It appears from the recent publication by HM Treasury that there have been some definitive responses to the recommendations made by the Treasury Select Committee’s 2022 inquiry into venture capital, with implications for the UK’s venture capital ecosystem. A summary of the key points from the response is as follows:
- Extension of EIS and VCT Schemes: HM Treasury has committed to providing more certainty for founders and investors about the continuation of the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes beyond April 2025. However, it has rejected the proposal to extend the seven and ten-year company age limits for support through these schemes, citing concerns about potential distortion in the investment landscape and the displacement of the primary focus on smaller, risk-focused companies.
- Funding Limits for Scale-Up Businesses: HM Treasury has also rejected the recommendation for higher funding limits on the EIS and VCT schemes to support scale-up businesses. Instead, it emphasises the role of British patient capital funds and pension funds in providing dedicated funding solutions for growth and scale-up, underlining the importance of addressing market failures specifically in the early stages of businesses.
- Diversity and Inclusivity in Venture Capital: While acknowledging the need for a more diverse and inclusive ecosystem, HM Treasury did not support the idea of making diversity statistics a requirement for eligibility to receive EIS and VCT tax reliefs. It highlighted the challenges associated with this proposal, particularly in terms of accessing information from investee businesses. Additionally, while not making membership of the Investing in Women Code compulsory for the venture capital industry, HM Treasury recommended adopting a “comply or explain” policy, signaling that the default expectation should be for venture capital funds to become signatories. The possibility of compulsory membership of the IWC might be considered in the future if there is no significant improvement in the number of signatories and diversity statistics reporting.
UKBAA, has been participating in the discussions advocating for the interests of its business angel and other angel group members and support the implementation of any forthcoming policies that may impact the venture capital landscape in the UK.
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