The Oxford Technology VCT (OXT) and Oxford Technology 3 VCT (OTT) have announced that HMRC has withdrawn their VCT status. This has been done because one of the Venture Capital Trust rules is that no more than 15% of a fund can be invested in one company. Both these companies have a holding in Scancell, an AIM listed company, and the share price of Scancell rose rapidly so that the rule was inadvertently breached in October 2013 which the company reported to HMRC.
This is a pretty disastrous event for investors in these VCTs because as the announcement says:
– any ‘front end’ income tax relief in shares issued within a period of 5 years prior to the notice from HMRC will be withdrawn;
– any deferred gains come to charge;
– subsequent dividends from the Company will not be exempt from income tax;
– any subsequent gains on disposal of shares in the Company will not be exempt from Capital Gains Tax.
In other words, the tax relief obtained by new investors in the company will be lost which is the most damaging impact. In addition, the company’s exemption from Corporation Tax will be lost.
Oxford Technology are appealing against the decision but say that if it is not successful they may have to consider the company’s future as a listed vehicle. The share price has already dropped substantially as a result but as there is normally very little trading in these companies, that is perhaps not surprising.
Note that Oxford Technology VCT 2 and VCT 4 seem not to be affected by this ruling as there has been no announcement on those companies.
Comment: it seems somewhat unreasonable to withdraw VCT status on what is a minor technical breach of the rules that the company itself reported, and presumably could have been quickly rectified. Shareholders affected by this problem might wish to make their views known to HMRC.