Despite Brexit, risk finance investment schemes still currently follow EU state aid limits. European Community rules govern the state aid which individual member states may give to businesses. State aid rules such as “de minimis” state aid, allows member states to provide small amounts of aid to businesses without notifying the aid to the European Commission.
Under de minimis rules the maximum amount which can be given to any single business must not exceed €200,000 in the three years, comprising of the current and previous two financial years. Companies must confirm before issuing shares that the de minimis limit has not and will not be exceeded throughout the SEIS and EIS process. Under EU state aid, companies can raise a combined maximum of £5 million per year through risk finance investment such as EIS, SEIS, SITR and VCT. Additionally, under EU state aid, the company will also have a lifetime limit of £12 million.
Strict state aid rules are there to ensure companies won’t be exceedingly reliant on aid and will be incentivised to keep being innovative. De minimis rules and regulation are centred on the belief that small amounts, less than €200,000 over three years, will not distort competition.
De minimis aid will be deducted from any amounts raised under SEIS and/or EIS. SEIS investment received together with de minimis state aid by the company in the three years must not exceed £150,000. Where a company has received any other risk capital investment which constitutes state Aid, that investment is also considered in calculating whether the £5 million limit has been reached.
Examples of aid and grants include:
- Financial awards and grants
- Loan/grants and loan/grant guarantees
- Subsidised or free training
- Subsidised or free consultancy services
Examples of aid and grants received from public sources include:
- Central Government
- Training & Enterprise Councils
- Local Enterprise Companies.
Notified state aid is an aid which has been reported to and approved by the EU Commission. HMRC is required to maintain records of all tax-advantaged investment acquired by companies under the schemes in ample detail to determine that the aid is justified and to make those records accessible to the Commission upon request. This kind of aid takes the form of government-funded grants schemes, such as those received from a Local Authority or Business Gateway. Any aid given which is not financial should be provided in through an estimated value to the nearest £1,000.
Before submitting a SEIS/EIS application, companies should check with the provider of the state aid to determine the type of aid the company received. With this information, HMRC can then decide if the amount of aid received by the company will impact the level of investment the company can receive under risk finance investment schemes. A company should include a statement in their applications cover letter regarding any state aid received by the company.
Failing to disclose or going above the state aid rules and regulation means companies run the risk of omitting and mis-selling the investment, potentially resulting in a clawback of any tax reliefs. If the EU state aid limit is exceeded, no relief will be available on the whole of the investment which breaches the limit and not just the amount by which the limit is exceeded.