There are four major issues creating uncertainty for product providers and advisers in enterprise investment schemes and venture capital trusts.
1: The retail distribution review is a great unknown for providers and advisers. Providers are getting to grips with the mechanics of no longer offering commission within the VCT and EIS fee structure and there has yet to emerge a single approach across the major product providers.
A single approach is needed to keep the whole process simple. However, no provider wants to break cover with an approach that could place it at a marketing disadvantage. The market this year may be heavily weighted to funds raised before the RDR comes into force. Advisers need to decide whether they will be offering advice which is independent or restricted.
2: The disqualifying purpose test is the most important change announced on December 6 2011 following the consultation on the refocusing of VCTs and EISs and will apply to shares in underlying investee companies issued on or after April 6, 2012. The test will disqualify shares which are issued subject to arrangements whose main purpose is to generate access to the reliefs in circumstances where either the benefit of the investment is passed to another party to the arrangements (that is, the investor), or the business activities would otherwise be carried on by another party. Currently, the Finance Bill is going through Parliament and most new EIS and VCT issues that are not generalist offerings are waiting to see what guidance emanates from HMRC after the passing of the Finance Act.
3: The uncertainty over the amount of funding which companies can raise from VCTs and EISs. The Government announced in the 2011 Budget that the rules would be changed with effect from April 2012 to increase the amount of funding which companies can raise from VCTs and EISs. Subsequently, a degree of uncertainty has been created by the draft legislation contained in the 2012 Finance Bill, published on March 29, which included some significant changes to the previous proposals, in particular a reduction to £5m in the annual investment limit per company. The VCT industry is still awaiting clarification from HM Treasury and the European Commission in relation to this matter
4: Concerning EIS only, the potential classification of EIS fund offerings as Unregulated Collective Investment Schemes and the potential impact that this could have on advice given by advisers is a source of great uncertainty and needs to be clarified in order to allow the EIS to fulfil its funding role properly.
I will be covering all these major issues over the coming months.
Martin Churchill is editor of Tax Efficient Review