The Oxford Technology VCT (OXT) and Oxford Technology 3 VCT (OTT) have announced that HMRC has withdrawn their VCT status.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 as a result of a small funding round in July 2013, in which the two VCTs participated. The rule breach was reported to HMRC as soon as the mistake was realised, in October 2013.
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– any ‘front end’ income tax relief in shares issued within a period of 5 years prior to the notice from HMRC will be withdrawn;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 investors in the company may 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. Note that Oxford Technology VCT 2 and VCT 4 are apparently not affected by this problem.
Formation of Shareholder Group
Shareholders in the company, supported by ShareSoc, have formed a Shareholder Action Group to co-ordinate action, keep shareholders informed and make representations to HMRC and to the Company on this matter. In addition if any appeal against the decision is lost, they may develop policies on what should happen to these companies that are in the best interests of shareholders. Any shareholders who wish to join this Group can do so by registering on this web page where more information is also present: www.sharesoc.org/campaigns5.html
Comment from a shareholder
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. Tim Grattan, one of the affected shareholders had this to say: “As a result of this minor, inadvertent breach of VCT rules, which was freely and promptly disclosed to the HMRC, over 700 individual shareholders, who are entirely blameless, have now been hit with disproportionate penalties, while the directors and managers of the company escape scott-free. This seems morally unjust, but seemingly simple to reverse.”