HM Revenue & Customs has withdrawn Venture Capital Trust approval for the Oxford Technology 3 VCT and the Oxford Technology VCT after they breached rules for holding more than 15 per cent of their funds in one firm.

A stock exchange announcement today reveals the companies reported a breach in rules to HMRC last October and that the withdrawals mean they have lost all tax benefits offered by VCT status.

Experts have suggested this is the first time HMRC has withdrawn VCT approval.

The firms stated OT3VCT and OTVCT had invested £400,000 and £491,000 respectively in start-up company Scancell by August 2013 and whilst when the shares were bought this accounted for less than 10 per cent of the VCTs’ capital, a significant rise in Scancell’s share price caused a breach of the 15 per cent rule.

According to FE data the OT3VCT trust held £4.4m at February this year whilst the OTVCT held £4.1m.

OT3VCT and OTVCT notified HMRC of the breach and the revenue decided to withdraw approval.

The withdrawal means the companies are no longer exempt from corporation tax on chargeable gains, will lose any ‘front end’ tax relief on shares issued within a period of five years of the withdrawal and lose any deferred tax gains.

They will also lose tax relief on dividends and disposals of shares.

The companies intend to appeal the decision and have 30 days to do so.

A statement says: “In the event that the appeal is not successful the directors of the company will need carefully to review the company’s options and consider its future as a listed company which may lead to a cancellation of admission to the premium segment of the official list of the United Kingdom Listing Authority and to trading on the main market for listed securities of the London Stock Exchange plc.”

Association of Investment Companies director general Ian Sayers says: “This is a very worrying time for investors in these two VCTs.  We understand that both companies are going to appeal HMRC’s decision and so investors may want to speak to their financial advisers to understand the implications of these announcements.

“This is the first time that HMRC has withdrawn the status of a VCT.  Although these VCTs are not members of the AIC, we will be producing a general guide on the implications of the loss of VCT status which will be available on our website shortly.”