AIM fundraisings already being choked by EIS and VCT clampdown
Tighter rules on AIM company fundraising under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) are finally expected to be introduced next month, though some firm have already begun feeling the pinch.
In March, George Osborne lowered the annual cap for money raised under the VCTs or EIS schemes, which offer generous tax breaks for investing in higher-risk smaller companies, to £15m. In July the Chancellor proposed this limit be further reduced to £12m.
Although the new rules were announced earlier this year, they have yet to be implemented but they are expected to be backdated to April 2015 when they are eventually signed off.
These proposed rule changes could be finalised in November, following negotiations between the HMRC and the EU, according to the AIM Journal.
Some AIM companies have already lost out on some investment due to likelihood that the EIS changes will be backdated such that those that have raised money via EIS since 6 April and fall foul of the new rules may see HMRC claw back the tax relief.
The proposed new criteria included the provision that a company raising cash should be within seven years of its first commercial sale.
There is a higher £20m limit and ten-years from a first commercial sale for companies that are 'knowledge intensive', or which spent at least 15% of their operating costs on research and development in one of the previous three years, or 10% a year for each of three years, and are creating intellectual property.
The EIS scheme has enabled £12.2bn of fundraising since it was introduced, with the 2013-14 tax year seeing a record £1.46bn raised by 2,710 companies, up from £1.03bn drummed up by 2,465 companies the preceding year.
Some AIM advisers had expected the Chancellor's finalised rules to be announced in October but now think it will be November, perhaps timed around the autumn statement on the 26th.
Osborne said he wanted to ensure the tax breaks helped young, start-up companies rather than easing management buy-outs of older businesses and also to bring UK tax breaks into line with EU State Aid rules.
But wealth managers argued this would result in lower fund raising and more competition for deals, as is being felt already.
The new rules are subject to final approval by the European Commission on state aid, as the government has gone beyond the minimum requirements set out in the new EU definition.