The Autumn Budget 2017 – The Goldfinch Entertainment View
As you will have been following, Philip Hammond announced a number of changes to the UK’s tax efficient investments regime in The Autumn Budget yesterday. Please find below a quick Q&A with Kirsty Bell, covering the key initial take on these developments:
What do we see as the key developments to come out of the budget relating to EIS?
The Budget delivered three key positive developments:
- Possible right of appeal:
It is good news that the Treasury is considering a right of appeal for those whose application for authorisation of tax-efficient investment have been rejected by HM Revenue & Customs. This is long overdue.
Until now, those denied the compliance certificates needed to authorise their companies as tax-efficient investments have enjoyed no right of appeal. It is positive that the Treasury is now committed to looking at granting such a right.
- “Genuine enterprise” condition:
The proposed enterprise test is welcome. It should return tax-efficient investments to their original purpose of funding tomorrow’s companies.
We need more details on what HM Revenue & Customs will be looking for in the new enterprise test, but it is great news for those genuinely entrepreneurial businesses that need investments.
- Knowledge-intensive companies:
1. Doubling the investment limits for knowledge-intensive companies is a bold and positive step, but it is vital to get the definition right: entertainment companies create films, television shows and games, all prime example of intellectual property.
2. The doubling of investment limits for knowledge-intensive companies gives a clear indication of the sort of businesses the Government wants to encourage – high-tech and rich in intellectual property.
What will happen with regards to new launches in the VCT/EIS space now?
Every new EIS set up will of course need to satisfy the new test put in place from the next tax year.
For most companies, and those trading well with a good reputation with HMRC, this may just be presenting and explaining the trade, plans and structure of the business in more detail or in a slightly amended way, for other suppliers out there this could lead to a wholesale change in how they are structuring their investments and the type of investee businesses they are taking on.
This should come as no surprise to anyone within our industry as we have been under increased ‘informal’ scrutiny in all EIS and SEIS applications submitted to HMRC over the past 12 months, but what it does do is clear up the formal parameters and lines of engagement with HMRC.
What should we expect in the next tax year?
Broadly speaking, in the entertainment sector, this should lead to a new wave of thinking and businesses being set up, receiving HMRC approval and ultimately investment.
Firms that are, at their core, entrepreneurial and IP creators, which is both exciting and what the UK creative sectors do best. The obvious knock-on effect of this will be stronger and more exciting investment propositions for UK investors which is a huge positive – And stronger, more exciting EIS businesses receiving that investment.