The Government has made it clear in its Pre-Budget Report and accompanying draft legislation it will no longer tolerate firms abusing the Enterprise Investment Scheme for tax purposes.
Within the PBR, the Treasury says it will now disqualify a company from the scheme where 90% of the business is not conducted directly by the company within the first three year period, as stipulated by its regulation.
This will therefore exclude a number of companies which would previously have benefited from the tax relief of the scheme.
Richard Hoskins, manager private client services at EIS provider, Oxford Capital, welcomes the draft legislation.
"The tax tail has been wagging the dog for too long with some providers using Limited Partnerships to abuse the EIS rules," says Hoskins.
"HMRC is sending a clear signal. They have stated they intend to consult on how to ensure the EIS scheme is targeted appropriately at small businesses.
"If advisers and investors back products aiming to take advantage of the generous tax breaks, against the spirit of the legislation, they are exposing their clients to significant additional risk and a number of popular tax avoidance schemes have been removed from the market in recent weeks."
