Investors may find staking money into start-up and early stage businesses easier as the government looks at streamlining granting permission for companies to join tax incentive schemes.
HM Revenue and Customs (HMRC) is overwhelmed by floods of applications to raise funding, which have tripled in the past four years.
Entrepreneurs must have HMRC permission to join one of the four government approved schemes offering tax incentives to investors –
· Seed Enterprise Investment Scheme (SEIS) – for start-ups looking for no more than £150,000 from investors
· Enterprise Investment Scheme (EIS) – a long-running scheme for investors staking up to £1 million
· Venture Capital Trust (VCT) – A more specialist investment into fast growing companies
· Social Investment Tax Relief (SITR) – a scheme raising cash for community and social projects
Each scheme offers a different level of tax breaks to investors – but entrepreneurs running companies that want to attract funding must meet strict qualification rules.
Fast-track service option
HMRC has issued a consultation documents proposing changes to the approval procedure.
They range from doing nothing – although that comes with a warning that response times will take longer – to a fast-track option or a paid service.
One concern is that the HMRC approval service duplicates work carried out by professional advice firms helping entrepreneurs readying their businesses for investment.
“We have already announced, as part of our guidance published in May 2016, that we reserve the right to withhold an opinion if we chose,” says the consultation report.
Standard documents to speed approval
“We will withhold an opinion where, for example, it becomes apparent that the advance assurance application is seeking to test the boundaries of our rules rather than confirm if a company is eligible on their set of circumstances.”
One HMRC proposal suggests entrepreneurs should use template documents, such as shareholder agreements for approval.
“This would speed up the process as we would not have to check every document in such detail to make sure the terms comply with the rules of each investment program,” said an HMRC spokesman.
The consultation suggests the advice industry should take on the burden of drafting and management standard documents for companies seeking pre-approval.
The consultation ends on February 1, 2017.