04 Mar 2017

Anyone starting a business that requires external investment should take notice of this important Government consultation on the Advanced Approval process for Seed Enterprise Investment (SEIS), Enterprise Investment (EIS) and Social Investment SITR) tax relief schemes. For UK investors and tax efficient Funds Advanced Approval whilst not compulsory has become a pre-requisite as a guide that an investment will qualify for tax relief under these schemes. With the generous allowances, available start-ups will be expected to qualify.

Demand for advance assurance has trebled since 2011/12.  Response times are already lengthening and HMRC warn that any further increases in demand will have an impact on standards of service.

HMRC sought comments as to how the service can be made more efficient, and how cases with the greatest uncertainty could be prioritised.

The consultation period closed earlier this year and HMRC have published a summary of the views gained from interested parties. There is natural concern that due to the pressures on HMRC to turn around applications quickly, one of the options might be to scrap the Advanced Approval process all together. With the need for guidance that a new company’s business and the investment required will qualify essential this should be of concern to all seeking early stage investment. A copy of the summary report can be downloaded here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/601206/Tax-advantaged_venture_capital_schemes___streamlining_the_advance_assurance_service_-_summary_of_responses.pdf

Interestingly some 50% of all applicants for AA (Advanced Approval) do not go on to raise funding. However, this may not be voluntary but that the business proposition cannot raise investment.

Even where AA is granted a number of investors still fail to secure tax relief because the investment is subsequently found not to be eligible as the deal has changed since receiving advanced Approval.

David Maas, SSF 052017