Venture Capital Trust Association (VCTA) submission to the Treasury Select Committee’s SME Finance Enquiry

VCTs offer young, innovative and high-tech businesses up to £12m (£20m for Knowledge intensive SMEs) of risk capital for the long-term growth and development with experienced investors who offer their own human capital to help SMEs overcome the challenges they face when scaling up. 

Changes to the scheme rules in November 2015 have resulted in extremely lengthy delays in HMRCs processing of VCT investment applications.  These delays are preventing the effective delivery of risk finance to SMEs, causing serious problems for the businesses themselves.  Addressing these delays would mean that VCTs would be more effective in being able to invest in SMEs across the UK who are trying to scale up and employee more people.

Within the last few weeks, and while this inquiry into SME finance has been taking place, HM Treasury and HMRC have begun to address this issue. HMRC have said that they will not withdraw VCT status for an ‘inadvertent’ breach of the investment rules where the VCT has relied on the opinion of professional advisers before making an investment.

This is a helpful step but the VCTA believes that for VCTs to once again rely on professional advisors and unblock the investment process:

a.       HMRC needs to provide greater clarity concerning areas where it currently exercises a judgement over certain investment conditions;

b.      guidance on what actions a VCT would need to take to remedy an ‘inadvertent breach’ of VCT rules; and

c.       allow VCTs to hold a small number of investments that HMRC subsequently deems to be non-qualifying despite having relied on professional advisers.

Click here for more details about the Committee's inquiry.

See the full submission here.