(1) This section applies if—
(a) shares to which an amount of SEIS relief is attributable were issued to an individual (“A”),
(b) A transferred the shares to another individual (“B”) during their lives,
(c) A was married to, or was the civil partner of, B at the time of the transfer, and
(d) section 257FA (disposal of shares) does not apply to the transfer.
(2) This Part has effect, in relation to any subsequent disposal or other event, as if—
(a) B were the individual who had subscribed for the shares,
(b) the amount that B had subscribed for the shares were the amount that A had subscribed for them,
(c) B's liability to income tax had been reduced in respect of the shares for the same tax year as that for which A's was so reduced,
(d) the amount by which B's liability to income tax had been reduced in respect of the shares were the same as that by which A's liability to income tax had been so reduced, and
(e) that amount of SEIS relief had continued to be attributable to the shares despite the transfer.
(3) If the amount of SEIS relief attributable to the shares had been reduced before the relief was obtained by A—
(a) this Part has effect, in relation to any subsequent disposal or other event, as if the amount of SEIS relief attributable to the shares transferred to B had been correspondingly reduced before the relief was obtained by B, and
(b) sections 257FB(3) and 257FL(2) apply in relation to B as they would have applied in relation to A.
(4) If, because of any such disposal or other event, an assessment for reducing or withdrawing SEIS relief is to be made, the assessment is to be made on B.
(1) The rules in subsections (2) and (3) are for determining which shares of any class are treated as disposed of for the purposes of—
(a) section 257FA (disposal of shares), or
(b) section 257H (spouses or civil partners),
if the investor disposes of some but not all of the shares of that class which the investor holds in a company.
(2) Shares acquired on an earlier day are treated as disposed of before shares acquired on a later day.
(3) Shares acquired on the same day are treated as disposed of in the following order—
(a) first any to which no SEIS relief is attributable,
(b) next any to which SEIS relief (but not SEIS re-investment relief) is attributable, and
(c) next any to which SEIS relief and SEIS re-investment relief are attributable.
(4) Any shares to which SEIS relief is attributable and which were transferred to an individual as mentioned in section 257H are treated for the purposes of subsections (2) and (3) as acquired by the individual on the day on which they were issued.
(5) In a case to which section 127 of TCGA 1992 applies (including the case where that section applies by virtue of an enactment relating to chargeable gains), shares included in the new holding are treated for the purposes of subsections (2) and (3) as acquired when the original shares were acquired.
(6) In this section—
“new holding” and “original shares” have the same meaning as in section 127 of TCGA 1992 (or, as the case may be, that section as applied by the enactment concerned);
“SEIS re-investment relief” means relief under Schedule 5BB to TCGA 1992.
257HB Continuity of SEIS relief where issuing company is acquired by new company
(1) This section applies if—
(a) a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares”) in another company (“the old company”),
(b) the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,
(c) the consideration for the new shares of each description consists wholly of old shares of the corresponding description,
(d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings,
(e) at some time before the issue of the new shares—
(i) the old company issued shares which meet the requirements of section 257CA(2), and
(ii) a compliance certificate in respect of those shares was issued by that company for the purposes of subsection (1) of section 257EB and in accordance with section 257EC, and
(f) before the issue of the new shares the Commissioners for Her Majesty's Revenue and Customs have, on the application of the new company or the old company, notified that company that they are satisfied that the exchange of shares—
(i) will be effected for genuine commercial reasons, and
(ii) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of TCGA 1992 (schemes with avoidance purposes).
In this subsection references to shares, except in the expressions “subscriber shares” and “shares which meet the requirements of section 257CA(2)“, include securities.
(2) Subsection (2) of section 138 of TCGA 1992 (procedure for advance clearance) applies for the purposes of subsection (1)(f) as it applies for the purposes of subsection (1) of that section.
(3) For the purposes of this Part—
(a) the exchange of shares is not regarded as involving any disposal of the old shares or any acquisition of the new shares, and
(b) any SEIS relief which is attributable to any old shares is attributable instead to the new shares for which they are exchanged.
(4) Nothing in section 257DG (the control and independence requirement) applies in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1), or arrangements with a view to such an exchange.
(5) For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.
(6) References in sections 257HC and 257HD to “old shares”, “new shares”, “the old company” and “the new company” are to be read in accordance with this section.
257HC Carry over of obligations etc where SEIS relief attributed to new shares
(1) This section applies if, under section 257HB, any SEIS relief which is attributable to any old shares becomes attributable instead to any new shares.
(2) This Part has effect as if anything which under—
(a) section 257EB(1) (entitlement to claim),
(b) section 257FR(3) (relief subsequently found not to be due), or
(c) sections 257GF to 257GH (information to be provided),
has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company.
(3) Any appeal brought by the old company against a notice under section 257FR(3)(b) may be prosecuted by the new company as if it had been brought by that company.
(1) Subsection (2) applies if, in the case of any new shares held by an individual to which SEIS relief becomes attributable under section 257HB, the old shares for which they were exchanged were subscribed for by and issued to the individual.
(2) This Part has effect as if—
(a) the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for by the individual,
(b) the new shares had been issued to the individual by the new company at the time when the old shares were issued to the individual by the old company,
(c) the claim for SEIS relief made in respect of the old shares had been made in respect of the new shares, and
(d) the individual's liability to income tax had been reduced in respect of the new shares for the same tax year as that for which the individual's liability was so reduced in respect of the old shares.
(3) Subsection (4) applies if, in the case of any new shares held by an individual to which SEIS relief becomes so attributable under section 257HB, the old shares for which they were exchanged were transferred to the individual as mentioned in section 257H.
(4) This Part has effect in relation to any subsequent disposal or other event as if—
(a) the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for,
(b) the new shares had been issued by the new company at the time when the old shares were issued by the old company,
(c) the claim for SEIS relief made in respect of the old shares had been made in respect of the new shares, and
(d) the individual's liability to income tax had been reduced in respect of the new shares for the same tax year as that for which the liability of the individual who subscribed for the old shares was so reduced in respect of those shares.
(1) Shares subscribed for, issued to, held by or disposed of for an individual by a nominee are treated for the purposes of this Part as subscribed for, issued to, held by or disposed of by the individual.
(2) If shares have been issued to a bare trust for two or more beneficiaries, this Part has effect (with the necessary modifications) as if—
(a) each beneficiary had subscribed as an individual for all of those shares, and
(b) the amount subscribed by each beneficiary was equal to the total amount subscribed on the issue of those shares divided by the number of beneficiaries.
(3) In subsection (2) “shares” means shares which meet the requirements of section 257CA(2).
(1) For the purposes of this Part a qualifying trade carried on by the issuing company or a qualifying 90% subsidiary of that company (“the relevant company”) is a “new qualifying trade” if (and only if)—
(a) the trade does not begin to be carried on (whether by the relevant company or any other person) before the three year pre-investment period, and
(b) at no time before the relevant company begins to carry on the trade was any other trade being carried on by the issuing company or by any company that was a 51% subsidiary of the issuing company at the time in question.
(2) In this section—
“qualifying trade” has the same meaning as in Part 5 (see sections 189 and 192 to 200);
“three year pre-investment period” means the period of 3 years ending immediately before the day on which the relevant shares are issued.
(1) In this Part “qualifying business activity”, in relation to the issuing company, means—
(a) activity A, or
(b) activity B,
if it is carried on by the company or a qualifying 90% subsidiary of the company.
This is subject to subsection (3).
(2) Activity A is—
(a) the carrying on of a new qualifying trade which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or
(b) the activity of preparing to carry on (or preparing to carry on and then carrying on) a new qualifying trade—
(i) which, on that date, is intended to be carried on by the company or such a subsidiary, and
(ii) which is begun to be carried on by the company or such a subsidiary.
(3) Activity B is the carrying on of research and development—
(a) which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or which the company or such a subsidiary begins to carry on immediately afterwards, and
(b) from which, on that date, it is intended—
(i) that a new qualifying trade which the company or such a subsidiary will carry on will be derived, or
(ii) that a new qualifying trade which the company or such a subsidiary is carrying on, or will carry on, will benefit.
(4) For the purposes of subsection (3)(a), when research and development is begun to be carried on by a qualifying 90% subsidiary of the issuing company, any carrying on of the research and development by it before it became such a subsidiary is ignored.
(5) References in subsection (2)(b)(i) or (3)(b) to a qualifying 90% subsidiary of the issuing company include references to any existing or future company which will be such a subsidiary at any future time.
(1) In this Part references to a disposal of shares include a reference to a disposal of an interest or right in or over shares.
(2) An individual is to be treated, for the purposes of this Part, as disposing of any shares which the individual is treated by virtue of section 136 of TCGA 1992 as exchanging for other shares.
(1) In this Part—
(a) references (however expressed) to an issue of shares in any company are to such of the shares in the company as are of the same class and issued on the same day, and
(b) references (however expressed) to an issue of shares in any company to an individual are to such of the shares in the company as are of the same class and are issued to the individual in one capacity on the same day.
(2) Subsection (1)(b) has effect subject to sections 257E(6), 257EA(2), 257FB(2) and 257FK(1).
(1) In this Part—
“arrangements” includes any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable);
“associate” has the same meaning as in Part 5 (see section 253);
“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise);
“director” is read in accordance with section 452 of CTA 2010;
“EIS relief” means relief under Part 5;
“group” means a parent company and its qualifying subsidiaries;
“group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries;
“ordinary shares” means shares forming part of a company's ordinary share capital;
“parent company” means a company that has one or more qualifying subsidiaries, and “single company” means a company that does not;
“permanent establishment” has the same meaning as in Part 5 (see section 191A);
“qualifying subsidiary” has the same meaning as in Part 5 (see section 191);
“qualifying 90% subsidiary” has the same meaning as in Part 5 (see section 190);
“research and development” has the meaning given by section 1006.
(2) Section 252 (meaning of a company being “in administration” or “in receivership”) applies for the purposes of this Part.
(3) Section 995 (control) does not apply for the purposes of the following provisions—
(a) section 257DG(1)(a),
(b) section 257FP,
(c) section 257FQ,
(d) section 257GH(4);
and in those provisions “control” is to be read in accordance with sections 450 and 451 of CTA 2010.
(4) In this Part—
(a) references in any provision to the reduction of any SEIS relief attributable to any shares include a reference—
(i) to the reduction of the relief to nil, and
(ii) if no relief has yet been obtained, to the reduction of the amount which apart from that provision would be the SEIS relief, and
(b) references to the withdrawal of SEIS relief in respect of any shares are—
(i) to the withdrawal of the SEIS relief attributable to those shares, or
(ii) if no relief has yet been obtained, to ceasing to be eligible for SEIS relief in respect of those shares.
(5) For the purposes of this Part shares in a company are not treated as being of the same class unless they would be so treated if dealt in on a recognised stock exchange.
(6) For the purposes of this Part the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.
(7) In this Part—
(a) references to SEIS relief obtained by an individual in respect of any shares include a reference to SEIS relief obtained by the individual in respect of those shares at any time after the individual has disposed of them, and
(b) references to the withdrawal or reduction of SEIS relief obtained by an individual in respect of any shares include a reference to the withdrawal or reduction of SEIS relief obtained by the individual in respect of those shares at any time.
(8) In the case of requirements that cannot be met until a future date, references in this Part to requirements being met for the time being are to nothing having occurred to prevent their being met.
257J Meaning of “SI relief” and “social enterprise”
(1) This Part provides for income tax relief for social investments (“SI relief”), that is, entitlement to tax reductions in respect of amounts invested in social enterprises by individuals.
(2) In this Part “social enterprise” means—
(a) a community interest company,
(b) a community benefit society (see section 257JB) that is not a charity,
(c) a charity,
(d) an accredited social impact contractor (see section 257JD), or
(e) any other body prescribed, or of a description prescribed, by an order made by the Treasury.
(3) An order under subsection (2)(e) may make provision as to the bodies which are social enterprises for the purposes of this Part at times before the order comes into force or FA 2014 is passed but, where a body is a social enterprise for the purposes of this Part as a result of an order under subsection (2)(e) that has come into force, no subsequent order under subsection (2)(e) may undo that result in respect of times before the subsequent order comes into force.
(1) If an individual—
(a) is eligible for SI relief in respect of any amount, and
(b) makes a claim in respect of all or some of the amount,
the individual is entitled to a tax reduction for the tax year in which the amount was invested.
This is subject to the provisions of this Part.
(2) The amount of the reduction to which an individual is entitled under this Part for any particular tax year is the amount equal to tax, at the SI rate for that year, on—
(a) the amount or, as the case may be, the sum of the amounts invested in that year in respect of which the individual is eligible for and claims SI relief, or
(b) if less, £1 million.
(3) The tax reduction is given effect at Step 6 in section 23.
(4) If an individual—
(a) is eligible for and claims SI relief in respect of an amount, and
(b) makes a claim for part of that amount to be treated for the purposes of subsections (1) and (2) as if it had been invested not in the tax year in which it was actually invested but in the preceding tax year,
those subsections apply, and the individual's liability to tax for both tax years is determined, in accordance with the claim.
(5) In this Part “the SI rate” means 30%.
(1) In this Part “community benefit society” means a body that—
(a) is registered as a community benefit society under the 2014 Act,
(b) is a pre-commencement society (within the meaning of the 2014 Act) that meets the condition in section 2(2)(a)(ii) of the 2014 Act, or
(c) is a society registered, or treated as registered, under section 1 of the Industrial and Provident Societies Act (Northern Ireland) 1969 in the case of which the condition in section 1(2)(b) of that Act is fulfilled,
and in respect of which the condition in subsection (2) is met.
(2) The condition is that—
(a) the body is of a kind prescribed by regulation 5 of, and
(b) the body's rules include a rule in the terms set out in Schedule 1 to,
the Community Benefit Societies (Restriction on Use of Assets) Regulations 2006 (S.I. 2006/264) or the Community Benefit Societies (Restriction on Use of Assets) Regulations (Northern Ireland) 2006 (S.R. 2006/258).
(3) The Treasury may by order amend this section for the purpose of—
(a) replacing—
(i) the condition in subsection (2), or
(ii) the condition, or all or any of the conditions, for the time being replacing the condition in subsection (2),
with one or more other conditions;
(b) varying—
(i) the condition in subsection (2), or
(ii) the condition, or any of the conditions, for the time being replacing the condition in subsection (2);
(c) dispensing with—
(i) the condition in subsection (2), or
(ii) the condition, or all or any of the conditions, for the time being replacing the condition in subsection (2).
(4) In this section—
“the 2014 Act” means the Co-operative and Community Benefit Societies Act 2014;
“the 2010 Act” means the Co-operative and Community Benefit Societies and Credit Unions Act 2010.
(5) While neither the 2014 Act, nor section 1 of the 2010 Act, is in force, subsection (1) of this section has effect as if for paragraphs (a) and (b) of that subsection there were substituted—
(a) is a society registered, or treated as registered, under section 1 of the Industrial and Provident Societies Act 1965 in the case of which the condition in section 1(2)(b) of that Act is fulfilled, or
.
(6) If section 1 of the 2010 Act (registration of societies) comes into force before the 2014 Act comes into force then, with effect from the coming into force of that section and until the coming into force of the 2014 Act, subsection (1) of this section has effect as if for paragraphs (a) and (b) of that subsection there were substituted—
(a) is registered as a community benefit society under section 1 of the Industrial and Provident Societies Act 1965 (“the 1965 Act”),
(b) is a pre-2010 Act society (as defined by section 4A(1) of the 1965 Act) that meets the condition in section 1(3) of the 1965 Act, or
.
(7) In the event that section 2 of the 2010 Act (renaming of the 1965 Act) is brought into force before its repeal by the 2014 Act takes effect then, with effect from the coming into force of that section, subsections (5) and (6) of this section have effect as if, in the provisions which they substitute, the references to the Industrial and Provident Societies Act 1965 were references to the Co-operative and Community Benefit Societies and Credit Unions Act 1965.
(1) In this Part “accredited social impact contractor” means a company limited by shares that is accredited under this section as a social impact contractor.
(2) Applications for accreditation as a social impact contractor must be made to a Minister of the Crown in the form and manner specified by a Minister of the Crown.
(3) A Minister of the Crown is to accredit a company if, but only if, that Minister is satisfied that—
(a) the company has entered into a social impact contract (see section 257JE),
(b) the company is, and at all times since its incorporation has been, established—
(i) for the purpose of entering into and carrying out a social impact contract, or for that purpose and purposes incidental to it, but
(ii) for no other purpose, and
(c) the activities of the company in carrying out that contract will not consist wholly, or as to a substantial part, in excluded activities (see section 257MQ).
(4) If a Minister of the Crown is satisfied that the condition in subsection (3)(b) or (c) has ceased to be met in relation to a company that is an accredited social impact contractor, that Minister is to withdraw the company's accreditation with effect from the time the condition ceased to be met or a later time.
(1) In this Part “social impact contract” means a contract that meets such criteria as may be specified in regulations made by the Treasury.
(2) The criteria which may be specified under subsection (1) include, in particular, criteria as to a party to the contract other than the company seeking accreditation.
(3) Criteria may be specified in regulations under subsection (1) by reference to material published by, or on behalf of, a Minister of the Crown after the making of the regulations (as well as by reference to material published before the making of the regulations).
(4) Regulations under subsection (1) may make different provision for different cases or circumstances or in relation to different areas.
(1) An accreditation must be made so as to be conditional on compliance with—
(a) any requirements imposed by or under regulations, and
(b) any other requirements considered appropriate by the Minister of the Crown who is accrediting the company concerned.
(2) The requirements that may be imposed by virtue of subsection (1) include requirements relating to the provision of information.
(3) Regulations may—
(a) make further provision about applications for accreditation,
(b) make provision for the variation of an accreditation (including its provisions as to its duration),
(c) make provision which, in a case where a company is or has been an accredited social impact contractor, imposes or authorises the imposition of requirements on the company, or on any other party to the social impact contract concerned, to provide information,
(d) make provision about the consequences of a failure to comply with any requirement of an accreditation imposed by virtue of subsection (1) or with any requirement imposed by virtue of paragraph (c), including in particular—
(i) provision for the withdrawal of the accreditation concerned with effect from the time of the failure or a later time, and
(ii) provision for the imposition of penalties,
(e) make provision for publication of information about an accreditation or accredited social impact contractor, and
(f) make provision for reviews of, or for appeals to the tribunal against, any of the following—
(i) a refusal to grant or vary an accreditation,
(ii) the imposition of a requirement under subsection (1)(b),
(iii) the withdrawal of an accreditation (whether under section 257JD(4) or by virtue of provision made under paragraph (d)(i)), and
(iv) the imposition or amount of a penalty imposed by virtue of provision made under paragraph (d)(ii).
(4) Regulations under subsection (1) or (3) may—
(a) make provision for the making of decisions by a Minister of the Crown as to any matter required to be decided for the purposes of the regulations,
(b) be framed by reference to material published by, or on behalf of, a Minister of the Crown after the making of the regulations (as well as by reference to material published before the making of the regulations),
(c) make different provision for different cases or circumstances or in relation to different areas, and
(d) contain incidental, supplemental, consequential and transitional provision and savings.
(5) In this section—
“accreditation” means accreditation under section 257JD, and
“regulations” means regulations made by the Treasury.
257JG Period of accreditation as a social impact contractor
(1) An accreditation under section 257JD has effect for a period—
(a) beginning with the day specified in the accreditation, and
(b) of a length specified in, or determined in accordance with, the accreditation.
(2) The day specified under subsection (1)(a) in an accreditation may not be earlier than 6 April 2014 but subject to that—
(a) may be, or be earlier than, the day it is decided to grant the accreditation (and in particular may be, or be earlier than, the day the application for the accreditation is made), and
(b) may be earlier than the day section 257JD comes into force.
(3) This section has effect subject to sections 257JD(4) and 257JF(3)(d)(i) (withdrawal of accreditations).
257JH Functions of Ministers of the Crown under sections 257JD to 257JG
(1) A Minister of the Crown may delegate any function given to a Minister of the Crown by or under sections 257JD to 257JG other than a power of the Treasury to make regulations.
(2) In those sections and this section “Minister of Crown” has the meaning given by section 8(1) of the Ministers of the Crown Act 1975.
(1) An individual (“the investor”) who invests in a social enterprise is eligible for SI relief in respect of the amount invested if—
(a) the investment is made—
(i) by the investor on the investor's own behalf,
(ii) on or after 6 April 2014, and
(iii) before 6 April 2023 (but see subsection (5)), and
(b) the conditions set out in Chapters 3 and 4 are met.
(2) Subsection (1)(b) is subject to the provisions in sections 257LB and 257MJ to 257MN which provide for conditions set out in those sections not to apply where the social enterprise is an accredited social impact contractor.
(3) The investor is not eligible for SI relief in respect of the amount invested if—
(a) the investor has obtained in respect of that amount, or any part of it, relief under—
(i) Part 5 (enterprise investment scheme),
(ii) Part 5A (seed enterprise investment scheme), or
(iii) Part 7 (community investment tax relief), or
(b) that amount, or any part of it, has under Schedule 5B to TCGA 1992 (enterprise investment scheme: re-investment) been set against a chargeable gain.
(4) Investments made by, subscribed for, issued to, held by or disposed of for an individual by a nominee are treated for the purposes of this Part as made by, subscribed for, issued to, held by or disposed of by the individual.
(5) The Treasury may by order substitute a later date for the date for time being specified in subsection (1)(a)(iii).
In the following provisions of this Part (except section 257N), a reference to—
“the amount invested”,
“the investment”,
“the investor”, or
“the social enterprise”,
is to be read in accordance with section 257K(1).
257KB When investment is made, and “investment date”
(1) For the purposes of this Part “the investment date” means the date on which the investment is made.
(2) So far as the investment is in shares, for the purposes of this Part it is made when the shares are issued to the investor by the social enterprise.
(3) If the investment, so far as it is in qualifying debt investments (see section 257L), involves making the only advance covered by the debenture or debentures concerned, for the purposes of this Part it is made—
(a) when the social enterprise issues the debenture or debentures to the investor, or
(b) in a case where there is to be no such issuing, when the debenture or debentures, so far as relating to the advance, take effect between the social enterprise and the investor.
(4) If the investment, so far as it is in qualifying debt investments, involves making the first of multiple advances covered by the debenture or debentures concerned, for the purposes of this Part it is made—
(a) when the social enterprise issues the debenture or debentures to the investor, or
(b) in a case where there is to be no such issuing, when the debenture or debentures, so far as relating to all of those advances, take effect between the social enterprise and the investor.
(5) If the investment, so far as it is in qualifying debt investments, involves making the second of multiple advances covered by the debenture or debentures concerned, or a subsequent one of those advances, for the purposes of this Part it is made—
(a) when the amount of that advance is fully advanced in cash, or
(b) if later—
(i) when the social enterprise issues the debenture or debentures to the investor, or
(ii) in a case where there is to be no such issuing, when the debenture or debentures, so far as relating to all of those advances, takes effect between the social enterprise and the investor.
(6) For the purposes of subsections (3) to (5) “debenture” includes any instrument creating or acknowledging indebtedness.
257KC “Shorter applicable period” and “longer applicable period”
(1) In this Part “the shorter applicable period” and “the longer applicable period” have the meaning given by this section.
(2) The shorter applicable period begins with the investment date.
(3) The longer applicable period begins with—
(a) the day on which the social enterprise is—
(i) incorporated (if it is a body corporate), or
(ii) established (in any other case), or
(b) if later, the day whose first anniversary is the investment date.
(4) Each of the periods ends with the third anniversary of the investment date.
257L Investment to be in new shares or new qualifying debt investments
(1) At all times during the shorter applicable period, the investment must be in—
(a) shares that meet conditions A and B and are issued to the investor by the social enterprise in return for the amount invested, or
(b) qualifying debt investments of which the investor is the holder in return for advancing the amount invested to the social enterprise.
(2) Condition A is that the shares must carry none of the following—
(a) a right to a return which, or any part of which, is a fixed amount;
(b) a right to a return which, or any part of which, is at a fixed rate;
(c) a right to a return which, or any part of which, is otherwise fixed by reference to the amount invested;
(d) a right to a return which, or any part of which, is fixed by reference to some other factor that is not contingent on successful financial performance by the social enterprise;
(e) a right to a return at a rate greater than a reasonable commercial rate.
(3) Condition B is that, for the purpose of determining the amounts due in respect of the shares to their holder in the event of the winding-up of the social enterprise—
(a) those amounts rank after all debts of the social enterprise except any due to holders of qualifying debt investments in the social enterprise in respect of their qualifying debt investments, and
(b) the shares do not rank above any other shares in the social enterprise.
(4) In this Part “qualifying debt investments”, in relation to the social enterprise, means any debentures of the social enterprise in respect of which the following conditions are met—
(a) neither the principal of the debt concerned, nor any return on that, is charged on any assets,
(b) the rate of any such return is not greater than a reasonable commercial rate of return, and
(c) in the event of the winding-up of the social enterprise and so far as the law allows, any sums due in respect of the debt (whether principal or return)—
(i) are subordinated to all other debts of the social enterprise except sums due in the case of other unsecured debentures of the social enterprise which rank equally,
(ii) rank equally, if there are shares in the social enterprise and they all rank equally among themselves, with amounts due to share-holders in respect of their shares, and
(iii) rank equally, if there are shares in the social enterprise and they do not all rank equally, with amounts due in respect of their shares to the holders of shares that do not rank above any other shares.
(5) The condition in subsection (3)(a) or (4)(c)(i) is met even if the sums concerned do not rank after debts which are postponed—
(a) by rules under section 411 of the Insolvency Act 1986, or
(b) by or under any other enactment.
(6) For the purposes of subsection (4) “debenture” includes any instrument creating or acknowledging indebtedness.
257LA Condition that the amount invested must have been paid over
(1) So far as the investment is in shares—
(a) the shares must be subscribed for wholly in cash, and
(b) must be fully paid up at the time they are issued.
(2) If the investment, so far as it is in qualifying debt investments, involves making—
(a) the only advance covered by the debenture or debentures concerned, or
(b) one of multiple advances covered by the debenture or debentures concerned,
the full amount of that advance must have been advanced wholly in cash by the time the investment is made.
(3) For the purposes of this section—
(a) shares are not fully paid up, or
(b) the full nominal amount of qualifying debt investments has not been advanced,
if there is any undertaking to pay cash to any person at a future time in respect of the acquisition of the shares or investments.
(4) For the purposes of subsection (2) “debenture” includes any instrument creating or acknowledging indebtedness.
(1) There must not at any time in the shorter applicable period be any arrangements in existence for the investment to be redeemed, repaid, repurchased, exchanged or otherwise disposed of in that period.
(2) The issuing arrangements for the investment must not include—
(a) arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the social enterprise or a person connected with the social enterprise, or
(b) arrangements for the disposal of, or of a substantial amount (in terms of value) of, the assets of the social enterprise or of a person connected with the social enterprise.
(3) The arrangements referred to in subsection (2)(a) and (b) do not include any arrangements applicable only on the winding-up of a company except in a case where—
(a) the issuing arrangements include arrangements for the company to be wound up, or
(b) the arrangements are applicable on the winding-up of the company otherwise than for genuine commercial reasons.
(4) In this section “the issuing arrangements” means—
(a) the arrangements under which the investor makes the investment, and
(b) any arrangements made before, and in relation to or in connection with, the making of the investment by the investor.
(5) Subsections (2) to (4) do not apply if the social enterprise is an accredited social impact contractor.
(1) There must not at any time in the shorter applicable period be any arrangements in existence the main purpose or one of the main purposes of which is (by means of any insurance, indemnity, guarantee, hedging of risk or otherwise) to provide partial or complete protection for the investor against what would otherwise be the risks attached to making the investment.
(2) The arrangements referred to in subsection (1) do not include any arrangements which are confined to the provision—
(a) for the social enterprise itself, or
(b) if the social enterprise is a parent company that meets the trading requirement in section 257MJ(2)(c) or is a parent company that is an accredited social impact contractor—
(i) for the social enterprise itself,
(ii) for the social enterprise itself and one or more of its subsidiaries, or
(iii) for one or more of the subsidiaries of the social enterprise,
of any such protection against the risks arising in the course of carrying on its business as might reasonably be expected to be provided in normal commercial circumstances.
(1) No linked loan is to be made by any person, at any time in the longer applicable period, to the investor or an associate of the investor.
(2) In this section “linked loan” means any loan which—
(a) would not have been made, or
(b) would not have been made on the same terms,
if the investor had not made the investment, or had not been proposing to do so.
(3) References in this section to the making by any person of a loan to the investor or an associate of the investor include—
(a) references to the giving by that person of any credit to the investor or any associate of the investor, and
(b) references to the assignment to that person of a debt due from the investor or any associate of the investor.
(1) If at the time immediately before the investment is made the investor holds any shares in or debentures of—
(a) the social enterprise, or
(b) a company which at that time is a qualifying subsidiary of the social enterprise,
those shares or debentures must be risk finance investments or (in the case of shares) permitted subscriber shares.
(2) A share or debenture is a “risk finance investment” for the purposes of this section if—
(a) it is a share that was issued to the investor, or a debenture of which the investor is the holder in return for advancing an amount, and
(b) at any time, a compliance statement under section 205, 257ED or 257PB is provided in respect of it or of shares or investments including it.
(3) Subscriber shares are “permitted subscriber shares” for the purposes of this section if—
(a) they were issued to the investor and have been continuously held by the investor since they were issued, or
(b) they were acquired by the investor at a time when the company which issued them—
(i) had issued no shares other than subscriber shares, and
(ii) had not begun to carry on or make preparations for carrying on any trade or business.
(4) In this section “debenture” is to be read in accordance with section 257L(6).
257LEA The no disqualifying arrangements requirement
(1) The investment must not be made, and money raised by the social enterprise from the making of the investment must not be employed,—
(a) in consequence or anticipation of disqualifying arrangements, or
(b) otherwise in connection with disqualifying arrangements.
(2) Arrangements are “disqualifying arrangements” if—
(a) the main purpose, or one of the main purposes, of the arrangements is to secure both that an activity is or will be carried on by the social enterprise or a 90% social subsidiary of the social enterprise and that—
(i) one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of a qualifying investment which raises money for the purposes of that activity, or
(ii) shares issued by the social enterprise which raise money for the purposes of that activity may comprise part of the qualifying holdings of a VCT,
(b) that activity is the relevant qualifying activity, and
(c) one or both of conditions A and B are met.
(3) Condition A is that, as a (direct or indirect) result of the money raised by the investment being employed as required by section 257MM, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.
(4) Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying activity would have been carried on as part of another business by a relevant person or relevant persons.
(5) For the purposes of this section it is immaterial whether the social enterprise is a party to the arrangements.
(6) In this section—
“90% social subsidiary” is to be read in accordance with section 257MV;
“component activities” means the carrying on of a qualifying trade or preparing to carry on such a trade, which constitutes the relevant qualifying activity;
a “qualifying investment” means—
shares in the social enterprise, or
a qualifying debt investment in the social enterprise (see section 257L);
“qualifying holdings”, in relation to the social enterprise, is to be construed in accordance with section 286 (VCTs: qualifying holdings);
“relevant person” means a person who is a party to the arrangements or a person connected with such a party;
“relevant qualifying activity” means the qualifying trade or activity mentioned in section 257ML(1) for the purposes of which the investment raised money;
“relevant tax relief” has the meaning given by subsection (7).
(7) “Relevant tax relief”—
(a) in relation to a qualifying debt investment, means SI relief in respect of that investment;
(b) in relation to shares, means one or more of the following—
(i) SI relief in respect of the shares;
(ii) EIS relief (within the meaning of Part 5) in respect of the shares;
(iii) SEIS relief (within the meaning of Part 5A) in respect of the shares;
(iv) relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;
(v) relief under section 150A or 150E of TCGA 1992 (EIS and SEIS) in respect of the shares;
(vi) relief under Schedule 5B to that Act (EIS: reinvestment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule);
(vii) relief under Schedule 5BB to that Act (SEIS: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).
257LF Restrictions on being an employee, partner or paid director
(1) This section applies—
(a) to the investor, and
(b) to any individual who is an associate of the investor.
(2) An individual to whom this section applies must not at any time in the longer applicable period be—
(a) an employee of—
(i) the social enterprise,
(ii) any subsidiary of the social enterprise,
(iii) a partner of the social enterprise, or
(iv) a partner of any subsidiary of the social enterprise,
(b) a partner of—
(i) the social enterprise, or
(ii) any subsidiary of the social enterprise,
(c) a trustee of—
(i) the social enterprise, or
(ii) any subsidiary of the social enterprise, or
(d) a remunerated director of—
(i) the social enterprise, or
(ii) a linked company.
(3) In this section—
“linked company” means—
a subsidiary of the social enterprise,
a company which is a partner of the social enterprise, or
a company which is a partner of a subsidiary of the social enterprise;
“related person” means—
the social enterprise,
a person connected with the social enterprise,
a linked company of which the individual is a director, or
a person connected with such a company;
“subsidiary”, in relation to the social enterprise, means a company which at any time in the longer applicable period is a 51% subsidiary of the social enterprise (and such a company is therefore a subsidiary of the social enterprise for the purposes of this section even at times when it is not a 51% subsidiary of the social enterprise).
(4) For the purposes of subsection (2)(d), an individual who is a director of the social enterprise or a linked company is “remunerated” if the individual (or a partnership of which the individual is a member)—
(a) receives at any time in the longer applicable period a payment from a related person, or
(b) is entitled to receive a payment from a related person in respect of any time in the longer applicable period.
(5) For the purposes of subsection (4) the following are ignored—
(a) any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by the individual in the performance of the individual's duties as a director,
(b) any interest which represents no more than a reasonable commercial return on money lent to a related person,
(c) any dividend or other distribution which does not exceed a normal return on the investment,
(d) any payment for the supply of goods which does not exceed their market value,
(e) any payment of rent for any property occupied by a related person which does not exceed a reasonable and commercial rent for the property,
(f) any necessary and reasonable remuneration which—
(i) is paid for services, rendered to a related person in the course of a trade or profession, that are not secretarial services and are not managerial services and are not services of a kind provided by the person to whom they are rendered, and
(ii) is taken into account in calculating for tax purposes the profits of that trade or profession, and
(g) if condition A is met and (where applicable) condition B is also met, any other reasonable remuneration (including any benefit or facility) received by the individual, or to which the individual is entitled, for services rendered by the individual—
(i) to the company (whether the social enterprise or a linked company) of which the individual is a director, and
(ii) in the individual's capacity as a director of that company.
(6) Condition A is that the investor made the investment, or previously made another investment meeting the requirement in section 257L(1), at a time (“the qualifying time”) when—
(a) the requirements of this section and sections 257LG and 257LH (even if the three sections were not then in force) would have been met even if each other reference in the three sections to any time in the longer applicable period were a reference to any time before the qualifying time, and
(b) the investor had never been involved in carrying on (whether on the investor's own account or as a partner, director or employee) the whole or any part of the trade, business or profession carried on by the social enterprise or a subsidiary of the social enterprise.
(7) Condition B is that—
(a) the investment did not meet condition A (but a previous investment did), and
(b) the investment was made before the third anniversary of the date when the investor last made an investment in the social enterprise which met condition A.
(8) References in this section to an individual in the individual's capacity as a director of a company include, if the individual is both a director and an employee of the company, references to the individual in the individual's capacity as an employee of the company but, apart from that, an individual who is both a director and an employee of a company is treated for the purposes of this section as a director, and not an employee, of the company.
(9) In subsections (2), (4) and (5) “director” does not include a trustee of a charity that is a trust.
257LG The requirement not to be interested in capital etc of social enterprise
(1) This section applies—
(a) to the investor, and
(b) to any individual who is an associate of the investor.
(2) In this section “related company” means—
(a) the social enterprise, or
(b) a company which at any time in the longer applicable period is a 51% subsidiary of the social enterprise (and such a company is therefore a related company for the purposes of this section even at times when it is not a 51% subsidiary of the social enterprise).
(3) There must not be any time in the longer applicable period when an individual to whom this section applies has control of a related company.
(4) There must not be any time in the longer applicable period when an individual to whom this section applies directly or indirectly possesses or is entitled to acquire—
(a) more than 30% of the ordinary share capital of a related company,
(b) more than 30% of the loan capital of a related company, or
(c) more than 30% of the voting power in a related company.
(5) For the purposes of subsections (3) and (4) ignore any shares in a related company held by the individual, or by an associate of the individual, at a time when that company—
(a) has not issued any shares other than subscriber shares, and
(b) has not begun to carry on, or make preparations for carrying on, any trade or business.
(6) For the purposes of this section, the loan capital of a company—
(a) is treated as including any debt incurred by the company—
(i) for any money borrowed or capital assets acquired by the company,
(ii) for any right to receive income created in favour of the company, or
(iii) for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium on it), and
(b) is treated as not including any debt incurred by the company by overdrawing an account with a person carrying on a business of banking if the debt arose in the ordinary course of that business.
(7) For the purposes of this section—
(a) an individual is treated as entitled to acquire anything which the individual is entitled to acquire at a future date or will at a future date be entitled to acquire, and
(b) there is attributed to any individual any rights or powers of any other person who is an associate of the individual.
257LH Requirement for no collusion with a non-qualifying investor
There must not at any time in the longer applicable period be any arrangements—
(a) as part of which—
(i) the investor makes the investment, or
(ii) the investor, or an individual who is an associate of the investor, makes any other investment in the social enterprise,
(b) which provide for a person to make an investment in a company other than the social enterprise, where that person is not the individual (“A”) who invests as mentioned in paragraph (a), and
(c) to which there is a party (whether or not A) who is an individual in relation to whom not all of the requirements in sections 257LF and 257LG would be met if—
(i) references in those sections to the investor were read as references to that individual, and
(ii) references in those sections to the social enterprise were read as references to the company mentioned in paragraph (b).
(1) If the social enterprise is a single company, the value of its assets—
(a) must not exceed £15 million immediately before the investment is made, and
(b) must not exceed £16 million immediately after the investment is made.
(2) If the social enterprise is a parent company, the value of the group assets—
(a) must not exceed £15 million immediately before the investment is made, and
(b) must not exceed £16 million immediately after the investment is made.
(3) For the purposes of subsection (2), the value of the group assets is the sum of the values of the gross assets of each of the members of the group, ignoring any assets that consist in rights against, or shares in or securities of, another member of the group.
(1) At the beginning of the shorter applicable period—
(a) the social enterprise must not be a quoted company,
(b) there must be no arrangements in existence for the social enterprise to become a quoted company, and
(c) there must be no arrangements in existence for the social enterprise to become a subsidiary of a company (“the new company”) by virtue of an exchange of shares, or shares and securities, if arrangements have been made with a view to the new company becoming a quoted company.
(2) For the purpose of this section, a company is a “quoted company” if any shares, stocks, debentures or other securities of the company are—
(a) listed on a recognised stock exchange,
(b) listed on a designated exchange in a country outside the United Kingdom, or
(c) dealt in outside the United Kingdom by such means as may be designated.
(3) In subsection (2)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty's Revenue and Customs for the purposes of that provision.
(4) An order made for the purposes of subsection (2)(b) may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.
(5) The arrangements referred to in subsection (1)(b), and the second arrangements referred to in subsection (1)(c), do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the social enterprise or the new company (as the case may be) are at any subsequent time—
(a) listed on a stock exchange that is a recognised stock exchange by virtue of an order under section 1005(1)(b), or
(b) listed on an exchange, or dealt in by any means, designated by an order made for the purposes of subsection (2)(b) or (c),
if the order was made after the beginning of the shorter applicable period.