When a firm launches an EIS, it typically submits an advance assurance application to HMRC to ascertain whether the proposed investments are likely to qualify for the tax reliefs.
HMRC is consulting on potential changes to EIS legislation and, according to Octopus, has become more reluctant to grant advance assurance.
Octopus suspended its EIS to new investment on February 5, warning in a letter to advisers that it did not expect to “be able to obtain advance assurance in the next few months on a sufficient number of companies to meet the anticipated level of investor demand” before the end of the tax year. Money Marketing understands that it had raised £10m.
Downing Corporate Finance says its asset-backed EIS fund and special opportunities EIS fund are unaffected.
Leading Edge Adviser Forum chairman Ben Stevens says: “Octopus has taken the cautious approach of withdrawing its EIS. Other providers could follow. Those that do not seek advance assurance are putting clients as risk.
“Any EIS viewed by HMRC as tax-driven is at risk of no longer receiving advance assurance. Whether this is a result of EIS being used as a top-up to pensions due to anti-forestalling measures is unclear.”
An HMRC spokeswoman says: “There have been no changes to the EIS advance assurance process and there are no plans to make any changes.”