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Tax-advantaged venture capital schemes – streamlining the advance assurance service – consultation response

By Philip Hare
5 December 2017

On 1 December 2017, HMRC issued their response to the consultation that took place in relation to the advance assurance service for the tax-advantaged venture capital schemes (SEIS, EIS, VCT and SITR). The consultation was announced at Autumn Statement 2016 and closed on 31 January 2017. HMRC published a summary of responses on 20 March 2017 and have now provided their full response following a number of new measures announced in the Autumn Budget 2017.

HMRC are clear that, whilst advance assurance is a discretionary, non-statutory process, the service is valuable and should remain. They are however, taking steps to change the service with an overall message of prioritising applications that are within the spirit of the venture capital schemes and are most in need of Government support.

HMRC plan to digitise the advance assurance process in order to help reduce errors. This is part of a wider digitisation of compliance statements (SEIS1s, EIS1s etc) and we have seen some BETA testing during 2017, with launch expected sometime in 2018.

HMRC report that more than a third of current applications do not result in an investment. To ensure that HMRC resources are used efficiently, they have announced that they will not provide an advance assurance for what they describe as ‘speculative applications’. From 2 January 2018, they have stated that they will only provide an opinion where an application names the individual(s), fund manager(s) or other promoter(s) who are expected to make the investment.  We hope that applications will be considered where companies can identify generic investors such as business angels, VCTs, EIS funds, crowdfunding platforms etc.

HMRC already decline to provide advance assurance where they believe that the proposed investment is part of ‘an aggressive tax planning scheme’. The new ‘Risk-to-capital’ condition introduced in the draft Finance Bill 2017/18, explained in our note here, now gives HMRC an opportunity to decline to give an advance assurance where, in their opinion, it is reasonable to conclude that the proposed investment is part of a capital preservation arrangement. This takes effect immediately and their views are based on the recently released guidance and Finance Bill. They will not engage in correspondence over whether applications should or should not be considered.

HMRC have announced that they are working to improve their written guidance on the venture capital reliefs so it is clearer and more comprehensive. The new guidance will include a checklist to assist companies identify the documents and information HMRC require.

HMRC announced in the Patent Capital Review Response that by spring 2018, these measures should ensure that the vast majority of applications will be dealt with within 15 working days.

Expert, Impartial Advice

Tax relief schemes are a key part of the UK Government's strategy to help small and growing businesses raise much-needed capital. We advise businesses looking to raise money under these schemes and can deal with HMRC on your behalf.