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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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Background to Venture Capital Schemes: State aid implications

Both the EIS and the VCT scheme are approved State aids and any changes to the schemes require approval from the European Commission before implementation.

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 tax-advantaged investment in the target companies which constitutes State aid. This aid is permitted providing the Commission approves it as coming within the parameters of the Community Guidelines on State Aid to promote Risk Capital Investments in Small and Medium-sized Enterprises. The Guidelines dictate the type of investment which may be approved, as well as the size of companies which may benefit under the schemes and the maximum amount which companies may raise annually under the scheme.

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.

See VCM12030 for more information about investment limits.

For all three 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.

For further details on State aid generally, see