7.Paragraph 6(3) provides that where a company has received any other risk capital investment which constitutes a State aid, that investment is also taken into account in calculating whether the £5million limit has been reached.
8.Paragraph 7 amends the rules on how the investee company may use the VCT investment, so that monies used by it to buy shares or stock in another company will no longer be regarded as having been employed for the purposes of a qualifying business activity.
9.Paragraph 8 increases the gross assets limit for VCT investee companies from £7million before the VCT investment and £8million afterwards to £15million and £16million respectively. The increases are subject to State aid approval and will come into effect in respect of shares or securities issued on or after 6 April 2012, subject to a Treasury appointed day order,
10.Paragraph 9 increases the limit on the number of employees that a qualifying company may have from fewer than 50 to fewer than 250. The increase is subject to State aid approval and will come into effect in respect of shares or securities issued on or after 6 April 2012, subject to a Treasury appointed day order,
11.Paragraph 10 introduces a “no disqualifying arrangements” requirement. Arrangements are “disqualifying” if they are entered into with the purpose of ensuring that any of the venture capital schemes tax reliefs are available in respect of the relevant company’s business, and either: all or most of the monies raised under the scheme are paid to or for the benefit of a party to the arrangements; or in the absence of the arrangements, it would be reasonable to expect that the business would be carried on as part of another business. The legislation includes a definition of “arrangements” which applies for the purpose of this test. This takes effect in respect of shares or securities issued on or after 6 April 2012.
12.Paragraphs 11 and 12 exclude as qualifying trades any which consist substantially in the generation or export of electricity in respect of which the company receives a feed-in tariff under a UK government scheme or a similar overseas scheme. This applies generally where the VCT acquires the relevant holding on or after 6 April 2012. For holdings acquired on or after 23 March 2011 and before 6 April 2012, a holding will still qualify providing the subsidised generation or export begins before 6 April 2012. Trades where the electricity is generated by anaerobic digestion or hydroelectric power are not excluded by the legislation. Irrespective of the means by which electricity is produced, trades carried on by community interest companies, co-operative societies, community benefit societies or Northern Irish industrial and provident societies, are not affected by the legislation.
13.Paragraph 15 introduces an information power to allow HM Revenue & Customs (HMRC) to seek information from those it believes are parties to “disqualifying arrangements”.
14.Paragraph 17 adds the new information power to the list already at section 98 of the Taxes Management Act 1970. Section 98 allows HMRC to seek a penalty for failure to comply with an information notice, or for fraudulently or negligently providing incorrect information in response to an information notice.