The Treasury will allow larger firms to apply for venture capital trust and enterprise investment scheme (EIS) benefits from April next year, providing the plan meets European Union rules on state aid.
Firms with up to 249 staff, which have assets of £15m and raise £10m a year from backers, will be eligible, up from the previous limit of 49 workers, £7m in assets and £2m of support.
A new “disqualifying purpose test” will be introduced, however, with the aim of weeding out investors who apply for relief in the hope of diverting the benefit to other companies.
Firms set up for the purpose of obtaining green energy subsidies, such as feed-in-tariffs, also face being excluded, according to the draft finance bill, published following George Osborne’s Autumn Statement
“The aim of the EIS and VCT schemes is to help smaller, riskier UK companies to compete for equity finance, recognising a market failure in the supply of such finance,” it said.
Philip Hare, tax adviser at PwC, said the proposals could help higher-risk ventures to gain access to cash but warned the restrictions could put venture capital trusts at a disadvantage compared to other VC firms and private equity funds.
The Treasury plan also includes a doubling to £1m of the amount that individuals can invest in the EIS, which has already been approved by the EU.
The document also outlines plans for an increase in tax reliefs on research and development for small and medium-sized enterprises and on the Patent Box incentive scheme, which encourages firms to commercialise their intellectual property.
George Bull, senior tax partner at Baker Tilly, said the patent scheme had the potential to “staunch the haemorrhage” of creative industries to countries with lower taxes.
“This is most likely to benefit the pharmaceuticals, life sciences, manufacturing, electronics, and defence industries as well as the highly-publicised games creators.”