The Venture Capital Trust Association (VCTA) has formally submitted its response to the government’s recently closed consultation on Tax Support for UK Entrepreneurs. Our submission sets out the vital role that Venture Capital Trusts play in the UK’s scale‑up ecosystem. It welcomes the government’s recent decision to expand some of the limits on the VCT scheme, and urges the government to consider the serious risks posed by the announced reduction in upfront income tax relief for VCT investors from 30% to 20%.

For nearly 30 years, VCTs have delivered on their founding objectives: increasing the supply of capital for entrepreneurs, widening the investor base to include retail participants, and developing a skilled community of venture investors capable of backing young, high‑growth businesses. Today, more than 1,100 companies across the UK are supported by VCTs, employing over 100,000 people and generating billions in revenue and exports. They remain a cornerstone of the UK’s innovation economy.

Our Position: Cutting Relief Will Damage Fundraising, Investment, and Growth

In our consultation response, the VCTA makes clear that the government’s decision to increase VCT company investment limits in the 2025 Budget is both welcome and essential. However, this positive step will be fundamentally undermined by the simultaneous cut to upfront income tax relief.

The evidence submitted by the VCTA shows:

• Investor sentiment is extremely negative. Surveys indicate that around 85% of existing VCT investors intend to reduce or stop investing once the relief falls to 20%. Only a small minority expect to switch their capital into EIS.

• Founders are deeply concerned about reduced access to growth capital. Many anticipate scaling back expansion plans, reducing headcount, or even moving their headquarters overseas if VCT fundraising falls.

• Historical precedent is unambiguous: when upfront relief was cut from 40% to 30% in 2006–07, fundraising collapsed by roughly two‑thirds and took years to recover.

The VCTA warns that a similar fall in fundraising would result in an immediate squeeze on new investment activity, with the youngest and most innovative firms likely to be hit hardest.

Why VCTs Are Not Interchangeable with EIS

The consultation response highlights a central misunderstanding underpinning the government’s modelling: while VCTs and EIS both support early‑stage companies, they appeal to fundamentally different investor pools.

VCTs attract retail investors seeking diversified, professionally managed exposure to high‑growth businesses—something EIS cannot replicate due to higher minimum investment sizes, greater concentration risk, and more complex administration. Evidence from both investors and fund managers demonstrates that capital withdrawn from VCTs will not flow into EIS; instead, it will leave the early‑stage ecosystem altogether.

Impact on Founders: More Than Just Capital at Stake

The response also draws attention to the significant non‑financial value that VCTs provide. Founders consistently highlighted the strategic, operational and governance support they receive from VCT fund managers: strengthened boards, disciplined reporting, access to talent, introductions to customers and partners, and hands‑on support when scaling.

Case studies submitted as part of the response—including companies in consumer tech, beauty, AI infrastructure, and decision‑intelligence—demonstrate how VCT backing helps UK companies compete globally, attract later‑stage institutional investment, and, in many cases, achieve transformational exits.

Our Call to Action for the Government

To avoid an avoidable and damaging contraction in growth capital, the VCTA is calling on the government to:

1. Reverse the cut to the VCT upfront income tax relief, ideally before it takes effect in April 2026.

2. If reversal is not immediate, commit to close monitoring of fundraising and reinstate the 30% rate swiftly if negative impacts emerge.

3. Acknowledge that leaving the cut in place risks reducing the flow of private capital into high‑growth businesses, undermining confidence among advisers and investors, and weakening the UK’s ability to nurture globally competitive companies.

The industry also highlights a practical deadline: clarity is needed before the Summer Recess in July 2026. VCTs begin preparing prospectuses in September, and uncertainty at that stage would directly affect their ability to launch offers for the 2026/27 tax year.