Advance assurances and EIS1 applications
VCM 14030 to 14050 provides detailed guidance on the advance assurance process. This section explains how the new rules affect the advance assurance process. The guidance in VCM 14030 to 14050 will be updated later to incorporate these changes.
All advance assurances and EIS1 applications must be accompanied by:
- The latest accounts of the company and accounts of any subsidiary company
- The company’s business plan
- The latest draft of any prospectus or similar document to be issued to potential investors
- An up to date copy of the Memorandum and Articles of Association of the company and its subsidiaries with details of any changes to be made
- A copy of the register of members at the date of submission of the advance assurance application or at the date of the EIS1 compliance statement (whichever applies)
- Details of any subscription agreement or other side agreement to be entered into by the shareholders
- Any other relevant information, for example documents to support a company’s view that it is a knowledge-intensive company and group structure diagram.
Additionally, the company should explain how the growth and development condition will be met and be prepared to provide supporting detail or documentation along with evidence of how proposed trading activities will be structured and carried out.
The advance assurance service is a non-statutory service offered by HMRC on a discretionary basis.
When HMRC provides an advance assurance it is no more than HMRC’s opinion of whether a proposed investment will be eligible under the specific scheme (EIS, VCT, Seed Enterprise Investment Scheme or Social Investment Tax Relief).
There may be times, particularly in the more complex cases that push the boundaries of the law, where HMRC may refuse to provide an advance assurance. For example, HMRC will not provide an advance assurance for a proposed investment that exploits a loophole in the law that is contrary to the intentions set out in this guidance or elsewhere, including in the State aid guidelines.
All companies seeking a relevant investment must have a business plan. It is not expected that this should be a new document produced for advance assurance, but one that has already been provided or is to be made available to potential independent investors as part of any company’s normal commercial arrangements for seeking investment from the market. The business plan is a key document to persuade independent investors to invest in the company and should contain the same level of detail as any potential market investor or lender, for example a bank, would expect to see.
The level of detail will vary depending on the size of the company, its development stage and the amount of investment the company is seeking. The larger the company and/or the investment, the greater the detail that will be required for example in terms of turnover and profit forecasts. All business plans should explain how the money is to be spent, including the relevant business activity, and give details of any follow-on funding that is likely to be needed.
Where the relevant investment is follow-on funding of an earlier relevant investment the business plan should also refer back to the earlier business plan and explain how the previous investment was used. Follow-on funding received after the end of a company’s initial investing period must always be used for the same relevant business activities as a relevant investment received before the end of the company’s initial investing period or where condition B is met.
The business plan should also explain how the investment will lead to the company’s growth and development in terms of, for example, increased turnover or employees.
Where a company is seeking follow-on funding HMRC officers may ask for further information about the initial relevant investment especially if the initial relevant investment was received before 18 November 2015 and no business plan was provided at the time of the earlier investment.
However HMRC will take a pragmatic approach to companies that did not provide a business plan in relation to investments received before 18 November 2015, particularly smaller companies that may not have been aware of the need to provide a business plan at the advance assurance stage. Note that the first relevant investment must always have been received by the company within the permitted maximum age limit.