On Wednesday 18th March, the Chancellor presented the last Budget before the general election in May. Here we have highlighted some of the key measures that may be most relevant to you and your clients. Further information will become publicly available when the Finance Bill is published on 24th March.

Entrepreneurs’ Relief

One of the big surprises was the change announced in relation to Entrepreneurs’ Relief (ER). The Government want to crackdown on the use of “manco” structures. This is where shareholders who hold less than 5% each in a trading company instead form a company (Manco) to hold their collective shares in the underlying trading company. The way the tax rules previously worked is that the shares in Manco qualified for ER as long as Manco held at least 10% of the shares in the trading company. This will no longer be the case for disposals made on or after 18 March 2015 unless the Manco is itself a trading company, although we have yet to see the detail of the proposed changes.

The proposed changes do not seem to affect planning undertaken where employees or directors of the trading company are given shares with enhanced voting rights issued by the trading company itself.


Changes were announced in relation to EIS (subject always to the usual state aid approval) some of which were welcome, others less so. We don’t have all of the details yet but key highlights are:-

It will no longer be a condition of EIS that at least 70% of any SEIS monies have to spent first before EIS funding is injected. This is a very welcome change as this rule produced unnecessary complications for early stage companies trying to secure funding and is a sign that the Government listened to the consultation responses on EIS. This will apply with effect from 6 April 2015.

The employee limit for “knowledge intensive companies” will be lifted to 499 from 249 (which will be defined in the legislation).

There will also be a total cap on amounts raised under SEIS, EIS and VCT of £15m (rising to £20m for knowledge intensive companies).

Companies will only qualify for EIS/VCT where the first commercial sale was made by the company less than 12 years ago unless certain exceptions apply.

There was also a statement saying that all investors will be required to be “independent” from the date of the first share issue. Obviously there are already connected persons tests in place and it is not clear whether this is a tightening of these rules or possibly a relaxation as currently some of the tests apply to the period before the shares are issued.

R&D Tax Credits

More welcome news was that the Government intends to improve the R&D system over the next 2 years to make it more accessible and easier to claim for small businesses. R&D tax credits offer very valuable reliefs but small businesses can be put off claiming them because of perceived and actual complexities.

No news is good news…

There doesn’t appear to be anything on Employee Shareholder Status (ESS) shares. If you are thinking of putting these in place we recommend that you consider doing this before the election because if there is a change of Government they may well be abolished.

Posted on 20/03/2015 in Legal Updates

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