Introduction

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above consultation launched on 5 December 2016. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee is provided on the previous page.

We would be happy to discuss any aspect of our comments herein and to take part in any further consultations/initiatives in this area that there may be in the future. We wish to comment on some specific aspects of the current consultation. Our comments herein are limited solely to the application process for advance assurance as it relates to the Enterprise Investment Scheme (“EIS”), the Seed Enterprise Investment scheme (“SEIS”) and the Social Investment Tax Relief (“SITR”) regime.

Scheme objectives

As an overall point, Chartered Accountants Ireland sees the tax advantaged venture capital schemes and their associated tax reliefs as being a vital tool in raising finance for companies that would otherwise struggle to raise money to help them grow and develop. The schemes also play an important role in helping to deliver UK economic growth. This aspect alone is particularly important as the UK faces a period of economic uncertainty given its planned departure from the European Union.

As part of these schemes, the ability to apply for advance assurance through the Small Company Enterprise Centre (“SCEC”) is a crucial element as it provides more certainty to potential investors that the company itself is eligible for investment and they will be able to claim tax relief on their proposed investment, subject to meeting the specific conditions applicable to investors.

Waiting times

In launching this consultation, the importance of the tax advantaged venture capital regimes and the advance assurance process are both clearly recognised by HMRC. It also is refreshing that HMRC are upfront in identifying problems with the advance assurance service which is facing longer waiting times for the various reasons cited in the consultation document.

The consultation document refers specifically to the advance assurance service coming under increasing pressure in recent years and response times lengthening. It would be helpful if more context could be given around this; for example a comparison of waiting times before the introduction of the SEIS in 2012 and waiting times now would be useful in addition to more detailed analysis of other factors which have resulted in increased waiting times.

Overall, the consultation is aimed at streamlining the advance assurance service and a number of potential options are proposed which are aimed at achieving this.

“Streamlining” is defined in the Oxford English dictionary as making “(an organization or system) more efficient and effective by employing faster or simpler working methods”.

As this could apply to advance assurance service, it seems to us more likely that speed of response is the more critical element, particularily where investment decisions are at risk. The process of applying for advance assurance could also be made simpler though we recognise that the regimes themselves are complex and to overly simplify the process could add to the risk of non-qualifying investee companies receiving advance assurance, however this should be caught by the later statutory compliance process.

Our responses to the various options for streamlining are thus focused on implementing a faster speed of response though we also make some suggestions for simplifying/improving the advance assurance process throughout this submission.

Key facets of the advance assurance service

Given the importance attached to the advance assurance service, this consultation is an opportunity not just to streamline the service but to consider overall what its objectives and operational structure should be. Key facets of the service seem to us to be as follows:-

• Fast and efficient – in terms of speed, we think a general target of 30 days should be set from receipt of a completed application form to the issue of an opinion.
• Well resourced – in terms of staff numbers and the level of training provided

We note from the consultation document that resourcing has been increased to deal with a backlog of less complex cases. It would be helpful to know if this is a permanent increase in staff numbers given the increased need for the advance assurance service over the last few years.

We would also suggest that HMRC consider increasing staff numbers in the SCEC at peak times for applications e.g. when the end of the tax year is imminent.

• Easily contactable both by phone and email – the contact details of the SCEC are easily located and contact can be made by both phone and email.

To assess each of the above, the SCEC should set some key performance indicators which should be reviewed on a monthly basis to identify and act on potential issues slowing down the service. It may also be useful to consider surveying those who have previously used the service, including the process for submitting the statutory compliance statement, which may tease out other potential areas for improvement.

Forms

Companies applying for a SEIS or an EIS advance assurance opinion use a specially designed form. The forms used are iForms designed to be filled in on screen and later printed and submitted. These cannot be printed in advance nor viewed in full so that the person completing it knows in advance what information is required. The forms also cannot be saved partially completed so that they can later be accessed and finalised nor can they be traced once submitted to the SCEC.

The process for applying for advance assurance should be fast and efficient from both the perspective of the SCEC and the applicant companies. As part of this streamlining exercise, the iForms used should be reviewed with a view to making them more user friendly (i.e. printable in advance, saveable partially completed and with a unique traceable reference number).

We note that currently there is no form available for companies applying for an opinion under the social investment tax relief regime. A form should be developed specific to this regime as soon as possible that is again printable in advance, can be partially saved and is traceable once submitted using a unique reference number.

HMRC should also address the potential impact that moving to a regional centre model will have on the location and size of the SCEC.

Impact assessment

We note from the accompanying impact assessment to the consultation document that HMRC consider one of the impacts would be that some professional advisers may need to rely more heavily upon their own judgement when advising their clients rather than rely upon a guarantee from HMRC and that this may impact upon their insurance costs.

We find this observation to be odd in terms of how it relates to professionally qualified Chartered Accountants. Chartered Accountants regularly rely on their own professional judgement and in situations of any doubt the ethical standards by which members of Chartered Accountants Ireland must abide would mean that the relevant Chartered Accountant would raise any doubts directly with their client and/or take advice from an appropriate specialist. Advice in respect of the various venture capital schemes would not be treated any differently.

Options

As a starting point, we are in agreement with the various “out of scope” options outlined in paragraphs 2.7–2.11 of the consultation document. A number of options for streamlining the advance assurance process are then presented.

Option 1: ‘Do nothing’ approach

We would not be supportive of standing still. HMRC has already identified that waiting times are increasing and demand for the service has increased over the last few years. Increased waiting times could be de-motivational to applicants and could lead to companies losing out on vital investments which would have a detrimental impact on UK economic growth particularly at a time when the economic future of the UK is at such a critical point with the UK’s planned departure from the EU.

Option 2: Withdraw the advanced assurance service

Again, we would not be supportive of this option. The consultation document argues that removing the advance assurance service from companies able to take specialist advice in advance of applying would not have an impact as applying for advance assurance is viewed as “an unnecessary service”.

We would not agree. As the consultation document recognises, removing the service would also remove the vital certainty that the advance assurance process affords its applicants and, by definition, subsequent investors.

In addition, to remove the service as a whole would also disadvantage those smaller companies unable to afford professional advice in this area and for whom finance raising is extremely difficult; the very companies the venture capital regimes are designed to assist would be most impacted.

Option 3: Restrictions and limits

This option proposes targeting the advance assurance process on a smaller population cited as being those where there is likely to be the greatest level of uncertainty.

If HMRC wishes to consider targeting the advance assurance process at a specific population, we would suggest that it review how this has worked in the area of R&D tax credits where an advance assurance service was introduced in 2016 targeted at the smallest companies.

Option 4: Provide a service for discrete aspects of the rules

We believe options 3 and 4 could work well in tandem but do not believe that this should mean other applications are rejected by the SCEC unless these fall squarely into the category of application where HMRC are reserving the right to withhold an opinion in cases where the boundaries of the legislation are being clearly exceeded.

In seeking to use option 4 as a streamlining option, HMRC should not set what those discrete elements are as this will differ from application to application. Rather, there should be flexibility on the applicant’s part in deciding what its particular areas of uncertainty are.

Option 4 should not, as the consultation document posits, result in a longer process overall. Whilst the company’s and investment’s eligibility would need to be reviewed in full at the compliance statement stage and response times would most likely lengthen at that point, the overall process should be faster if an opinion is asked for on discrete aspects. The response time for this should be a period less than 30 days from receipt of the application and could be shortened to say, 15 days.

Option 6: Standard documents

The consultation then moves on to option 6. As an aside, we would ask if perhaps there is an option 5 which has not been included in the consultation document?

Standard documentation would have obvious benefits. As the consultation suggests, the involvement of industry bodies would be vital to this process but should necessarily involve HMRC in finalising, agreeing and promoting these standard documents.

In conclusion, it is likely that a combination of options 3 and 4 are most suitable to streamline the service.

Conclusion

Chartered Accountants Ireland welcomes the changes which HMRC have already made to the SCEC service from the perspective of resourcing. Earlier in this submission, we made a number of further recommendations for improvements in this area.

We note from the consultation document that a new online service to apply for advance assurance and, later, to make a statutory compliance statement is being developed. This is welcomed. It would be helpful if HMRC could share an approximate timeframe for the development of this online service and confirm if this service will also cover the SITR scheme.

We note that the online service is intended to replace the existing paper certification process with an electronic one. Digitisation of the tax system is a laudable objective – but only for those who are digitally capable. A paper application process and paper certificates should still be available to cater for those who are not able to use digital means.

Updated guidance is also currently being developed to embed recent changes to the EIS/SEIS/SITR legislation and reduce uncertainty for companies and advisers. This guidance should be published as soon as possible.

The focus of this consultation is on streamlining the advance assurance process. An equally vital element of the process comes later when companies submit the statutory compliance statement. This process should also be reviewed for potential improvements.

Once changes have been made to the advance assurance process we would recommend that a post implementation review be carried out. This should include a survey of those who have recently used the service.

As a final point, we take this opportunity to suggest that a full review of the SEIS and EIS regimes should be undertaken. Both schemes have become extremely complex over recent years and this could be de-motivational in encouraging companies to avail of the additional finance that could be obtained via investments under these schemes.

This would seem to us to be a project which would naturally fit within the remit of the Office of Tax Simplification (“OTS”). The OTS could also be tasked with reviewing the advance assurance process with the aim of identifying some simple “quick wins”.

It also seems timely to consider if these schemes could be extended to debt investments, particularly given that certain debt investments now qualify for relief under the SITR scheme.

Freedom of Information

We note the scope of the Freedom of Information Act with regards to this submission. We have no difficulty with this response being published or disclosed in accordance with the access to information regimes. This response will be published on our own website in due course and will be available to all of our members and the general public.

Source: Chartered Accountants Ireland: www.charteredaccountants.ie