VCM60150 - Venture Capital Schemes Manual: venture capital schemes: advance assurance requests: the Enterprise Investment Scheme: circumstances where HMRC will not give an advance assurance

HMRC will not give an advance assurance where the relevant shares have already been issued. In that situation the company should submit its compliance statement, form EIS1(VCS)v3.0 in accordance with the statutory procedure (see VCM14090).

HMRC will not give an advance assurance if it is not satisfied that the company is likely to meet all the qualifying conditions.

HMRC may decline to provide an opinion on an advance assurance application. This can be the case where:

  • the information provided, or the nature of the proposed activity, does not enable HMRC to come to a conclusion about whether a company would be eligible to receive an EIS investment
  • it appears the shares may be issued or subscribed for, for the purposes of tax avoidance. See VCM11040 and VCM12090 as to what is considered to be ‘tax avoidance’ in the context of the venture capital schemes
  • HMRC considers the investment is the result of aggressive tax planning by pushing the boundaries of the law
  • HMRC considers the investment would be outside the principles or objectives of the scheme as set out in this guidance or elsewhere, for example where the terms of an investment would mitigate risk by ensuring that equity is repaid
  • a proposed investment 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
  • the ‘risk to capital’ condition or the ‘disqualifying arrangements’ requirement is not met. Please refer to VCM8500, VCM60160 and VCM12100 for more details of these requirements.

Refusal to grant an advance assurance does not indicate that HMRC has already reached a view about how the legislation will apply. Rather than attempting to form a view in advance of the company carrying out its intentions, HMRC may want to examine the facts at the time the company provides its compliance statement (EIS1(VCS)v3.0). This may include the circumstances in which funds have been raised, or activities commenced, shares issued and directors appointed; along with the detail of transactions entered into by the company and any associated transactions entered into by third parties which might reasonably be considered to be part of a planned set of arrangements.