Companies that are seeking subscriptions under the EIS may seek an assurance from the Venture Capital Reliefs Team (VCRT) at HMRC that a prospective investment is likely to be eligible, before issuing the shares. The advance assurance service is discretionary and non-statutory. There is no requirement for a company to obtain an advance assurance before receiving an investment or issuing shares to investors.
The advance assurance service allows the company to provide information about its intentions; about its structure and activities, about the proposed investment and about how the monies raised will be used.
As mentioned, there is no obligation upon firms to go through this advance assurance process, but it does provide an opportunity to spot any problems before the shares are issued and an assurance from the VCRT is useful for companies to show to potential investors. In addition, HMRC requires a similar level of detail as an advance assurance application when the company submits an EIS1 application (if it has not had advance assurance), so providing this information in advance may well speed up the EIS1/EIS2/EIS3 process.
Advance assurance is NOT a guarantee that a share issue qualifies or that the company will continue to qualify. If something important was not disclosed to the VCRT or, if between receiving advance assurance and the share issue something changes, it may be that the share issue or company is no longer qualifying.
However, if nothing has changed, advance assurance is normally considered binding on HMRC (although EIS tax reliefs are also subject to the circumstances of the individual investor, which HMRC will not opine on in advance).
From early 2018, HMRC has declined to consider speculative applications. Confirmation of who the likely investors are is required before HMRC will give an opinion. If details can’t be provided HMRC rejects the application.
HMRC has also confirmed that it does not intend to identify which companies qualify as KICs at the time of advance assurance review unless this status is relevant to the proposed investment (for example if a prospective investor is interested in investing over £1 million into the company in a single tax year, or if the company is raising more than £5 million from EIS investors in a tax year).
This piece has been published as part of the first Adviser’s Guide to the Enterprise Investment Scheme to access the guide click here