HM Revenue & Customs is warning that no tax reliefs will be paid to investors in government-backed business angel schemes unless they can produce the right paperwork.
Millions of pounds of investment have been staked against start-up and early-stage companies in recent years.
The businesses all operate under the Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS) or qualify for Social Investment Tax Relief (SITR).
Each scheme offers investors income and capital gains tax incentives.
But the reliefs cannot be claimed if shares in the businesses are held for less than 36 months and unless the company has passed a series of tests set out under the scheme rules by HMRC.
Compliance certificates
“To confirm investors can collect their tax breaks, the company must issue a compliance certificate,” says HMRC.
“A company cannot issue a certificate unless we have authorised the company under the relevant scheme. A compliance certificate does not mean that the investor is automatically entitled to claim tax reliefs. Investors must also meet certain conditions relating to their personal circumstances.
“Investors cannot make a provisional claim under any circumstances. The investor must have made the investment, and received a compliance certificate from the company, before making a claim.”
Investors should avoid putting cash into companies that do not already have HMRC advance approval for joining the schemes.
Meanwhile, HMRC also reports a new digital service aimed at streamlining SEIS, EIS and SITR compliance is underway.
Digital service
A private, invitation-only beta online testing service is already available.
The service will open to agents and companies later this year.
“The new digital service will mean changes to the way that investor details, company documents and information are to be provided. Our user researchers continue to work with agents to understand their needs and we are keen to have as wide a representation as possible, ” said an HMRC spokesman.
SEIS started in April 2013 and has raised £340 million for more than 4,000 new businesses.
EIS was launched in 1993, and has seen more than 24,000 companies raise more than £14 billion of funds.
No statistics are available for SITR.
