b'Annual Report & Accounts 2022 Mercia Asset Management PLC 47Strategic reportRisk Possible consequences MitigationTax efficient investmentsEIS and Seed Enterprise InvestmentPrior to any investment, the EIS/SEIS team undertake may fail to meet theScheme (SEIS) investmentsthe necessary checks and research, and may refer to criteria for HM Revenuemay be declared to be outside theprofessional advisers for specialist qualifying advice. The and Customs (HMRC)regulations and the tax advantagesteam then monitor the ongoing eligibility criteria of all clearance, either at thewould be lost for that investmentEIS investments. outset or on a continuingand Mercia may suffer complaintsFor proposed VCT investments, due diligence is basis, due to a lack ofand reputational damage. commissioned at the outset and prior to actual internal controls, orVCT investments may be foundinvestment by the investment team which obtains a awareness and diligencenot to qualify, or may not continuereport from external VCT tax advisers.by the staff undertakingto meet the qualifying criteria on such investments, oran ongoing basis, resulting in theThere is also an ongoing monitoring of all VCT responsibility for ensuringentire VCT trust losing its tax status,investments to ensure no investment breaches the the eligibility criteria with a consequential impact onqualifying criteria.are met. investors, reputational damage and Possible risks are further mitigated by the regulatory complaints. investment periods for the EIS/SEIS funds raised, and the ability to declare special dividends to return money to VCT investors if necessary, to prevent a breach of the VCT investment period rules.Mercias compliance function undertakes internal audit monitoring of investment files to ensure initial due diligence has been undertaken and that advanced assurance clearance has been obtained from HMRC where necessary.'