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29 April 2009

State aid approval for the UK’s three tax-based venture capital schemes

The UK’s three tax-based Venture Capital Schemes (the Enterprise Investment Scheme (EIS); Venture Capital Trusts (VCTs) and the Corporate Venturing Scheme (CVS)), have each received formal state aid approval from the European Commission. This allows the Government to provide certainty to the venture capital industry, investors and small companies over the future of the schemes.

These schemes remain a vital component of the Government’s strategy to support investment. The schemes have so far facilitated around £10 billion of investment, which has been invested in over 15,000 companies.

The schemes were notified to the European Commission as state aids in 2007. The Government is legally obliged to demonstrate that the rules governing the schemes comply with the appropriate guidelines and treaties.

A final set of four changes is required (see Editorial Notes below) to secure approval. Of these, the most significant is a relaxation of the rules relating to the location of small companies’ qualifying activity. The relaxation allows companies to receive investment under the schemes while enjoying greater opportunities to expand internationally.

Legislation implementing these changes will be introduced in Finance Bill 2010, to provide time for consultation with industry over the detail. Overall, the Government believes that the changes will increase use of the schemes, providing greater investment finance to small companies seeking to grow.

The Exchequer Secretary, Angela Eagle MP, said:

“This is excellent news for the venture capital industry, particularly at this challenging time. State aid approval of the three venture capital schemes allows the Government to provide certainty over the future of the schemes. The Government is confident that they will continue to encourage substantial investment into small companies which is vital to our economic recovery.”

Notes for editors

1.  The three schemes offer investors generous income, capital gains and corporation tax reliefs in return for investing in small companies undertaking a qualifying trade.

2.   The EIS has raised almost £6.3 billion, which has been invested in around 14,500 small companies.  VCTs have raised £3.5 billion and invested in over 1,500 small companies.  Around 400 small companies have raised around £74 million via the CVS.

3.  Four changes are required to secure approval. Failure to make these changes would result in the schemes being suspended.

4.   For all three schemes two changes will apply:

5.  Each of these changes will be legislated in Finance Bill 2010, providing time for consultation with industry on the detail.

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