HMRC withdraws Oxford Tech's VCT status

Alice Murray
14 March 2014

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In a surprisingly heavy-handed move, the HM Revenue & Customs (HMRC) has removed the VCT status of two of Oxford Technologyтs VCTs.

HMRC has stripped the Oxford Technology 3 VCT and the Oxford Technology VCT funds of their VCT approval after the vehicles were revealed to be holding more than 15% of their capital in one company. This is the first time the HMRC has withdrawn approval.

The investment in question was in Scancell, which Oxford Technology has been supporting since the company's inception in 1999. However, as the company's share price rose following successful clinical trials for its cancer treatment injection, which focuses on tackling melanoma, the VCT was automatically over-invested because of the increased valuation.

According to Lucius Cary, Oxford Technology's founder and managing partner, when auditing the fund's accounts the mistake was realised. "We realised we had breached the rules and contacted the HMRC to let them know what had happened. In the past the HMRC has been very supportive in these sorts of instances," he said. Cary offered to sell the extra shares in the company to reduce the VCTs' holding back to the 15% threshold, and also offered to pay back any unfairly generated profit. However, rather than working with Oxford Technology to resolve the matter, the HMRC announced it would be withdrawing the funds' status.

The consequences for Oxford Technology and Cary could be devastating. Cary is currently in the process of contacting all shareholders. The withdrawal could mean that investors in the VCTs will be left with a hefty tax bill.

According to a statement, OT3VCT and OTVCT had invested £400,000 and £491,000 respectively in Scancell. When the shares were initially acquired they represented less than 10% of the VCTs' capital.

The withdrawal of the VCT status means the funds are no longer exempt from tax benefits awarded to the schemes, which were created to support investment in UK SMEs.

Oxford Technology will appeal the decision; this is, however, expected to be a time-consuming and costly process, which will prevent the GP from focusing on supporting portfolio companies and executing new investments.

The Association of Investment Companies has stated that the move by HMRC is worrying.