This month, the Chancellor delivered his Autumn Statement 2023 and announced that the sunset clause for the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) will extend beyond 2025 to 2035. This should come as good news for new investors after a period of uncertainty.
The sunset clause and its effect
The EIS income tax relief is a form of State Aid. Companies that receive it need to notify the European Commission. In 2015, a condition for approval under the EU’s State Aid regime was the requirement that a “sunset clause” be included within the EIS legislation.
A sunset clause is a provision in a Bill that allows the relief to expire if it’s not extended by the UK Parliament. These clauses are included in legislation when it’s felt that Parliament should have another chance to decide on its merits after a fixed period.
In his 2022 Autumn Statement, newly-appointed Chancellor Jeremy Hunt reaffirmed his support for the EIS and VCTs by reiterating the Government’s support for these schemes beyond the original sunset clause of April 2025 — indicating that they saw the value in extending them in the future. However, no steps were taken to ensure the schemes did not lapse after period set by the sunset clause.
Latest position
The Chancellor’s extension of the sunset clause from 2025 to 2035 in his 2023 Statement is one of the first steps the Government has taken to show its commitment to ensuring early-stage companies have access to the investment they need to grow and develop — where they would normally struggle to access growth capital. The Government will legislate in the Autumn Finance Bill 2023.
The Autumn Statement changes have removed the uncertainty that’s been looming over the EIS and VCT schemes for some time. Hopefully, it lifts a barrier for new investors previously put off by the sunset clause. However, although the extension is welcome, the clause has not been abolished altogether — this means the use of the sunset clause in the context of these schemes will be revisited in a decade’s time.
Author: Romana Mohammed, CT: Entrepreneurial Tax
