(1) The social enterprise must not at any time in the shorter applicable period control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the social enterprise.
(2) The social enterprise must not at any time in the shorter applicable period—
(a) be a 51% subsidiary of a company, or
(b) be under the control of a company, or under the control of a company and a person connected with that company, without being a 51% subsidiary of the company.
(3) No arrangements must be in existence at any time in the shorter applicable period by virtue of which the social enterprise could fail to meet either or both of subsections (1) and (2) (whether during that period or otherwise).
257MG The property-managing subsidiaries requirement
(1) Any property-managing subsidiary that the social enterprise has at any time in the shorter applicable period must be a 90% social subsidiary of the social enterprise.
(2) In subsection (1) “property-managing subsidiary” means a subsidiary of the social enterprise whose business consists wholly or mainly in the holding or managing of land or any property deriving its value (directly or indirectly) from land.
(1) If the social enterprise is a single company, the full-time equivalent employee number for it must be less than 250 when the investment is made.
(2) If the social enterprise is a parent company, the sum of—
(a) the full-time equivalent employee number for it, and
(b) the full-time equivalent employee number for each of its qualifying subsidiaries,
must be less than 250 when the investment is made.
(3) The full-time equivalent employee number for a company is calculated by taking the number of full-time employees of the company and adding, for each employee of the company who is not a full-time employee, such fraction as is just and reasonable.
(4) In this section “employee”—
(a) includes a director, but
(b) does not include—
(i) an employee on maternity , paternity , parental bereavement or neonatal care leave, or
(ii) a student on vocational training.
(1) The requirements in this section apply during the shorter applicable period.
(2) The social enterprise must not be a member of any partnership.
(3) Each 90% social subsidiary of the social enterprise must not be a member of a partnership.
(1) The social enterprise must meet the financial health requirement at the beginning of the shorter applicable period.
(2) The financial health requirement is that the social enterprise is not in difficulty.
(3) The social enterprise is “in difficulty” if it is reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02).
(1) The social enterprise must meet the trading requirement throughout the shorter applicable period, but this does not apply if the social enterprise is an accredited social impact contractor.
(2) The trading requirement is that—
(a) the social enterprise is a charity,
(b) the social enterprise is a single company that is not a charity, and its business—
(i) does not, if things done for incidental purposes are ignored, consist to any extent in the carrying-on of non-trade activities, and
(ii) does not consist wholly, or as to a substantial part, in the carrying-on of excluded activities, or
(c) the social enterprise is a parent company that is not a charity, and the business of the group does not consist wholly, or as to a substantial part, in the carrying-on of non-qualifying activities.
(3) If the social enterprise intends that one or more companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—
(a) the social enterprise is treated as a parent company for the purposes of subsection (2)(b) and (c), and
(b) the reference in subsection (2)(c) to the group includes the social enterprise and any existing or future company that will be its qualifying subsidiary after the intention in question is carried out,
but this subsection does not apply at any time after the abandonment of that intention.
(4) For the purposes of subsection (2)(c) “the business of the group” means what would be the business of the group if the activities of the group companies taken together were regarded as one business.
(5) For the purposes of determining the business of a group, activities of a group company are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.
(6) For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—
(a) the holding of shares in or securities of a qualifying subsidiary of the parent company,
(b) the making of loans to another group company, or
(c) the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company.
(7) In this section—
“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the body in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly,
“non-qualifying activities” means—
excluded activities, and
activities, other than activities carried on by a charity, that are carried on otherwise than in the course of a trade, and
“non-trade activities” means activities which are neither of the following—
activities carried on in the course of a trade, and
activities carried on in the course of preparing to carry on a trade.
257MK Ceasing to meet trading requirement: administration or receivership
(1) The social enterprise is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the social enterprise or any of its subsidiaries being in administration or receivership, but this is subject to subsections (2) and (3).
(2) Subsection (1) applies only if—
(a) the entry into administration or receivership, and
(b) everything done as a result of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(3) The social enterprise ceases to meet the trading requirement if before the end of the shorter applicable period—
(a) a resolution is passed, or an order is made, for the winding-up of the social enterprise or any of its subsidiaries (or, in the case of a winding-up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), any other act is done for the like purpose), or
(b) the company or any of its subsidiaries is dissolved without winding-up,
but this is subject to subsection (4).
(4) Subsection (3) does not apply if the winding-up or dissolution is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
257ML The issue must be to raise money for chosen trade or preparing for it
(1) The social enterprise must be a party to the making of the investment (so far as not in bonus shares) in order to raise money for the carrying-on, by the social enterprise or a 90% social subsidiary of the social enterprise, of—
(a) a qualifying trade which on the investment date is carried on by the social enterprise or a 90% social subsidiary of the social enterprise, or
(b) the activity of preparing to carry on (or preparing to carry on and then carrying on) a qualifying trade—
(i) which on the investment date is intended to be carried on by the social enterprise or a 90% social subsidiary of the social enterprise, and
(ii) which is begun to be carried by the social enterprise or such a subsidiary within 2 years after that date.
(2) In this Chapter—
(a) the purpose within subsection (1) for which money is raised is referred to as “the funded purpose”,
(b) the qualifying trade mentioned in subsection (1)(a) or (b) is referred to as “the chosen trade”, and
(c) if the funded purpose is the carrying-on of the activity mentioned in subsection (1)(b), “relevant preparation work” means preparations that form the whole or part of the activity.
(3) In determining for the purposes of subsection (1)(b) when a qualifying trade is begun to be carried on by a 90% social subsidiary of the social enterprise, any carrying-on of the trade by it before it became such a subsidiary is ignored.
(4) The reference in subsection (1)(b)(i) to a 90% social subsidiary of the social enterprise includes a reference to any existing or future body which will be such a subsidiary at any future time.
(5) This section does not apply if the social enterprise is an accredited social impact contractor.
257MM Requirement to use money raised and to trade for minimum period
(1) All of the money raised by the social enterprise from the making of the investment must, no later than the end of 28 months beginning with the investment date, be employed wholly for the funded purpose.
(2) The chosen trade must have been carried on for a period of at least 4 months ending at or after the time the investment is made and, throughout that period, the trade—
(a) must have been carried on by the social enterprise or a 90% social subsidiary of the social enterprise, and
(b) must not have been carried on by any other person.
(3) Employing money on the acquisition of shares or stock in a body does not of itself amount to employing the money for the funded purpose.
(3A) Employing money on the repayment of a loan does not amount to employing the money for the funded purpose.
(4) Subsection (1) does not fail to be met merely because an amount of money which is not significant is employed for other purposes.
(5) If—
(a) merely because of the social enterprise or any other company being wound up, or dissolved without winding-up, the qualifying trade is carried on as mentioned in subsection (2) for a period shorter than 4 months, and
(b) the winding-up or dissolution—
(i) is for genuine commercial reasons, and
(ii) is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax,
subsection (2) has effect as if it referred to that shorter period.
(6) If—
(a) merely because of anything done as a result of the social enterprise or any other company being in administration or receivership, the chosen trade is carried on as mentioned in subsection (2) for a period shorter than 4 months, and
(b) the entry into administration or receivership, and everything done as a result of the company concerned being in administration or receivership—
(i) is for genuine commercial reasons, and
(ii) is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax,
subsection (2) has effect as if it referred to that shorter period.
(7) If the social enterprise is an accredited social impact contractor, the preceding provisions of this section apply with the following modifications—
(a) in subsection (1), for “28 months” substitute “ 24 months ”,
(b) in that subsection, for “the funded purpose” substitute “ the carrying out of the social impact contract concerned ”, and
(c) omit subsections (2), (3), (3A), (5) and (6).
257MN The social enterprise must carry on the chosen trade
(1) There must not be a time in the shorter applicable period when—
(a) the chosen trade, or
(b) relevant preparation work,
is carried on by a person who is neither the social enterprise nor a 90% social subsidiary of the social enterprise.
(2) If relevant preparation work is carried out in the shorter applicable period by the social enterprise or a 90% social subsidiary of the social enterprise then, for the purposes of determining whether the requirement in subsection (1) is met, ignore any carrying-on of the chosen trade that takes place in that period before the trade begins to be carried on by a person who is the social enterprise or a 90% social subsidiary of the social enterprise.
(3) The requirement in subsection (1) is not regarded as failing to be met if, merely because of any act or event within subsection (4), the chosen trade—
(a) ceases to be carried on in the shorter applicable period by the social enterprise or any 90% social subsidiary of the social enterprise, and
(b) it is subsequently carried on in that period by a person who is not any time in the longer applicable period connected with the social enterprise.
(4) The acts and events within this subsection are—
(a) anything done as a consequence of the social enterprise or any other company being in administration or receivership, and
(b) the social enterprise or any other company being wound up, or dissolved without being wound up.
(5) Subsection (4) applies only if—
(a) the entry into administration or receivership, and everything done as a consequence of the company concerned being in administration or receivership, or
(b) the winding-up or dissolution,
is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(6) This section does not apply if the social enterprise is an accredited social impact contractor.
257MNA Maximum amount where investment made in first 7 years
(1) This section applies where—
(a) the investment is made before the end of the period of 7 years beginning with the relevant first commercial sale, or
(b) the investment is made after that period but—
(i) a relevant investment was made in the social enterprise before the end of that period, and
(ii) some or all of the money raised by that relevant investment was employed for the purposes of (or of part of) the qualifying activity for which the money raised by the investment is employed.
(2) Where this section applies, the total amount of relevant investments made in the social enterprise on or before the date when the investment is made must not exceed £1.5 million.
(3) The reference in subsection (2) to relevant investments “made in the social enterprise” is to be read with section 257MNB.
(4) In this section—
“qualifying activity” means—
a qualifying trade within paragraph (a) of section 257ML(1) carried on by the social enterprise or a 90% social subsidiary of the social enterprise, or
an activity within paragraph (b) of section 257ML(1) so carried on;
“the relevant first commercial sale” has the meaning given by section 175A(6), reading—
references to the issuing company as references to the social enterprise,
references to the issue date as references to the investment date, and
references to money raised by the issue of the relevant shares as references to money raised by the investment;
“relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).
(5) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.
(6) Where the social enterprise is an accredited social impact contractor—
(a) the reference in subsection (1)(a) to the relevant first commercial sale is to be read as a reference to the date on which the social enterprise first entered into a social impact contract;
(b) the reference in subsection (1)(b) to the qualifying activity mentioned there is to be read as a reference to the carrying out of the social impact contract for which the money raised by the investment is employed.
(7) For provision about maximum amounts where this section does not apply, see section 257MNC.
(1) In section 257MNA(2) the reference to relevant investments “made in the social enterprise” includes—
(a) relevant investments made in a company which, at the material date, is or has been a 51% subsidiary of the social enterprise,
(b) any other relevant investment made in a company to the extent that the money raised by that relevant investment has been employed for the purposes of a trade carried on by another company (“company X”) which, at the material date, is or has been a 51% subsidiary of the social enterprise, and
(c) any other relevant investment made in a company if—
(i) the money raised by that relevant investment has been employed for the purposes of a trade carried on by that company or another person, and
(ii) after that relevant investment was made, but on or before the material date, that trade became a transferred trade (see subsection (5)).
(2) The investments within paragraph (a) of subsection (1)—
(a) include investments made in a company mentioned in that paragraph before it became a 51% subsidiary of the social enterprise, but
(b) where a company mentioned in that paragraph is not a 51% subsidiary of the social enterprise at the material date, do not include any investments made in that company after it last ceased to be such a subsidiary.
(3) For the purposes of subsection (1)(b), where company X is not a 51% subsidiary of the social enterprise at the material date, any money employed after company X last ceased to be such a subsidiary is to be ignored.
(4) Where only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a transferred trade, only the corresponding proportion of that relevant investment is to be treated as falling within subsection (1)(c).
(5) For the purposes of this section, if—
(a) on or before the material date a trade is transferred—
(i) to the social enterprise,
(ii) to a company which, at the material date, is or has been a 51% subsidiary of the social enterprise, or
(iii) to a partnership of which the social enterprise, or a company within sub-paragraph (ii), is a member, and
(b) the trade or part of it was at any time before the transfer carried on by another person,
the trade or part mentioned in paragraph (b) becomes a “ transferred trade ” when it is transferred as mentioned in paragraph (a).
(6) The cases within subsection (5)(a)—
(a) include the case where the trade is transferred to a company within subsection (5)(a)(ii), or a partnership of which such a company is a member, before the company became a 51% subsidiary of the social enterprise, but
(b) where a company within subsection (5)(a)(ii) is not a 51% subsidiary of the social enterprise at the material date, do not include the case where the trade is transferred to that company, or a partnership of which that company is a member, after that company last ceased to be such a subsidiary.
(7) In this section—
“the material date” means the date on which the investment is made;
“relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).
(8) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.
(9) Section 173A(6) and (7) (meaning of “trade” etc) apply also for the purposes of this section.
257MNC Maximum amount for cases outside section 257MNA
(1) This section applies where—
(a) the investment is made at any time after the period mentioned in section 257MNA(1)(a), and
(b) it is not the case that the conditions in section 257MNA(1)(b)(i) and (ii) are met.
(2) Where this section applies—
(a) the total amount of relevant investments made in the social enterprise on or before the date when the investment is made must not exceed £1.5 million, and
(b) the amount invested must not be more than the amount mentioned in subsection (3).
(3) That amount is the amount given by the formula—
( [euro] 200,000 − M RCG + RSI ) − T
where—
T is the total of any relevant investments made in the social enterprise in the aid period,
M is the total of any de minimis aid, other than relevant investments, that is granted during the aid period—
to the social enterprise, or
to a qualifying subsidiary of the social enterprise at a time when it is such a subsidiary,
RCG is the highest rate at which capital gains tax is charged in the aid period, and
RSI is the highest SI rate in the aid period.
(4) In subsection (3) “the aid period” means the 3 years—
(a) ending with the day on which the investment is made, but
(b) in the case of that day, including only the part of the day before the investment is made.
(5) In this section “de minimis aid” means de minimis aid which fulfils the conditions laid down in Commission Regulation (EU) No 1407/2013 (de minimis aid) as it had effect in the United Kingdom immediately before IP completion day.
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) For the purposes of subsection (3), the amount of any de minimis aid is the amount of the grant or, if the aid is not in the form of a grant, the gross grant equivalent amount within the meaning of that Regulation as it had effect in the United Kingdom immediately before IP completion day.
(7) For the purposes of subsection (3), if—
(a) the investment or any relevant investment is made, or
(b) any aid is granted,
in sterling or any other currency that is not the euro, its amount is to be converted into euros at an appropriate spot rate of exchange for the date on which the investment is made or the aid is paid.
(8) In this section “relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).
(9) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.
(10) Section 257MNB (which expands the meaning of “relevant investments made in the social enterprise”) applies for the purposes of each of subsections (2) and (3) above as it applies for the purposes of section 257MNA(2).
257MND Limit on investment in shorter applicable period
(1) This section applies where condition A or condition B is met.
(2) Condition A is that—
(a) a company becomes a 51% subsidiary of the social enterprise at any time during the shorter applicable period,
(b) all or part of the money raised by the investment is employed for the purposes of a qualifying activity which consists wholly or partly of a trade carried on by that company, and
(c) that trade (or part of it) was carried on by that company before it became a 51% subsidiary as mentioned in paragraph (a).
(3) Condition B is that all or part of the money raised by the investment is employed for the purposes of a qualifying activity which consists wholly or partly of a trade which, during the shorter applicable period, becomes a transferred trade (see subsection (9)).
(4) Where this section applies, at each time in the shorter applicable period (“the relevant time”) the total of the relevant investments made in the social enterprise before that time must not exceed £1.5 million.
(5) In subsection (4) the reference to relevant investments “made in the social enterprise” includes—
(a) relevant investments made in a company which at any time before the relevant time has been a 51% subsidiary of the social enterprise,
(b) any other relevant investment made in a company to the extent that the money raised by that relevant investment has been employed for the purposes of a trade carried on by another company (“company X”) which at any time before the relevant time has been a 51% subsidiary of the social enterprise, and
(c) any other relevant investment made in a company if—
(i) the money raised by that relevant investment has been employed for the purposes of a trade carried on by that company or another person, and
(ii) after that relevant investment was made, but before the relevant time, that trade (or part of it) became a transferred trade.
(6) The investments within paragraph (a) of subsection (5)—
(a) include investments made in a company mentioned in that paragraph before it became a 51% subsidiary of the social enterprise, but
(b) where a company mentioned in that paragraph is not a 51% subsidiary of the social enterprise at the relevant time, do not include any investments made in that company after it last ceased to be such a subsidiary.
(7) For the purposes of subsection (5)(b), where company X is not a 51% subsidiary of the social enterprise at the relevant time, any money employed after company X last ceased to be such a subsidiary is to be ignored.
(8) Where only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a transferred trade, only the corresponding proportion of that relevant investment is to be treated as falling within subsection (5)(c).
(9) For the purposes of this section, if—
(a) before the relevant time, a trade is transferred—
(i) to the social enterprise,
(ii) to a company which, at the relevant time, is or has been a 51% subsidiary of the social enterprise, or
(iii) to a partnership of which the social enterprise, or a company within sub-paragraph (ii), is a member, and
(b) the trade or part of it was at any time before the transfer carried on by another person,
the trade or part mentioned in paragraph (b) becomes a “ transferred trade ” when it is transferred as mentioned in paragraph (a).
(10) The cases within subsection (9)(a)—
(a) include the case where the trade is transferred to a company within subsection (9)(a)(ii), or a partnership of which such a company is a member, before the company became a 51% subsidiary of the social enterprise, but
(b) where a company within subsection (9)(a)(ii) is not a 51% subsidiary of the social enterprise at the relevant time, do not include the case where the trade is transferred to that company, or a partnership of which that company is a member, after that company last ceased to be such a subsidiary.
(11) In this section—
“qualifying activity” has the same meaning as in section 257MNA (see subsection (4) of that section);
“relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise).
(12) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made.
(13) Section 173A(6) and (7) (meaning of “trade” etc) apply also for the purposes of this section.
257MNE Power to amend limits on amounts that may be invested
(1) The Treasury may by regulations substitute a different figure for the figure for the time being specified in section 257MNA(2), 257MNC(2) or (3) or 257MND(4).
(2) Regulations under this section may make incidental, supplemental, consequential, transitional or saving provision.
(3) Regulations under this section may not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.
(1) For the purposes of this Chapter, a trade is a qualifying trade if—
(a) it is conducted on a commercial basis and with a view to the realisation of profits, and
(b) it does not at any time in the shorter applicable period consist wholly or as to a substantial part in the carrying-on of excluded activities.
(2) References in this section and sections 257MQ to 257MT (excluded activities) to a trade are to be read without regard to the definition of “trade” in section 989.
(1) The following are excluded activities for the purposes of sections 257JD, 257MJ and 257MP—
(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments,
(b) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities ...,
(ba) leasing (including letting ships on charter or other assets on hire),
(bb) receiving royalties or licence fees,
(bc) operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home (see section 257MQA),
(bd) generating electricity, exporting electricity (see subsection (3)) or making electricity generating capacity available,
(be) generating heat,
(bf) generating any form of energy not within paragraph (bd) or (be),
(bg) producing gas or fuel,
(c) property development (see section 257MR),
(d) activities in the fishery and aquaculture sector that is covered by Council Regulation (EC) No. 104/2000 of 17 December 1999 on the common organisation of the markets in fishery and aquaculture products,
(e) the primary production of products listed in Annex I to the Treaty on the Functioning of the European Union (agricultural etc products), with the exception of products covered by Council Regulation EC() No. 104/2000 (fishery and aquaculture products),
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(g) road freight transport for hire or reward, and
(h) providing services or facilities for a business carried on by another person (other than a company of which the provider of the services or facilities is a qualifying subsidiary) if—
(i) the business consists wholly or as to a substantial part of activities falling within any of paragraphs (a) to (g), and
(ii) a controlling interest (see section 257MT) in the business is held by a person who also has a controlling interest in the business carried on by the provider of the services or facilities.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purposes of subsection (1)(bd) electricity is exported if it is exported onto a distribution system or transmission system (within the meaning of section 4 of the Electricity Act 1989).
257MQA Excluded activities: nursing homes and residential care homes
(1) This section supplements section 257MQ(1)(bc).
(2) “Nursing home” means any establishment which exists wholly or mainly for the provision of nursing care—
(a) for persons suffering from sickness, injury or infirmity, or
(b) for women who are pregnant or have given birth.
(3) “Residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care because of—
(a) old age,
(b) mental or physical disability,
(c) past or present dependence on alcohol or drugs,
(d) any past illnesses, or
(e) past or present mental disorder.
(4) The activities of a person are not to be taken to fall within section 257MQ(1)(bc) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.
(1) For the purposes of section 257MQ(1)(c) “property development” means the development of land—
(a) by a company which has, or at any time has had, an interest in the land, and
(b) with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed.
(2) For the purposes of subsection (1) “interest in land” means (subject to subsection (3))—
(a) any estate, interest or right in or over land, including any right affecting the use or disposition of land, or
(b) any right to obtain such an estate, interest or right from another which is conditional on the other's ability to grant it.
(3) References in this section to an interest in land do not include—
(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land, or
(b) in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.
257MT Excluded activity: providing services or facilities for another business
(1) This section explains what is meant by a controlling interest in a business for the purposes of section 257MQ(1)(h).
(2) In the case of a business carried on by a company, a person (“A”) has a controlling interest in the business if—
(a) A controls the company,
(b) the company is a close company and A, or an associate of A, is a director of the company and either—
(i) is the beneficial owner of more than 30% of the ordinary share capital of the company, or
(ii) is able, directly or through the medium of other companies or by any other indirect means, to control more than 30% of that share capital, or
(c) at least half of the business could, in accordance with section 942 of CTA 2010, be regarded as belonging to A for the purposes of section 941 of CTA 2010 (company reconstructions without a change of ownership).
(3) In any other case, a person has a controlling interest in a business if the person is entitled to at least half of the assets used for, or of the income arising from, the business.
(4) For the purposes of this section—
(a) any rights or powers of a person who is an associate of another are to be attributed to that other person, and
(b) “business” includes any trade, profession or vocation.
(1) For the purposes of this Part, a company (“the subsidiary”) is a qualifying subsidiary of another company (“the parent”) if—
(a) the subsidiary is a 51% subsidiary of the parent,
(b) no person other than the parent, or another of its subsidiaries, has control of the subsidiary, and
(c) no arrangements are in existence as a result of which either of the conditions in paragraphs (a) and (b) would cease to be met.
(2) The conditions in subsection (1)(a) to (c) do not cease to be met merely because the subsidiary or any other company is wound up, or dissolved without winding up, if the winding-up or dissolution—
(a) is for genuine commercial reasons, and
(b) is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(3) The conditions in subsection (1)(a) to (c) do not cease to be met merely because of anything done as a consequence of the subsidiary or another company being in administration, or receivership, if—
(a) the entry into administration or receivership, and
(b) everything done as a consequence of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(4) The conditions in subsection (1)(a) to (c) do not cease to be met merely because arrangements are in existence for the disposal by the parent or (as the case may be) by another subsidiary of all its interest in the subsidiary if the disposal—
(a) is to be for genuine commercial reasons, and
(b) is not to be part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
257MV Meaning of “90% social subsidiary” of a social enterprise
(1) For the purposes of this Chapter, a company (“the subsidiary”) is a 90% social subsidiary of another company (“the parent”) if—
(a) the subsidiary is a social enterprise,
(b) the parent possesses at least 90% of the issued share capital of, and at least 90% of the voting power in, the subsidiary,
(c) the parent would—
(i) in the event of a winding-up of the subsidiary, or
(ii) in any other circumstances,
be beneficially entitled to receive at least 90% of the assets of the subsidiary which would then be available for distribution to equity holders of the subsidiary,
(d) the parent is beneficially entitled to receive at least 90% of any profits of the subsidiary which are available for distribution to equity holders of the subsidiary,
(e) no person other than the parent has control of the subsidiary, and
(f) no arrangements are in existence as a result of which any of the conditions in paragraphs (a) to (e) would cease to be met.
(2) For the purposes of this Chapter, a company (“company A”) which is a subsidiary of another company (“company B”) is a 90% social subsidiary of a third company (“company C”) if—
(a) company A is a 90% social subsidiary of company B, and company B is a 100% social subsidiary of company C, or
(b) company A is a 100% social subsidiary of company B, and company B is a 90% social subsidiary of company C.
(3) For the purposes of subsection (2) no account is to be taken of any control company C may have of company A.
(4) For the purposes of subsection (2), a company (“company X”) is a 100% social subsidiary of another company (“company Y”) at any time when the conditions in subsection (1)(a) to (f) would be met if—
(a) company X were the subsidiary,
(b) company Y were the parent, and
(c) in subsection (1) for “at least 90%” there were substituted “ 100% ”.
(5) The conditions in subsection (1)(a) to (f) do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being wound up, or dissolved without being wound up, if the winding-up or dissolution—
(a) is for genuine commercial reasons, and
(b) is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(6) The conditions in subsection (1)(a) to (f) do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being in administration, or receivership, if—
(a) the entry into administration or receivership, and
(b) everything done as a consequence of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(7) The conditions in subsection (1)(a) to (f) do not cease to be met merely because any arrangements are in existence for the disposal by the parent of all its interest in the subsidiary if the disposal—
(a) is to be for genuine commercial reasons, and
(b) is not to be part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(8) For the purposes of subsection (1)—
(a) the persons who are equity holders of the subsidiary, and
(b) the percentage of the assets of the subsidiary to which an equity holder would be entitled,
are to be determined in accordance with Chapter 6 of Part 5 of CTA 2010.
(9) In making that determination—
(a) references in section 166 of that Act to company A are to be read as references to an equity holder, and
(b) references in that section to winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.
(1) The Treasury may by regulations add to, repeal or otherwise amend any provision of sections 257MQ to 257MT (excluded activities).
(2) Regulations under this section may—
(a) make different provision for different cases or purposes;
(b) contain incidental, supplemental, consequential and transitional provision and savings.
(3) So far as they cause an activity to cease to be an excluded activity, amendments made by regulations under this section may have effect in relation to times before they come into force, but not times before 6 April 2015.
(4) This section is without prejudice to any other power to amend any provision of this Part.
(1) References in this Part, in relation to any individual, to the SI relief attributable to any investment are to be read as references to any reduction made in the individual's liability to income tax that is attributed to that investment in accordance with this section.
This is subject to the provisions of this Part providing for the withdrawal or reduction of SI relief.
(2) If an individual's liability to income tax is reduced under this Part in any tax year, then—
(a) if the reduction is obtained because of a single distinct investment, the amount of the reduction is attributed to that investment, and
(b) if the reduction is obtained because of two or more distinct investments, the amount of the reduction—
(i) is apportioned between the distinct investments in the same proportions as the amounts claimed by the individual in respect of each of those investments, and
(ii) is attributed to those investments accordingly.
(3) In this section “distinct investment” means an investment, made on a single day, in—
(a) a single share or single qualifying debt investment, or
(b) two or more shares, or two or more qualifying debt investments, where the shares or qualifying debt investments are in the same social enterprise and of the same class.
(4) If under this section an amount of any reduction in income tax is attributed to a distinct investment—
(a) in the case of a distinct investment of the kind mentioned in subsection (3)(a), that amount is attributed to the share, or qualifying debt investment, concerned, and
(b) in the case of a distinct investment of the kind mentioned in subsection (3)(b), a proportionate part of that amount is attributed to each of the shares, or qualifying debt investments, concerned.
(5) If corresponding bonus shares are issued to an individual in respect of any shares (“the original shares”) to which SI relief is attributed—
(a) a proportionate part of the total amount attributed to the original shares immediately before the bonus shares are issued is attributed to each of the shares in the holding comprising the original shares and the bonus shares, and
(b) after the issue of the bonus shares, this Part applies as if those shares had been issued to the individual on the same day as the original shares.
(6) In subsection (5) “corresponding bonus shares” means bonus shares which are in the same company, of the same class, and carry the same rights, as the original shares.
(7) If section 257JA(1) and (2) apply in the case of any investment as if part of the amount invested had been invested in a previous tax year, this section has effect as if that part and the remainder had been invested by separate investments (and that part had been invested by an investment made on a day in the previous tax year).
(8) For the purposes of this section, shares or other investments 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.
(1) A claim for SI relief in respect of the amount invested may be made—
(a) not earlier than the time the requirement in section 257MM(2) (chosen trade must have been carried on for 4 months) is first met, and
(b) not later than the fifth anniversary of the normal self-assessment filing date for the tax year in which the investment is made.
(2) If the social enterprise is an accredited social impact contractor, subsection (1) applies with the omission of its paragraph (a).
(3) If section 257JA(1) and (2) apply as if part of the amount invested had been invested in a previous tax year, subsection (1) has effect as if that part and the remainder had been invested by separate investments (and that part had been invested by an investment made on a day in the previous tax year).
(1) The investor is entitled to make a claim for SI relief in respect of the amount invested if the investor has received from the social enterprise a compliance certificate in respect of that amount.
(2) For the purposes of PAYE regulations, no regard is to be had to SI relief unless a claim for it has been duly made.
(3) No application may be under section 55(3) or (4) of TMA 1970 (application for postponement of payment of tax pending appeal) on the ground that the investor is entitled to SI relief unless a claim for the relief has been duly made by the investor.
(1) For the purposes of this Part, a “compliance statement” in respect of the investment is a statement by the social enterprise to the effect that, except so far as they fall to be met by or in relation to the individual, the requirements for SI relief—
(a) are for the time being met in relation to the investment (or in relation to investments that include the investment), and
(b) have been so met at all times since the investment was made.
(2) A compliance statement must be in such form as the Commissioners for Her Majesty's Revenue and Customs may direct and must contain—
(a) such additional information as the Commissioners may reasonably require, including in particular information relating to the persons who have requested the issue of compliance certificates,
(b) a declaration that the statement is correct to the best of the social enterprise's knowledge and belief, and
(c) such other declarations as the Commissioners may reasonably require.
(3) The social enterprise may not provide an officer of Revenue and Customs with a compliance statement in respect of the investment—
(a) before the requirement in section 257MM(2) (trade must have been carried for 4 months) is met, or
(b) later than 2 years after the end of the tax year in which the investment is made or, if that requirement is first met after the end of that tax year, later than 2 years after the requirement is first met.
(4) If the social enterprise is an accredited social impact contractor, subsection (3) applies with the omission of its paragraph (a).
(1) For the purposes of this Chapter, a “compliance certificate” is a certificate which—
(a) is issued by the social enterprise in respect of the investment,
(b) states that, except so far as they fall to be met by or in relation to the individual, the requirements for SI relief are for the time being met in relation to the investment, and
(c) is in such form as the Commissioners for Her Majesty's Revenue and Customs may direct.
(2) Before issuing a compliance certificate, the social enterprise must provide an officer of Revenue and Customs with a compliance statement in respect of the investment.
(3) The social enterprise must not issue a compliance certificate without the authority of an officer of Revenue and Customs.
(4) If the social enterprise, or a person connected with the social enterprise, has under section 257SF given a notice to an officer of Revenue and Customs that relates (whether or not exclusively) to the investment, a compliance certificate must not be issued unless the authority mentioned in subsection (3) of this section is given or renewed after receipt of the notice.
(5) If—
(a) an officer of Revenue and Customs has been requested to give or renew an authority to issue a compliance certificate, and
(b) an officer of Revenue and Customs has decided whether or not to do so,
an officer of Revenue and Customs must give notice of the decision to the social enterprise.
(6) For the purposes of the provisions of TMA 1970 relating to appeals, the refusal of an officer of Revenue and Customs to authorise the issue of a compliance certificate is taken to be a decision disallowing a claim by the social enterprise.
(7) In the case of requirements that cannot be met until a future time, references in this section to requirements being met for the time being are to nothing having occurred to prevent their being met.
257PD Penalties for fraudulent certificate or statement etc
The social enterprise is liable to a penalty not exceeding £3,000 if—
(a) it issues a compliance certificate, or provides a compliance statement, which is made fraudulently or negligently, or
(b) it issues a compliance certificate in contravention of section 257PC(3) or (4).
(1) The Treasury may by order amend this Chapter.
(2) An order under this section may include consequential, incidental or transitional provision or savings, including consequential amendments, repeals or revocations of provision made by or under an enactment (including this Act) whenever passed or made.
(3) An order under this section may make different provision for different cases or purposes.
(4) An order under this section may, in particular, make provision for persons to be liable to penalties whose amount, or maximum amount, does not exceed £3,000.
257Q Effect of the investor receiving value from the social enterprise
(1) If the investor receives any value from the social enterprise at any time in the longer applicable period, any SI relief given in respect of the investment must—
(a) if it is greater than the amount given by the formula set out in subsection (2), be reduced by that amount, and
(b) in any other case, be withdrawn.
(2) The formula is—
V×R
where—
V is the amount of the value received, and
R is the SI rate for the tax year for which the SI relief was given.
(3) Subsections (1) and (2) are subject to—
(a) section 257QA (value received: insignificant receipts),
(b) section 257QB (value received where there is more than one issue of investments),
(c) section 257QC (value received where part of investment treated as made in previous tax year),
(d) section 257QD (cases where maximum SI relief not obtained),
(e) section 257QG (receipts of value by and from connected persons etc), and
(f) section 257QH (receipt of replacement value).
(4) Sections 257QB to 257QD are to be applied in the order in which they appear in this Part.
(5) Value received is to be ignored, for the purposes of this section, so far as SI relief attributable to the investment has already been withdrawn or reduced on its account.
(6) For the purposes of this section and sections 257QA to 257QI, an individual—
(a) who acquires any part of the investment, and
(b) who does so on such a transfer as is mentioned in section 257T (spouses or civil partners),
is treated as the investor.
(1) In this section “insignificant receipt” means a receipt whose amount—
(a) is not more than £1,000, or
(b) is more than £1,000 but is insignificant in relation to the amount invested.
(2) Section 257Q(1) does not apply to an insignificant receipt, subject as follows.
(3) Section 257Q(1) applies to all receipts within the longer applicable period if, at any time on the investment date or in the preceding 12 months, arrangements are in existence providing for the investor to receive, or to be entitled to receive, value from the social enterprise at any time in the longer applicable period.
(4) Once section 257Q(1) has applied to a receipt, it applies also to all other receipts within the longer applicable period except any earlier insignificant receipts.
(5) The amount of the first receipt to which section 257Q(1) applies is treated as increased by the total amount of any earlier insignificant receipts.
(6) In subsection (3)—
(a) the reference to the investor includes any person who at any time in the longer applicable period is an associate of the investor (whether or not an associate at the material time), and
(b) the reference to the social enterprise includes any person who at any time in the longer applicable period is connected with the social enterprise (whether or not connected at the material time).
257QB Value received where there is more than one issue of investments
(1) Subsection (3) applies if—
(a) a time in the longer applicable period when the investor receives value from the social enterprise is within the period that for the purposes of this Part is the longer applicable period in relation to another investment in the social enterprise, and
(b) that other investment is one for which the investor has SI relief.
(2) That other investment is an “overlapping investment” for the purposes of subsection (3).
(3) Section 257Q(2) has effect in relation to the investment as if the amount V were reduced by multiplying it by—
IT
where—
I is the amount on which the investor has SI relief in the case of the investment, and
T is the total of that amount and the corresponding amount for each overlapping investment.
257QC Value received where part of investment treated as made in previous tax year
(1) Subsection (2) applies if—
(a) section 257Q(1) applies to a receipt, and
(b) section 257JA(1) and (2) apply as if part of the amount invested had been invested in a previous tax year.
(2) The calculation under section 257Q(2) in relation to that receipt is to be made as follows—
Step 1 Apportion the amount referred to as “V” between the tax year in which the investment was made and the preceding tax year by multiplying that amount by—
AB
where—
A is the part of the amount invested on which the investor obtains SI relief for the tax year in question, and
B is the sum of—
that part, and
the part of the amount invested on which the investor obtains SI relief for the other tax year.
Step 2 In relation to each of the amounts (“V1” and “V2”) so apportioned to the two tax years, calculate the amounts (“X1” and “X2”) that would be given by the formula if separate investments had been made in those tax years. In calculating amounts X1 and X2, apply section 257QD if appropriate but do not apply section 257QB.
Step 3 Add amounts X1 and X2 together. The result is the required amount.
(1) If the investor's liability to income tax is reduced for any tax year in respect of the investment and—
(a) the amount of the reduction (“A”), is less than
(b) the amount (“B”) which is equal to income tax at the SI rate for that tax year on the amount on which the investor has SI relief in the case of the investment,
section 257Q(2) has effect in relation to any value received as if the amount referred to as “V” were reduced by multiplying it by—
AB
(2) If the amount of SI relief attributable to the investment has been reduced before the SI relief was obtained, the amount referred to in subsection (1) as “A” is to be treated for the purposes of that subsection as the amount that it would have been without that reduction.
(3) Subsection (2) does not apply to a reduction of SI relief as a result of section 257N(5) (attribution of SI relief where there is a corresponding issue of bonus shares).
(1) This section applies for the purposes of sections 257Q and 257QB.
(2) The investor receives value from the social enterprise at any time when the social enterprise—
(a) repays, redeems or repurchases any investments in the social enterprise which belong to the investor, or makes any payment to the investor for giving up the investor's right to investments in the social enterprise on their cancellation or extinguishment,
(b) repays, in pursuance of any arrangements for or in connection with the making of the investment, any debt owed to the investor other than a debt which was incurred by the social enterprise—
(i) on or after the investment date, and
(ii) otherwise than in consideration of the extinguishment of a debt incurred before that date,
(c) makes to the investor any payment for giving up on its extinguishment the investor's right to any debt, other than—
(i) a debt in respect of a repayment of the kind mentioned in section 257LF(5)(a) or (f), or
(ii) an ordinary trade debt,
(d) releases or waives any liability of the investor to the social enterprise or discharges or undertakes to discharge any liability of the investor to a third person,
(e) makes a loan or advance to the investor which has not been repaid in full before the investment is made,
(f) provides a benefit or facility for the investor by providing, at a price less than the arm's-length price or free of charge, goods or services for whose provision the social enterprise ordinarily makes a charge,
(g) otherwise provides any benefit or facility for the investor,
(h) transfers an asset to the investor for no consideration or for consideration less than its market value or acquires an asset from the investor for consideration greater than its market value, or
(i) makes to the investor any other payment except—
(i) a payment of a kind mentioned in section 257LF(5), or
(ii) a payment in discharge of an ordinary trade debt.
(3) For the purposes of subsection (2)(d), the social enterprise is treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.
(4) For the purposes of subsection (2)(e), each of the following is treated as a loan made by the social enterprise to the investor—
(a) the amount of any debt, other than an ordinary trade debt, incurred by the investor to the social enterprise, and
(b) the amount of any debt due from the investor to a third party which has been assigned to the social enterprise.
(5) The investor also receives value from the social enterprise if—
(a) in respect of ordinary shares, or qualifying debt investments, held by the investor any payment or asset is received in a winding-up or dissolution of the social enterprise, and
(b) the winding-up or dissolution is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
(6) The investor also receives value from the social enterprise if—
(a) a person—
(i) purchases any investments in the social enterprise which belong to the investor, or
(ii) makes any payment to the investor for giving up any right in relation to any investments in the social enterprise, and
(b) that person is an individual in relation to whom not all of the requirements in sections 257LF and 257LG would be met if references in those sections to the investor were read as references to that person.
(7) If, because of the investor's disposal of investments in the social enterprise, any SI relief attributable to those investments is withdrawn or reduced under section 257R, the investor is not to be treated as receiving value from the social enterprise in respect of the disposal.
(8) If the investor is a director of the social enterprise, the investor is not to be treated as receiving value from the social enterprise merely because of the payment to the investor of reasonable remuneration (including any benefit or facility) for any services rendered to the social enterprise as a director or employee.
(9) In this section “ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business if any credit given—
(a) is for not more than 6 months, and
(b) is not for longer than that normally given to customers of the person carrying on the trade or business.
In a case falling within a provision listed in column 1 of the following table, the amount of value received for the purposes of sections 257Q and 257QB is given by the corresponding entry in column 2 of the table.
Provision | The amount of value received
Section 257QE(2)(a), (b) or (c) | The amount received by the investor or, if greater, the market value of the investments or debt
Section 257QE(2)(d) | The amount of the liability
Section 257QE(2)(e) | The amount of the loan or advance, less the amount of any repayment made before the investment is made
Section 257QE(2)(f) | The arm's-length price for the goods or services, less any amount paid for them by the investor
Section 257QE(2)(g) | The cost to the social enterprise of providing the benefit or facility, less any consideration given for it by the investor
Section 257QE(2)(h) | The difference between the market value of the asset and the consideration (if any) given for it
Section 257QE(2)(i) | The amount of the payment
Section 257QE(5) | The amount of the payment or the market value of the asset
Section 257QE(6) | The amount received by the investor or, if greater, the market value of the investments
257QG Receipts of value by and from connected persons etc
In sections 257Q, 257QA, 257QB, 257QE and 257QF—
(a) any reference to a payment or transfer to the investor includes a reference to a payment or transfer made to the investor indirectly or to the investor's order or for the investor's benefit,
(b) any reference to the investor includes a reference to an associate of the investor, and
(c) any reference to the social enterprise includes a reference to a person who at any time in the longer applicable period is connected with the social enterprise (whether or not that person is so connected at the material time).