Value Added Tax (VAT) and Venture Capital Trusts

Value Added Tax

VAT or sales tax applies to almost all goods and services and the majority are subject to VAT at 20% (the standard rate).  Some sales (or supplies in the jargon) are exempt from VAT.  See our earlier blog on exempt supplies for more information.

Businesses that are VAT registered act as tax collection agents for the government.  All the VAT the business incurs on purchases (or inputs) is deducted from all the VAT charged on sales and the net balance is paid to HM Revenue & Customs.  If your customer is not VAT registered then the VAT sticks to that customer and that person or business ultimately pays the VAT.

If you are a small business there are a number of schemes you can join that make VAT administration easier, for example, cash accounting, annual accounting and the flat rate scheme.  You can also combine schemes so you could operate the flat rate scheme and the cash accounting together.  See A-Z blog: F is for for more information on the flat rate scheme and a specific blog on this scheme that explains why it might be good for you; especially if you work as a contractor.

Venture Capital Trusts

The Venture Capital Trust (VCT) scheme is one of three tax-based Venture Capital Schemes, the others being the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme. The scheme is designed to encourage individuals to invest indirectly in a range of unquoted smaller, higher-risk trading companies, by investing through VCTs.

VCTs are similar to investment trusts, and are managed by fund managers who are usually members of larger investment groups. Investors subscribe for shares in a VCT, which then onward invests in qualifying trading companies, providing them with funds to help them develop and grow.

There are various criteria that the VCT has to meet in order for the investors to qualify for tax reliefs.

The tax reliefs available to investors are:

        • Income tax relief – individual shareholders aged 18 or over can claim income tax relief at the rate of 30% of up to £200,000 annual investment, provided their shares are held for at least five years.
        • Dividends – no income tax is payable on dividends from ordinary shares in VCTs
        • Capital Gains Tax – No capital gains tax is payable on disposals by individuals of ordinary shares in VCTs.