On what grounds can HMRC withdraw a company's VCT approval under section 281?

HMRC may withdraw VCT approval where the original approval conditions were not met, where ongoing conditions have been or will be breached, where prescribed conditions during a provisional grace period are not satisfied, or where the company has returned share capital or share premium to shareholders within three years of the end of the accounting period in which those shares were issued.

When does the withdrawal of VCT approval take effect under section 281?

Withdrawal normally takes effect from the date the company receives the notice. However, if the company was provisionally approved and never fully satisfied all required conditions for a continuous period of at least 12 months, the approval is treated as never having been given at all, causing all reliefs obtained on the strength of VCT status to fall away from the outset.

Can HMRC backdate a VCT approval withdrawal for capital gains tax purposes?

Yes. HMRC may specify an earlier effective date in the withdrawal notice for capital gains tax exemption purposes. However, that earlier date cannot be before the start of the accounting period in which the breached condition was not, or will not be, met. This allows HMRC to remove the CGT exemption from the point of non-compliance.

What is the time limit for HMRC to raise tax assessments following VCT approval withdrawal?

Under section 281, HMRC may raise any tax assessment arising from the withdrawal at any time within three years from the date the withdrawal notice is given. This statutory time limit overrides any shorter time limit that would normally apply, ensuring HMRC have adequate time to recover tax reliefs that were incorrectly claimed.

Income Tax Act 2007 section 281

Withdrawal of VCT approval of a company

Section 281 sets out the circumstances in which HMRC may withdraw a company's venture capital trust (VCT) approval, the effective date of any withdrawal, and the time limits for raising tax assessments that follow from it.

HMRC may withdraw VCT approval where the original conditions were not met, where ongoing conditions have been or will be breached, or where the company has returned share capital or share premium to shareholders within three years of the end of the accounting period in which shares were issued
Withdrawal normally takes effect from the date the company receives notice, but if the company was provisionally approved and never fully met the required conditions for at least 12 consecutive months, the approval is treated as never having been given
HMRC may backdate the withdrawal for capital gains tax exemption purposes to the start of the accounting period in which the relevant condition was breached
Any tax assessment arising from the withdrawal may be made within three years of the date the withdrawal notice is given, regardless of normal time limits

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