The Enterprise Investment Scheme (EIS) and, more recently, the Seed Enterprise Investment Scheme (SEIS) give attractive reliefs for investors in small companies. At the same time, the legislation which governs these reliefs is very complicated with lots of room to fall foul of technicalities. This means investors are keen to get confirmation the relief will be available.
To aid companies and investors, HMRC operates an advance assurance procedure to confirm that the reliefs will be available. The advance assurance procedure relies on full information from the company on the proposed investment. This has always been a helpful service with a team of knowledgeable HMRC personnel who would usually reply within a month and could easily be reached with questions by phone.
In the last year however things have become far more difficult. In a current case, HMRC took almost eight weeks to provide any reply to the advance assurance request. At that point they asked a handful of questions which could easily have been covered in a short phone call. Our reply was sent within a couple of days but as the HMRC team deals with all post on a first-in first-out basis, a further wait of six weeks is expected. At the same time, it is increasingly difficult to get hold of the relevant HMRC personnel by phone or e-mail. This experience is reflected across the firm and the EIS industry.
With these sorts of delays, any companies seeking to use EIS or SEIS for a share issue will need to think well in advance and factor in a timescale of at least 6 weeks to receive a response from HMRC but this is likely to increase as limited resource must now deal with more subjective requirements introduced in the Finance Act No. 2 Act 2015 applying to older companies or groups.
Unless the advance assurance process provides a timely response, companies will be prevented from accessing money which is ready to be invested. As a result, they will be unable to follow their business plans and take advantage of time-critical opportunities.
If the government wants to encourage investment in small companies through these reliefs, it needs to ensure the process works – if not, it risks becoming increasingly useless.
If you would like to discuss any of the points raised here further, please contact Richard Wilson or your usual RSM contact.