The Government has announced plans to refocus both EIS and VCTs to ensure they are targeted at genuine risk capital investments.
As part of the Budget 2011, the Government has also announced that it plans to place “feed in tariff businesses” such as solar and wind companies into the exluded activities list from April 2012.
Chancellor George Osborne has announced plans to increase the level of income tax relief for enterprise investment schemes from 20 to 30 per cent from April.
From April 2012 the Government will also double the annual EIS investment limit for individuals to £1m and increase the qualifying company limits to 250 employees and gross assets of £15 million for VCTs and EIS. The Goverment will also increase the annual investment limit for qualifying companies by 400 per cent to £10 million for both vehicles.
The Government will consult on options to provide further support for seed investment, simplification of the EIS rules by removing some restrictionson qualifying shares and types of investor.
Albion Ventures managing partner Patrick Reeve says: “I think this refocus is a sensible. Up until now a number of VCTs have been targeting investments that don’t fill a policy need – essentially a business that could be covered by bank finance – and the proof is that the targeted returns that they are looking for from their investments is 5-6 per cent, which is far too low.”
Reeve says he can see why solar has been added to the excluded activities list in 2012 under the feed in tarifff businesses banner, but says there are other parts of that market which are more complicated and the banks are not lending.
He says: “An example would be anaerobic digestion – the changing of waste food into energy – because that is a complex process that is also expensive, the banks are not lending but VCTs are beginning to and there are not many others who can invest so that is a shame. The banks are also not lending on the likes of wind or hydro businesses therefore there is a policy need where VCTs are appropriate.”
Hargreaves Lansdown investment manager Ben Yearsley says: “Ultimately you are getting a tax relief on top of a Government incentive. The easiest way to calm it down was to say you cannot do any of it. If they attract enough investment in their own right the banks will lend in that space, if not, then maybe VCTs should not be in there in the first place.”