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EU decision enhances VCT scheme

The European Commission has enhanced its State Aid approval for the Venture Capital Trust (VCT) scheme. 

This will allow the Government to introduce various changes to the VCT rules, including:
 
• Increasing the size of companies which can receive VCT funds (from those with assets of GBP7 million to GBP15 million); and

• Allowing companies with a greater number of employees to receive funding (up from a headcount of 50 to 250); and

• Enabling companies to receive more money from VCTs and other similar schemes (up from GBP2 million to GBP5 million).
 
Ian Sayers (pictured), Director General, Association of Investment Companies (AIC), says: “The State Aid rules set stringent conditions on the level of Government help which can be provided to SMEs.  Today’s approval makes VCTs one of the most generous incentive schemes in Europe.  Convincing the Commission that VCTs should be able to invest in a wider range of business has been a demanding task.  The Government’s determination to see these negotiations through has been invaluable and delivered an excellent result.
 
“The new investment freedoms VCTs will gain will create exciting opportunities for both VCTs and the hundreds of small businesses they invest in.  They will reinforce VCTs’ ability to finance SMEs struggling to secure development capital and support the Government’s growth agenda.”
 
Last month the AIC published research demonstrating the impact of VCT investment.  Key findings include:
 
On average, companies receiving VCT investment deliver a 16% year on year increase in employee numbers post-investment

For every GBP1 of upfront income tax relief investors received for investing in a VCT, GBP7 of new turnover is recorded by SMEs receiving VCT funding

The average VCT investment in each investee company is GBP2.3m, which helps SMEs bridge the ‘finance gap’ (i.e. secure the amount of funding which these businesses traditionally struggle to raise because of market failures in the supply of capital)

VCT investee companies are twice as likely as other UK SMEs to export the goods and services they produce

With access to traditional sources of financing for SMEs still restricted, demand for VCT funding from SMEs is strong, arguably stronger than before the financial crisis.
 

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