By Rebecca Day, Associate, Nabarro
In his Summer Budget of 2015, the Chancellor of the Exchequer announced certain changes to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes.
The changes include further conditions that must be satisfied in order to qualify for relief under the schemes and provisions that are designed to enable "knowledge-intensive" companies to qualify for SEIS/EIS/VCT. They include increasing the number of employees a knowledge-intensive company can have to 500 and still qualify for the schemes. "Knowledge-intensive" companies are broadly defined as companies that at the time of the issue of shares are engaged in creating IP and it is anticipated that they will exploit the relevant IP or that business which results from the use of the IP will form the greater part of the business of the company in the 10 years following the issue of the shares. The companies must also have at least 20% of their full time employees (or the equivalent) who have a higher education qualification.
The main changes to the schemes which are to be introduced are as follows:
(1) The independence condition - at the time that the shares in the relevant company are issued to an investor, the investor must be independent from the company. This means that at the time the shares are issued, they cannot hold any other shares in the company, other than other EIS and SEIS shares or founder shares.
(2) The purpose of the investment condition - the investment must be made with the intention to grow and develop the business of the company — the legislation sets out that funds from EIS/VCT investors cannot be used to directly or indirectly acquire an existing business or trade, including the goodwill, intangible assets such as IP nor can they be used to fund a takeover.
(3) A lifetime cap on SEIS/EIS/VCT investment has also been introduced. Companies that are not knowledge-intensive will have a lifetime cap of £12million and companies that are knowledge-intensive will have a lifetime cap of £20million. This is in addition to the annual investment cap of £5million.
(4) The "age-limit" condition — broadly, and subject to some exceptions, knowledge intensive companies will only be able to receive EIS/VCT investments for 10 years following their first commercial sale and companies that are not knowledge-intensive will only be able to receive EIS/VCT investments for seven years following their first commercial sale.
One further change that came into force on 6 April 2015 is that a company no longer has to have spent 70% of any SEIS investment it has received before it can receive EIS investments. This condition was removed as it was felt that the flow of investments was interrupted and this was not helpful for the companies.