Autumn Statement 2014 Predictions: Good news for Venture Capital Schemes

Written on 28 Nov 2014

The Chancellor is likely to improve tax breaks in order to improve the availability of non-bank funding to small and medium sized businesses (SMEs)

Improvements are likely to be made to three schemes aimed at SMEs – venture capital trusts (VCT), enterprise investment scheme (EIS) and the seed enterprise investment scheme (SEIS) following lobbying from business groups. The three schemes offer generous tax breaks to encourage investment in SMEs and in the case of SEIS, early stage companies and start-ups.

The expected changes include the extension of EIS and SEIS to allow the use of convertible loan notes and an increase for the investment limits for SEIS companies. The use of loan notes allow cash strapped companies to receive further investment more quickly although the loan is expected to need to be replaced by shares as soon as an appropriate share price can be agreed.

These changes will be welcomed by many UK entrepreneurs, particularly those in the gaming sector who have been lobbying George Osborne for some time.

In essence the venture capital schemes appear to be working well in helping bridge the equity gap for those small and medium sized companies who cannot access funding from more traditional routes, although the rules are complex and could sensibly be simplified to reduce compliance costs. Further improvements can only be good news.