VCT guide

22 RULES FOR VCTS Examples of non- qualifying companies Example 3 In 2015, VCT C plc invested in a company which was established to operate, through subcontractors, a pub. Certain factors indicated a capital preservation strategy. This would no longer be a qualifying investment for a VCT as it is unlikely to qualify under the ‘Risk-to-capital’ conditions introduced for all EIS and VCT investments made on or after 15 March 2018. Example 1 In 2013, VCT A plc invested in a company that was constructing and operating a solar- photovoltaic farm. This would no longer be a qualifying investment for a VCT, as energy generation activities no longer qualify. Example 2 In 2013, VCT B plc invested in a company which was undergoing a Management Buyout (MBO) and the VCT funds were being used to acquire the shares of exiting management. This would no longer be a qualifying investment for a VCT as VCTs funds can no longer be used to acquire part of an existing business. With the rule changes , a VCT may well have a portfolio of existing investments that would not currently qualify if being made as new investments. Some examples are set out on the right hand side of this page. ”These changes are intended to provide significant additional support to knowledge-intensive companies, which evidence suggests face the greatest difficulties in accessing growth investment.” HMRC 23 RULES FOR VCTS Rules governing the size and type of company There are rules which set out in detail the criteria for firms that wish to issue VCT-qualifying shares. In summary, a qualifying company must: Not have been trading for more than seven years (ten years for a knowledge-intensive company) unless specific conditions are met. 7 Be operating in a qualifying trade, preparing to trade and commence trade within two years, or conducting research and development. Most trades qualify, however, there are a number of exclusions: • Dealing in land, commodities, futures, securities or financial instruments (including investment activities) • Dealing in goods other than normal retail or wholesale distribution • Banking, insurance, hire purchase, money lending, and other financial activities • Leasing • Receipt of royalties or licence fees • Legal and accounting services • Property development • Farming and market gardening • Forestry • Operating or managing hotels or residential care homes • Coal production, steel production and shipbuilding • All energy generation activities (from6 April 2016) 8 Excluded activities must not be a ‘substantial’ part of the company’s trade. HMRC take ‘substantial’ to mean more than 20% of the company’s activities. 1 NOT be in financial difficulty (as defined by EU guidelines). 2 Be unquoted (however, the AIM market is not a recognised exchange for this purpose). 3 NOT control another company which is not a subsidiary of the company; and it cannot itself be controlled by another company and there can be no plans in place at the time of the share issue that would jeopardise this independent status. 4 Have a permanent establishment in the UK (the company does not need to be a UK company, however). 5 Have fewer than 250 employees (or 500 for a knowledge-intensive company). 6 Have gross assets under £15m immediately before shares are issued and under £16m immediately after shares are issued. However, the company can continue to grow afterwards.