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HMRC internal manual

Venture Capital Schemes Manual

Introduction to the Venture Capital Schemes: Overview and background: State aid implications

All the venture capital schemes are State aids.

The EIS and VCTs are approved State aids.

The SEIS is a de minimis State aid.

The SITR is a combination of a notified State aid and a de minimis State aid, and which one applies to an investment depends upon the circumstances of the investment.

State aid refers to forms of assistance from a public body, or publicly-funded body, given to selected undertakings (any entity which puts goods or services on the given market), which have the potential to distort competition and affect trade between member states of the European Union. As a general principle the EC Treaty prohibits State aid, but it recognises that there are circumstances where the provision of aid by Member States is necessary to help achieve Community objectives, and contains a number of exemptions which enable Member States to grant State aid legally.

It is these Treaty exemptions, on which the Commission’s Frameworks, Guidelines and Block Exemptions are based, which enable Member States legally to give certain kinds of aid that will help achieve Community market or equity objectives.

In the case of the EIS and the VCT scheme it is the whole tax-advantaged investment in the target companies which constitutes State aid. The beneficiary of the aid is the company receiving the investment. This aid is permitted providing the Commission approves it as coming within the parameters of the European Commission’s Guidelines on State aid to promote risk finance investment, which expands on Article 21 of the General Block Exemption Regulation. The Guidelines and Article 21 specify various conditions for the companies which may benefit from risk finance investments and the specific details of the EIS and VCTs, such as company size, age and investment limits are approved by the European Commission.

Investment made under the SEIS is also a State aid. However the level of aid provided by that scheme falls below the level at which notification to the Commission is required, providing that the scheme otherwise complies with the Commission’s regulations on de minimis aid. The amount of aid is not the amount of the investment but given by a formula in the SEIS legislation, broadly based on the amount of tax relief that the individual investor might claim.

There are two types of State aid within the SITR, each with difference investment limits, the de minimis State aid and the General Block Exemption Regulation (GBER).  The SITR guidance contains further guidance.

See VCM12030 for more information about investment limits.

For all the venture capital schemes HMRC is obliged to keep records of all tax-advantaged investment obtained by companies under the schemes in sufficient detail to demonstrate that aid is justified, and to make those records available to the Commission upon request.

Certain details of companies or social enterprises receiving EIS and/or VCT and/or SITR investments totalling more than €500,000 in a 12 month period are published on an EU database under EU transparency rules.

For further details on State aid generally, see http://www.gov.uk/state-aid.