One snippet from the Proven VCT AGM yesterday, when I asked about deal flow and the time that it is taking for HMRC to clear deals (a real headache for VCTs. Proven lost one deal because the clearance process was far too slow). Stuart Veale flagged the fact that HMRC have issued fairly recent guidance to the effect that HMRC will not withdraw approval from a VCT, should it make a non-qualifying investment where it has taken professional advice (it has to be a full legal analysis) that has concluded that the intended investment should qualify.
Apparently Proven are starting to rely on that guidance and not rely on formal HMRC clearance (still a lengthy process), in marked contrast to the previous standard position amongst the leading VCTs that they would only proceed on the basis of definitive HMRC clearance.
I have not heard that any other managers are following this same lead, but I can see that they might, particularly given the increased competition for deals. It isn't by any means risk free, so I would certainly look at the quality of the advisers that any VCT engages, aside from the level of their PI cover).
Yet another reason for VCTs not to cut costs and do the analysis in-house - as per Oxford a couple of years ago. That was always a really dumb decision. I have not yet seen any comment on this issue. It is now enshrined in the online HMRC Venture Capital Schemes Manual (page 55360).
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HMRC approval process - relaxation
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- Lemon Slice
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Re: HMRC approval process - relaxation
Interesting - here is the text that matters from https://www.gov.uk/hmrc-internal-manual ... l/vcm55360
What it doesn't say is what else they could compel the VCT to do to rectify the situation. Nor does it say if they will withdraw the pre-approval service but it does say they expect VCTs to do the work.
HMRC will expect a VCT to take all reasonable steps to ensure an investment would be qualifying. ‘Reasonable steps’ requires a full legal analysis by a competent person of the detailed terms and circumstances of the proposed investment. That analysis must set out why the investment is considered to meet each of the requirements of Chapter 4 of Part 6 ITA 2007 (and any other requirements, such as section 285 ITA 2007 needing to be met for the holding to be a qualifying holding). Provided that the VCT has taken such steps HMRC will not withdraw approval from the VCT if the investment subsequently turns out to be non-qualifying. HMRC will accept that the breach was outside the control of the VCT.
If there are genuine doubts about whether a proposed investment would be a qualifying holding, the company may seek an advance assurance from HMRC. The company must explain how it meets each condition, and draw attention in its application to each point of doubt with a full technical explanation as to why it believes the requirement is met.
What it doesn't say is what else they could compel the VCT to do to rectify the situation. Nor does it say if they will withdraw the pre-approval service but it does say they expect VCTs to do the work.
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- Lemon Slice
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Re: HMRC approval process - relaxation
Here is a relevant section from the recent British Smaller Companies (BSV) 2018 annual report:-
Until recently HMRC were struggling to process applications for advance assurance but the situation has now improved such that the average time taken to process applications is around eight weeks, a position not seen for quite some time. This is a welcome development and, while not yet meeting HMRC’s target of fifteen days, it has been a major factor in the recently increased level of investment.
The improved speed at which advance assurances are now being granted is an encouraging sign that HMRC are able to apply the new rules quickly. HMRC have also recently issued a consultation on new guidance that would allow investments to be made without seeking advance assurance, indicating that HMRC are seeking to have VCTs place greater reliance on their professional advisers when making an investment.
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