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abuse was not widespread and therefore
made a simple rule change to prevent
VCTs returning capital that does not
represent profits within three years of
the shares being issued.
COSTS AND BENEFITS TO
THE TAXPAYER
Although we constantly praise VCTs
and the other tax-advantaged Venture
Capital Schemes, what can be sometimes
forgotten is that these schemes
actually come at a cost to the taxpayer
– the reliefs represent money that the
government could have chosen to spend
elsewhere. Therefore it’s important to
measure - or at least attempt to measure
- the value for money these schemes give
to the taxpayer.
We collated all the data that HMRC
published on these schemes in their
annual statistics reports and tried to
come up with an estimate of what the
upfront cost is to the taxpayer, based on
the prevailing Income Tax relief that year,
for each of the Tax-Advantaged Venture
Capital Schemes.
Note - this is the upfront cost and does
not consider CGT relief, loss relief or IHT
relief - all of which are available through
one or more of these schemes.
There has been a significant amount
of fundraising in each sector since
inception. EIS has raised £12.2 billion,
VCTs a slightly smaller £5.5 billion and
SEIS has raised just under £250 million
in 2 years. This is for a total of about £18
billion across all the schemes since 1993.
This represents investment into small
businesses, in the expectation that
some of these companies will drive
economic growth and job creation in the
UK. However, at the moment it is very
difficult to know how well companies
that have benefited from the schemes
are doing (we asked HMRC and they do
not collect this data at the moment).
What we can see is that the upfront cost
to the taxpayer. Approximately £4.45
billion of Income Tax Relief could have
been claimed by investors since 1993.
“VCTs, with their associated tax breaks, provide investors with valuable exposure to small,
growing unquoted UK Companies”
Will Fraser-Allen, Albion Ventures
If the sample of investee firms the AIC
used in their “Going for Growth” report
is indicative of the success of other
recipients of funding via these schemes
(89% of the tax relief was returned in
just a single year of operation), then this
represents a very good investment by
the Government into the UK economy.
“Providing Growth capital
to dynamic UK businesses
that we believe offer real
potential for rapid expansion
has always been at the heart of
the ProVen VCT’s investment
strategy. This approach is
also totally consistent with the
central objective of the new
VCT regulations introduced
at the behest of the European
Commission, which is that all
VCT investments made under
the new rules should be for the
“Growth and Development”
of the company receiving the
investment.”
Stuart Veale, Beringea LLP