On 30th December 2019, HMRC added new guidance to the Venture Capital Reliefs Manuals in relation to Advance Subscription Agreements (“ASAs”) in relation to the SEIS and the EIS.
The new guidance confirms HMRC’s longstanding viewpoints on a number of technical aspects. For example the ASA must not function as an investment instrument that offers other benefits, such as investor protection. The new guidance also states that HMRC do not consider that ASAs are suitable for SEIS and/or EIS unless the agreement:
– Does not permit the subscription payment to be refunded under any circumstances;
– Cannot be varied, cancelled, or assigned;
– Bears no interest charge; and
– Has a longstop date (expected to be no more than 6 months from the date of the agreement).
Without these characteristics, HMRC are likely to consider that the advance subscription is, in effect, a loan (and loan conversions do not qualify for SEIS or EIS).
However, the guidance sets out a new stance from HMRC in that if the company wishes to apply for advance assurance it should do before the ASA is entered into. If advance assurance is applied for with an ASA already in place, HMRC will now reject the application (on the basis that the advance assurance service is a discretionary, non-statutory service and their standpoint is that advance assurances are not mandatory in order to obtain EIS relief. HMRC appear to be of the view that an investment is ‘as good as made when entering into an ASA’ so there is no need for them to consider an application in advance) and instead the Company should rely on the S/EIS1 compliance statement submission at the appropriate point following the share issue.
HMRC’s new guidance can be found as follows:
Companies using template ASAs will need to take advice specific to their circumstances.
