Evaluating Venture Capital Schemes (EIS, VCT, SITR)

This is a Research contract intended to evaluate the Venture Capital Schemes (Enterprise Investment Scheme [EIS] and Venture Capital Trust [VCT]) as non-structural tax relief measures. An evaluation of Seed Enterprise Investment Scheme [SEIS] is currently ongoing.

In February 2020, the National Audit Office (NAO) published a report regarding HMRC tax reliefs. In particular, the report focused on non-structural tax reliefs, in which HMRC opt not to collect tax in order to pursue social or economic objectives. This report contained several recommendations for assessing and monitoring the performance of these tax reliefs, including the need for HMRC to 'develop a robust methodology to assess the value for money of different types of tax expenditures' and a 'systematic approach to the evaluation of tax expenditures'.

In response to the NAO's recommendation, we developed a tax relief evaluation programme. The proposed programme focusses on the costliest non-structural reliefs with a behavioural element and other reliefs of this nature that have seen big changes in cost or profile. This current research focuses on the EIS and VCT tax reliefs. The EIS offers tax benefits when investors invest in companies which are relatively new / small (in terms of number of employees / assets) and VCTs are companies approved by HMRC to make these investments. SITR is a similar scheme focusing on social enterprises. In 2019-20 the schemes subsidised over £34 billion of investment into UK early-stage companies. As significant economic tax reliefs, it is critical we evaluate these measures to understand both the social and economic impact of the measures both for those who have utilised the scheme and those who have not. The research process described here will draw upon external expertise to develop and conduct a robust research project for meeting these recommendations in evaluating the schemes. In order to fulfill this goal, contractors will be asked to: a) Develop a detailed and appropriate proposal for conducting this evaluation. We expect this to incluce quantitative research and qualitative research; b) Work closely with project leads at HMRC to deliver high-quality research at pace, including recruitment, data collection and analysis; and c) Provide a detailed final report of analytic findings answering a range of evaluation aims and questions which have been agreed with HMRC project leads in advance at the beginning of the project.

The purpose of this research is to conduct a rigorous assessment of the schemes in terms of both social and economic impact, providing insight into the effectiveness of high-cost tax reliefs that HMRC offers. Not completing this evaluation of the schemes may put HMRC at risk of public criticism for not proactively responding to the NAO's recommendations.