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Can you save tax with an enterprise scheme?

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19 September 2011

The Government is planning to stop alleged abuse of the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme. Although we agree that any abuse of the schemes should be legislated against, we are concerned that any changes could inadvertently affect innocent businesses and individuals wanting to benefit from the schemes. 

EIS helps smaller high-risk trading companies to raise finance. It does this by offering tax reliefs to investors who subscribe for shares in those companies.

The VCT scheme also helps smaller high-risk trading companies. It provides tax reliefs for investors into the VCTs themselves, which in turn invest in a number of smaller EIS-like companies.

What’s the problem?
The Treasury says that in the most blatant cases a dummy company is formed with no staff; it subcontracts all its business activities to larger companies and then after a short period of time the company is struck off. In the Treasury’s view in cases like this it appears that the structure has been created purely to access tax relief.

What’s going to happen?
It is anticipated that the Government will introduce legislation in Budget 2012. We hope that the consultation will ensure that only those trying to abuse the schemes will be caught by any changes in legislation. Our fear is that because each scenario is unique it might be too difficult to restrict the changes to cases of actual abuse.

On the other hand there is potentially good news in that the rules surrounding the current EIS and VCT schemes are due to be simplified and made more generous for some from April 2012.