Norman Lamont, the Chancellor of the Exchequer, has intervened in the dispute about the cut-off date for Business Expansion Scheme prospectuses that offer a way out after just six months.
In the Budget he said that in future schemes under which investors quickly recovered much of their investment in the form of a loan would no longer qualify for tax relief. The deadline was the midnight before the Budget.
Barclays and National Westminster banks both had pounds 25m schemes that completed the formalities on Budget day. The Inland Revenue has said the BES shares were not issued by the deadline. The banks are preparing to challenge this ruling in court.
But Mr Lamont agreed to meet Peter Middleton, chairman of BZW, and Derek Wanless, group chief executive of National Westminster. At the meeting yesterday the banks were assured that the issue will be reconsidered over the weekend.
Barclays' Gracechurch scheme, with 1,750 investors, and National Westminster's Homeshare scheme with 1,450 investors both offered loans after six months that delivered annualised returns of 30 per cent.
Investors were expecting to be able to realise their investments by September. Tne banks do not know how many of the investors planned to take an early exit from the schemes, which otherwise have a five-year life to qualify for BES tax relief.
Michael Allsop, managing director of NatWest's specialised finance and markets, said: 'If they had used the word 'allot' then everyone would know what that means . . . We cannot just return the money.' He said that the banks would like to avoid a court case, but were prepared.
The Inland Revenue gives provisional approval of BES offers before prospectuses are issued.
Mr Allsop added that there was a good side to these BES offers. They have been responsible for taking about 10,000 homes off the market and have aided the recovery in the housing market. In some cases people who were struggling with their mortgages have been able to stay in their homes by becoming tenants.
'It's not tax avoidance. It's tax mitigation,' he added.
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