In a ruling of significance to ‘business angels’ and the nascent ventures they support, a tribunal has defined what is meant by a ‘venture capital company’ and awarded a small business tax relief on its research and development (R&D) expenditure.
Company A was part owned by company B, which was itself owned by a large group of companies. Company A sought tax relief in respect of its R&D costs, a benefit which is available to small and medium-sized enterprises (SMEs) by virtue of the Corporation Tax Act 2009.
HM Revenue and Customs (HMRC) refused such relief on the basis that company A could not be viewed as an SME because of its connection, through company B, with the group. Company A’s challenge to that decision hinged on whether company B could accurately be described as an independent ‘venture capital company’ within the meaning of the Act.
In resolving that issue in company A’s favour, and upholding its appeal, the First-tier Tribunal noted that, so far as the group was concerned, company A’s value was trifling and commercially irrelevant. Any contact between them was at arm’s length. Company A’s routine management was also independent of company B, which fell within the statutory definition of a venture capital company.