Venture capital trusts have been forced to stop issuing new shares after guidance from HM Revenue & Customs made it appear the companies would lose their tax-efficient status if they did so.
The wording of the guidance, iss-ued as part of the Finance Bill, could be taken to mean that any VCT paying dividends to shareholders who joined after 6 April would lose its tax-efficient status.
In fact the legislation is intended to prevent VCTs from using new, uninvested money to pay dividends to investors from 6 April.
The Association of Investment Companies has issued guidance to members on the situation and is in discussions with HMRC about resolving the issue.
HMRC has told the trade body: “HMRC’s view is that the new section does deliver the policy intent. That is, we think it has the effect of resulting in a withdrawal of approval only where a repayment of capital is in respect of capital raised from shares issued on or after 6 April.
“Notwithstanding that, to allay concerns about any perceived ambiguity, the Government intends to make a minor amendment to the legislation during the passage of the Bill to ensure it is absolutely clear that the wording relates only to capital raised in respect of shares issued on or after 6 April.”
Tax Efficient Review editor Martin Churchill says: “This interpretation contrasts with earlier indications of how the provisions on return of capital were intended to operate.
Previous policy statements had indicated that the new restrictions, and potential for a loss of status, would only apply to payments made out of funds raised on or after 6 April.
“However, venture capital trusts are being correctly prudent and it appears are either not issuing shares yet in tax year 2014/15 or, in one case, postponing the payment of a dividend.”