VCT: VCT approval: breach of approval conditions: correction without delay
When a company breaches, or is aware that it is going to breach, any of the approval rules it should immediately commence remedial action to correct the breach. It should also write to HMRC setting out the circumstances and providing details of the method by which it intends to correct the situation with a timetable where appropriate.
The company is required to correct the breach of the rules without delay. It should not delay the start of corrective action until agreement is reached regarding the timetable with HMRC. This will require positive action by the company and may require the company to take actions that it would not otherwise carry out.
For instance, a company that had breached the 70% test may need either to make early further investments, return funds to shareholders, or both. It is unlikely to be sufficient for the company to continue with its normal timetable for investing or paying dividends. The plan submitted to HMRC will need to contain active and immediate steps to comply.
Where it is agreed that a breach cannot be remedied immediately, HMRC will expect regular updates on the steps being taken to meet the approval conditions. Any delays in meeting the timetable due to circumstances beyond the company’s control may be considered an extension of the original inadvertent breach and the timetable may be extended accordingly.
If the company otherwise fails to remedy the breach within the agreed timetable, or if no timetable can be agreed, then HMRC may consider that the breach can no longer be considered outside its control and may withdraw approval from the company.