A welcome boost for SME funding

The government’s move to introduce flexibility for replacement capital within Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes, as revealed in the recent Autumn Statement, has been welcomed as it is a boost for small business funding.

Replacement capital is finance that has previously been provided to a business but has been returned to the funder. Until now, EIS funding has not been allowed to replace that capital.  However, the news that replacement capital may now be allowed within EIS and VCT regulations, subject to state aid approval, brings the UK in line with the EU.

Replacement capital was not allowed under the original UK scheme regulations, but it is allowed under the overarching Global Block Exemption Regulations that govern tax-advantaged venture capital schemes in the EU.

This is an anomaly that looks like it will be rectified, although it’s likely to be next year when the details are finalised. When it is though, the UK will be on a level playing field with the rest of the EU, which is going to be beneficial for the economy and strengthen the finance that is available to businesses.

The move is likely to allow 50 per cent of any investment to be in the form of replacement capital up to a maximum of £5 million, limited to half of this figure in any rolling 12 month period.

This news could result in a new source of funding for SMEs as well as giving private investors greater flexibility over the companies they invest in.

If you would like more information, please contact Stuart Hinnigan at the office.