Whilst there has been discussion and concern within the Media industry that the government could specifically target the sector to curtail the use of SEIS and EIS as a means of fundraising, this by and large hasn’t happened in this Budget.
There is a tightening up of the rules to further eliminate investment schemes which give strong guarantees of preserving capital or reducing the risk. The changes announced in the budget tackle this by proposing the introduction of a new condition to test “whether there is a significant risk that there could be a loss of capital to the investor of an amount greater than the net return. The condition requires all relevant factors about the investment to be considered in the round”.
The new condition introduces a principles-based test to determine if, at the time of the investment, a company is a genuine entrepreneurial company. It requires a conclusion to be reached as to whether the company has objectives to grow and develop and whether there is significant risk of loss of capital, where the amount of the loss could be greater than the net return to the investor. All relevant factors must be considered in reaching that conclusion.
The new rules will apply to all investments made on or after 6 April 2018, so current fundraising for the 2017/18 tax year looks to be unaffected.