The Chancellor laid the platform for a lot of news on the knowledge economy and supporting the so called ‘fourth industrial revolution’ but this didn’t really materialise.
There were announcements in respect of funding of various funds that will be made available to the right sort of businesses, but not too much else. They announcements from a tax perspective were effectively two fold:
Firstly, whilst there were no changes to the already generous R&D tax credit rates for SMEs, there was an increase for those companies claiming under the large (RDEC) scheme from 11% to 12%.
From a fundraising perspective it was announced that the limits associated with EIS (the Enterprise Investment Scheme) would be doubled – that is to say from £1m to £2m per individual per annum, and from £5m to £10m for each fundraising entity per annum.
Secondly, at the same time it was announced that a new rule would be introduced to ensure that EIS was only available where investment was made into businesses which are ‘genuinely entrepreneurial’ in nature. What is proposed is a ‘risk to capital’ test which is not outlined in any great detail but one assumes must go beyond the current ‘growth and development’ test inherent in the EIS rules for example. One suggestion is that a mechanistic approach seen in other areas of the tax code (such as the carried interest provisions) might be the way that HM Treasury will go on this.
The HMRC note also confirms that they will cease to provide advance assurance on investments that would not appear to meet the conditions – this doesn’t sound like a wholesale removal of the advance assurance facility for EIS, but I suspect we will see HMRC being asked to clarify this statement further.