Talking Tax: New conditions for SEIS, EIS & VCT advance assurance applications

Andrew Holloway

Andrew Holloway

Director, Entrepreneurial Taxes

13 December 2018

    HMRC have recently made some amendments to the way they handle both SEIS/EIS/VCT advance assurance claims, as well as the follow-up certification process that is required to be worked through post investment. Our Entrepreneurial Taxes team have a number of years’ experience dealing with the HMRC’s Enterprise Centre on such matters, and below we share our thoughts on these recent changes, and our experience of working with clients to ensure these new conditions are met.

    HMRC will now only provide advance assurance where the company making the application names their proposed investors in their advance assurance application:

    “ We have certainly seen a significant increase in the speed of turnaround of advance assurance claims as a result of this change, as it has allowed HMRC to promptly consider and approve applications where the fundraising process is at an advanced stage, as opposed to spending time reviewing and responding to applications which may never come to anything.

    “ For our clients who are in the midst of fundraising processes, which can be all-consuming at times, having that prompt clarification can be a real shot in the arm, and can give investors that comfort that their position should be protected.

    “ On the flipside, we have seen a few instances where there is a classic chicken & egg situation, i.e. investors won’t move forward to diligence/discussions until the company can provide assurance that SEIS/EIS status is available, but the company cannot make the application either because of the fact they don’t have the ability to provide the names, or added to that, the Articles/Investment agreement have not yet been updated to reflect the proposed terms. As such, the clearance my not provide full worth. We have worked with clients and potential investors to understand this position, and come to an appropriate conclusion” 

    Andrew Holloway, Director and Head of Entrepreneurial Taxes

    The Risk to Capital condition seeks to ensure that relief under SEIS/EIS/VCT regimes is better targeted at growth investments by excluding investments that have ‘capital preservation arrangements’:

    “ We welcomed this change from HMRC and would note that it has had little or no fundamental impact on the entrepreneurial companies who we seek to support through the SEIS/EIS advance assurance process. We are recommending that clients are cognisant of this relatively new condition, and that the reasons why the condition is met are appropriately covered off in either advance assurance applications, or where a company is submitting an SEIS/EIS1 to HMRC.

    Suzanne Brownie, Senior Manager, Entrepreneurial Tax Team

    HMRC have also introduced the requirement that any money raised from SEIS/EIS/VCT investments must be used for the company’s organic growth & development:

     “ We would not expect that SEIS/EIS/VCT funds would be used to plug working capital gaps or be used to acquire a business, so we again welcomed the introduction of this condition and our clients have seen little or no negative impact. The significant majority of the companies we talk to are looking to grow their staff count, win new work, increase their customer base and all with the intention of increasing revenues, so the growth & development condition has simply led us to further document this in any applications made to HMRC.”

    “ We were also delighted to hear that HMRC have moved the SEIS and EIS compliance process online, making this process significantly easier to work through and complete for companies and investors alike. Between a reduced paper trail and email submissions being accepted with no requirement for a ‘wet signature’, this will significantly improve the efficiency of the process, with unique references being provided to investors for inclusion on their tax returns replacing the paper certificate system. Excellent news all round!”

    Emma Middler, Tax Manager, Entrepreneurial Tax Team