Written evidence submitted by Baronsmead Venture Trust plc and Baronsmead Second Venture Trust plc




The Baronsmead Venture Trust plc and Baronsmead Second Venture Trust plc (the ‘Baronsmead VCTs’ or ‘the Companies’) urge the government to announce, at the earliest opportunity, its commitment to repeal the 2025 ‘sunset clause’. This will ensure the continued availability of funds to invest in SMEs through the government’s Venture Capital Schemes (EIS and VCTs). 

The Venture Capital Schemes should instead be subject to HM Treasury’s usual ongoing review to ensure that they remain focused, effective and provide value for money for the UK taxpayer as mechanisms. 

The VCT scheme has become an effective, well-targeted and self-regulating mechanism that continues to provide value for money for the UK taxpayer. Additionally, investment in SMEs via VCTs supports the wider Government objectives of keeping the UK sustainably at the forefront of innovation, business investing for social benefit and the levelling up agenda.

The government has the capacity to recoup the cost of tax reliefs granted to investors through the additional corporate and employment taxes levied on investee companies that VCT finance has helped to grow. The ‘evergreen’ nature of VCTs increases the cost effectiveness of the scheme further through the ‘recycling’ of the proceeds of the sales of investments into future portfolio companies.

The Boards of the Baronsmead VCTs are duty bound to act in the best interest of our respective Companies and Shareholders and, with the looming prospect of the ‘sunset clause’, this may well require actions to prepare for an environment post the cessation of upfront tax reliefs on individuals VCT investments. Any actions in this area would undoubtedly reduce the efficiency of VCTs in its main purpose of supporting SMEs with patient and value-added capital. Therefore, there is real value in taking action to remove the threat of the ‘sunset clause’ well ahead of April 2025.


The Baronsmead VCTs


Baronsmead VCT plc was launched in September 1995 and was among the first VCTs to be launched following the introduction of the VCT scheme earlier that year. Since then, the Baronsmead VCTs, and their predecessor companies, have invested approximately £617mn in 271 companies in support of their corporate development and employment growth.

Historically the Baronsmead VCTs investments have included:

As at March 2022 the Baronsmead VCTs had assets under management of £466mn, representing 7.0% of the VCT industry, with an invested portfolio of 83 VCT qualifying companies.

During the year to March 2022 the Baronsmead VCTs portfolio company revenues grew by 28.8% with the total number of portfolio company employees increasing by 21.4% to 16,686.

The Baronsmead VCTs’ investments are sourced and managed by a team of 38 highly talented professionals at Gresham House plc, an investment management company whose shares are listed on AIM. It is their job not only to provide the precious finance needed by our investee companies but also to help identify the investment talent and physical and organisational infrastructure needed to ensure their future success. 

Through the investment of their own money, past and present shareholders have entrusted the Boards of the Baronsmead VCTs to oversee the management and to act in the best interests of our respective Companies and their shareholders. We remain committed to maintaining the status of our companies as qualifying VCTs and would hope that that will continue long into the future, provided our shareholders agree and the government continues to support the scheme.

The Governments Venture Capital Scheme


Each of the government’s Venture Capital Schemes support employment growth and corporate development of young SMEs through the use of various tax reliefs to encourage private individuals aged 18 or over to invest their own capital either directly or indirectly through a fund structure. As its name suggests, the Seed Enterprise Investment Scheme (‘SEIS’) is designed to encourage individuals to invest directly in companies at their very earliest stage of development.

Companies that qualify for funding through the Enterprise Investment Scheme (‘EIS’) and the Venture Capital Trust (VCT’) schemes can be at a more advanced stage of their development, being up to 7 years (or 10 years for Knowledge Intensive Companies) since their first commercial sale.

Individuals that invest through the EIS scheme do so by making direct investments in qualifying companies. Individuals that invest through the VCT scheme do so by making indirect investments through a fund that is listed on the London Stock Exchange and has very similar characteristics to an investment trust. The tax incentives mitigate the risks associated with investing in young, unquoted or AIM listed companies and enable private investors to invest in an asset class they might otherwise find difficult to obtain an exposure.

Each scheme has its own advantages but taken together they represent a package of measures that is designed to support SMEs to a point where other investors can take on the growth and development of these companies, that are beyond the scope of the Venture Capital Schemes.

The amounts invested directly in target companies through the SEIS and EIS scheme are relatively easy to track both through the investors’ tax returns and the tax relief they claim and through the reports to HMRC, submitted by the investee companies themselves. As a result, these arrangements have the advantage that they lend themselves to ongoing review of the effectiveness of these schemes by policy makers, HMRC and HM Treasury. However, once the investor realises their investment in any particular target company, the tax reliefs given on investment or on realisation cease to have effect.

Assessing the impact of investments made indirectly through VCTs on the other hand are not so straight forward. This is because each VCT will need to manage its cash flows very carefully to ensure it remains qualifying as a VCT and to be able to continue to invest in both new and existing investee companies as well as pay its ongoing costs and pay dividends to their shareholders. Consequently, legislative arrangements concerning VCTs are considerably more complex in order to ensure that they remain focussed, cost-effective for the taxpayer and are not open to abuse. However, the VCT scheme has a legal and regulatory framework which establishes VCTs as listed ‘evergreen’ companies, providing the scheme with the following advantages:

Since its introduction, the rules governing the scheme have been amended. The rules have changed to ensure the scheme is effective, targeted, affordable, simple, and straightforward to administer, as well as sustainable and not subject to abuse.

Some of the most significant changes to the Venture Capital Schemes were announced as part of the Budget in 2015. In summary, these changes introduced limits to the age of qualifying investee companies, limits on the total amount of ‘State aid’ that could be invested in qualifying companies as well as a time limit on the scheme. It was through this package of changes, that in order to gain EU State aid approval, a ‘sunset clause’ was introduced into legislation. This ‘sunset clause’ will automatically prevent subscribers for new shares VCTs (as well as EIS companies) being able to claim upfront income tax relief after 5 April 2025, unless it is amended or repealed beforehand.

Further changes took place in 2018 that introduced the ‘risk to capital’ condition ensuring that tax-advantaged investments are made within the spirit of the schemes into early-stage companies that have the intention to grow and develop in the longer term. The risk-to-capital condition sits above the other existing eligibility requirements, operating as a high-level gateway to the Venture Capital Schemes.

As a result, over the 27 years since its introduction, we believe the VCT scheme has become a focused, effective and tried and tested mechanism for channelling private investors capital in to target SMEs to support corporate and employment growth. Through the legislative framework that has been created since its inception, the VCT scheme has become a self-regulating and effective mechanism for channelling private investors’ capital into target companies – both listed on regulated exchanges and unlisted.

Repealing the ‘Sunset Clause’

In June 2021, the Taskforce on Innovation, Growth and Regulatory Reform recognised the effectiveness of the government’s Venture Capital Schemes. Proposal 3.3 of that report recommended the government commit to ensuring the continuation of the EIS scheme beyond 2025 so that ‘investment and job creation (in target SMEs) does not dry up’. We believe that that recommendation applies equally to VCTs.

As Boards of Directors, we have a duty to act in the best interests of our Companies and their respective shareholders. As a result, we must consider the implications of the ‘sunset clause’ and its interaction with other legislation governing the operation of the VCT schemes and what that means for our shareholders.

With the potential impact of the 'sunset clause’ being that the VCTs would be unable to raise additional capital, as the deadline approaches the Board of Directors will need to consider defensive actions to maintain the fund. These actions would undoubtedly reduce the investment rate, in particular to new investee companies, as cash would be retained to support existing portfolio companies for as long as possible.

Therefore, to ensure the continued efficient deployment of VCT funds into SMEs and bolster confidence in the future of the scheme there is real value in removing the uncertainty of the ‘sunset clause’ as soon as practically possible.


We recommend that the government announces its commitment to the continuation of the Venture Capital Schemes, by repealing the ‘sunset clause' at its earliest opportunity. 

We stand ready to discuss this submission with the Treasury’s Select Committee into the Venture Capital industry and look forward to reading  the inquiry’s conclusions and recommendations in due course.


June 2022