The Chancellor announced in his March budget that companies would be subject to a cap of £15m on the amount they received from tax-advantaged venture capital schemes (higher for ‘knowledge intensive’ companies). He has now lowered this to £12m.

VCTs and EISs will also be prevented from undertaking certain types of deal. For example, it will no longer be possible to use the structures to fund management buyouts or acquisitions. The Chancellor also changed the rules to ensure that funding is directed to earlier stage companies by restricting investment to those companies that have made their first commercial sale within the past seven years.

This will increase the risk of VCT and EIS investments. Nevertheless, the industry was sanguine about the changes. Ian Sayers, chief executive of the Association of Investment Companies said: “VCTs have faced a number of rule changes in the past and the industry has effectively managed these changes. We are confident that the VCT sector can continue to accommodate changes to the scheme. We welcome the Government’s commitment to secure the future of VCTs by ensuring that they gain European State Aid clearance.

He also pointed out that a number of the changes seen in the budget should support demand for VCTs and EISs. He added: “The changes announced today affecting pension tax relief for high earners are likely to support increased demand for VCTs as a tax efficient way to save. They also have tax free dividends, which is important following today’s changes to taxation of dividends. VCTs invest in small companies which can grow into household names in the future, helping to create jobs and economic growth for the UK.”

The Chancellor also announced that HMRC is to hold regular stakeholder forums to help clarify and develop the rules surrounding EIS, SEIS and VCT schemes. The forum will bring together HMRC, HMT, and users of the schemes to discuss and review how well they are working.