EU widens scope of VCT scheme

The European Commission has approved measures that will increase the number of companies eligible for the UK’s tax friendly Venture Capital Trust scheme.

The UK government has received approval from the European Commission to introduce changes to its Venture Capital Trust (VCT) scheme to help promote its growth agenda.

The VCT scheme sets out  limitations of what companies a venture capital trust can invest in. 

The government can now increase the size of companies which can receive investment from VCTs from assets of £7 million ($11 million; €9 million) to £15 million. It is also expected that companies with a headcount of up to 250 will be able to accept funding of as much as £5 million. Currently only companies with 50 or fewer employees are able to accept investment of up to £2 million.

“Convincing the Commission that VCTs should be able to invest in a wider range of business has been a demanding task,” said Ian Sayers, director general the Association of Investment Companies, the trade body of closed-ended investment companies in a statement.

He added that State aid rules set stringent conditions to how much help a government can provide small to medium sized business. State aid stops European countries giving too many incentives to its own companies to ensure fair competition across Europe. The approval will allow the UK to have one of the most generous incentive schemes in Europe. 

“The EU and HMT [Her Majesty’s Treasury] have created more certainty for investors and increased funding opportunities for a wider group of companies,” said Will Fraser-Allen, deputy managing partner at Albion ventures, in a statement.

The scheme offers certain tax benefits to investors. Those investing are exempt from income tax on dividends received from the VCT and also benefit from income tax relief which is available to be set against any income tax liability.