322 Provision that may be made by regulations under section 321
(1) The provision that may be made under section 321(1) for a case where there is a merger of two or more companies (“the merging companies”) is as follows.
(2) Provision for the successor company, or any of the merging companies, to be treated (whether at times before, during or after the merger) as a VCT for purposes of tax enactments specified by regulations.
(3) Provision for section 266 (loss of relief on disposal of VCT shares within 5 years of their issue) not to apply in the case of disposals of shares in a merging company made in the course of effecting the merger.
(4) Provision for such disposals not to be chargeable events for the purposes of Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment).
(5) Provision for conditions mentioned in section 274(2) (conditions for approval as a VCT) to be treated (whether at times before, during or after the merger) for purposes of section 274(1) as met, or as conditions that will be met, with respect to the successor company or any of the merging companies.
(5A) Provision for section 281(1)(f) (withdrawal of VCT approval where company has made a repayment of share capital etc) not to apply, or to apply subject to modifications, to the successor company or any of the merging companies, in relation to payments made, or amounts used to pay up new shares, in connection with or after the merger.
(6) Provision for shares in or securities of a company that are acquired (whether at times before, during or after the merger) by the successor company from a merging company to be treated, at times after the acquisition when they are held by the successor company, as meeting requirements of Chapter 4 (provisions for determining whether shares or securities held by a VCT form part of its qualifying holdings).
(7) Provision for tax enactments specified by regulations to apply, with or without adaptations, in relation to the merger or transactions taking place (whether before, during or after the merger) in connection with the merger.
(8) Provision authorising disclosure for tax purposes connected with the merger—
(a) by Her Majesty's Revenue and Customs,
(b) to any of the merging companies or the successor company,
(c) of any information provided to Her Majesty's Revenue and Customs by or on behalf of any of the merging companies or the successor company.
(1) For the purposes of this Chapter there is a merger of two or more companies (“the merging companies”) if—
(a) shares in one of the merging companies (“company A”) are issued to members of the other merging company or companies, and
(b) the shares issued to members of the other merging company or, in the case of each of the other merging companies, the shares issued to members of that other company, are issued—
(i) in exchange for their shares in that other company, or
(ii) by way of consideration for a transfer to company A of the whole or part of the business of that other company.
(2) For the purposes of this Chapter there is also a merger of two or more companies (“the merging companies”) if—
(a) shares in a company (“company B”) that is not one of the merging companies are issued to members of the merging companies, and
(b) in the case of each of the merging companies, the shares issued to members of that company are issued—
(i) in exchange for their shares in that company, or
(ii) by way of consideration for a transfer to company B of the whole or part of the business of that company.
(3) In this Chapter “the successor company”—
(a) in relation to a merger such as is described in subsection (1), means the company that performs the role of company A, and
(b) in relation to a merger such as is described in subsection (2), means the company that performs the role of company B.
(1) Regulations under this Chapter may—
(a) contain such administrative provisions (including provision for advance clearance and provision for the withdrawal of clearances) as appear to the Treasury to be necessary or appropriate,
(b) authorise the Commissioners for Her Majesty's Revenue and Customs to give notice to any person requiring that person to provide such information, specified in the notice, as they may reasonably require in order to determine whether any conditions imposed by regulations under this Chapter are met,
(c) make different provision for different cases,
(d) contain incidental, supplemental, consequential and transitional provision and savings, and
(e) include provision having retrospective effect.
(2) Without prejudice to any specific provision of this Chapter, a power conferred by any provision of this Chapter to make regulations includes power to provide for Her Majesty's Revenue and Customs to exercise a discretion in dealing with any matter.
In this Chapter—
“regulations” means regulations made by the Treasury, and
“tax enactments” means provisions of or made under—
the Tax Acts,
TCGA 1992 or any other enactment relating to capital gains tax, or
TMA 1970.
326 Restructuring to which sections 326A, 327 and 327A apply
(1) Sections 326A, 327 and 327A apply if—
(a) arrangements are made for a company (“the new company”) to acquire all the shares (“old shares”) in another company (“the old company”),
(b) the acquisition provided for by the arrangements falls within subsection (2), and
(c) the Commissioners for Her Majesty's Revenue and Customs have, before any exchange of shares takes place under the arrangements, given an approval notification.
(2) An acquisition of shares falls within this subsection if—
(a) the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,
(b) new shares are issued in consideration of old shares only at times when there are no issued shares in the new company other than subscriber shares and new shares previously issued in consideration of old shares,
(c) the consideration for new shares of each description consists wholly of old shares of the corresponding description, and
(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.
(3) For the purposes of subsection (1)(c) an approval notification is one which, on the application of either the old company or the new company, is given to the applicant company and states that the Commissioners for Her Majesty's Revenue and Customs are satisfied that the exchange of shares under the arrangements—
(a) will be effected for genuine commercial reasons, and
(b) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of TCGA 1992 (schemes with avoidance purposes).
(4) Nothing in section 326A treats any of the requirements of Chapter 3 as being met, and nothing in section 327 treats any of the requirement of Chapter 4 as being met in relation to any new shares unless the matching old shares were first issued to the company holding them and have been held by that company from the time when they were issued until they are acquired by the new company.
(5) If, at any time after the arrangements first came into existence and before the new company acquired all the old shares, the arrangements—
(a) cease to be arrangements for the acquisition of all the old shares by the new company, or
(b) cease to be arrangements for an acquisition falling within subsection (2),
section 326A does not treat any requirement of Chapter 3 as being met and section 327 does not treat any requirement of Chapter 4 as being met, and subsection (8) of that section does not apply, in the case of any new shares at any time after the arrangements have so ceased.
326A Certain requirements of Chapter 3 to be treated as met
(1) If this section applies, subsections (2) to (6) have effect to determine the extent to which, and the time for which, the following conditions in Chapter 3 are met in relation to the old shares and the new shares—
the investment limits condition (see section 280B);
the permitted maximum age condition (see section 280C);
the no business acquisition condition (see section 280D).
(2) If—
(a) there is an exchange under the arrangements of any new shares for any old shares, and
(b) those old shares are an investment in relation to which the investment limits condition, the permitted maximum age condition or the no business acquisition condition is (or is treated as being) met to any extent,
those conditions are to be treated as met to the same extent in relation to the matching new shares.
See subsections (3) to (6) for further provision about when those conditions are treated as met in relation to the old shares.
(3) If—
(a) the exchange occurs during the period of 5 years beginning with the day after the day on which the old shares were issued, and
(b) those old shares are shares in relation to which section 280B(2)(c) applies,
section 280B(2)(c) is to be treated as applying in relation to the matching new shares.
(4) In determining whether section 280B(2)(c) applies in relation to the old shares—
(a) condition A is treated as met if it would be met if the reference in section 280B(3B)(a)(i) to a company which becomes a 51% subsidiary of the relevant company during the 5-year post-investment period included a reference to a company which becomes a 51% subsidiary of the new company during that period otherwise than as a result of the exchange, and
(b) in relation to investments made or trades transferred at or after the time of the exchange, references to the relevant company in section 280B(3C)(b) and (3F)(a) are to be read as references to the new company.
(5) The permitted maximum age condition is met in relation to the old shares if (and only if) it would be met if—
(a) in section 280C(5)(a)(ii) and (6)(a) the references to relevant investments made in the relevant company included a reference to the relevant investments made in the new company,
(b) in section 280C(7)(d) and (f) the references to the relevant company included a reference to the new company,
(c) in paragraphs (a)(ii) and (b)(iii) of the definition of “the total relevant turnover amount” in section 280C(9) the reference to a company which becomes a 51% subsidiary of the relevant company after the investment date included a reference to a company which becomes a 51% subsidiary of the new company after that date otherwise than as a result of the exchange.
(6) The no business acquisition condition is met in relation to the old shares if (and only if) it would be met if, in section 280D(2), references to the relevant company were read as including a reference to the new company.
327 Certain requirements of Chapter 4 to be treated as met
(1) If this section applies, subsections (2) to (8) have effect to determine the extent to which, and the times for which, the requirements of the following provisions of Chapter 4 are met in relation to the new shares—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 290 (the trading requirement),
section 291 (the carrying on of a qualifying activity requirement),
section 292A (the maximum amount raised annually through risk finance investments requirement),
section 292AA (the maximum amount raised through risk finance investments when relevant holding is issued requirement),
section 292AB (the maximum risk finance investments during the 5-year post-investment period requirement),
section 293 (the use of the money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying activity requirement),
section 294A (the permitted company age requirement),
section 296 (the control and independence requirement), ...
section 297 (the gross assets requirement),...
section 297A (the number of employees requirement) , and
section 297B (the proportion of skilled employees requirement).
(2) If the requirements of sections 290 and 291 were met in relation to the old company and any old shares immediately before the beginning of the period for giving effect to the arrangements, then (so far as it would not otherwise be the case) those requirements are treated as being met in relation to the new company and the matching new shares at all times which—
(a) fall in that period, and
(b) do not fall after a time when (apart from the arrangements) those requirements would have ceased by virtue of—
(i) section 291(4) or (5), or
(ii) any cessation of a trade by any company,
to be met in relation to the old company and the matching old shares.
(3) For the purposes of section 291, the period of two years mentioned in subsection (4) of that section is treated, in the case of any new shares, as expiring at the same time as it would have expired (or by virtue of this subsection would have been treated as expiring) in the case of the matching old shares.
(4) Subject to subsection (5), if—
(a) there is an exchange under the arrangements of any new shares for any old shares, and
(b) those old shares are shares in relation to which the requirements of sections 292A, 292AA, 292AB, 293, 294 , 294A, 297 , 297A and 297B were (or were treated as being) met to any extent immediately before the exchange,
those requirements are to be treated, at all times after that time, as met to the same extent in relation to the matching new shares.
(4A) If—
(a) there is an exchange under the arrangements of any new shares for any old shares,
(b) that exchange occurs during the period of 5 years beginning with the day after the day on which the old shares were issued, and
(c) those old shares are shares in relation to which the requirement of section 292AB (maximum risk finance investments during 5-year post-investment period) applies and is met,
that requirement is to be treated as applying and met in relation to the matching new shares.
(4B) But, where that requirement applies in relation to the old shares, it is met in relation to those shares if (and only if) it would be met were—
(a) the first reference to the relevant company in section 292AB(4), and
(b) the references to the relevant company in section 292AB(5) and (7)(a)(i),
read, in relation to times in that 5 year period which fall at or after the time of the exchange, as references to the new company.
(4C) For the purposes of subsections (4A) and (4B), the requirement in section 292AB is treated as applying in relation to the old shares if condition A or B in that section would be met if references in section 292AB(5) and (7)(a)(i) to the relevant company were read as references to the new company.
(4D) The requirement in section 293 (the use of money raised) is met in relation to the old shares if (and only if) it would be met if references to the relevant company in section 293(5ZA) were read as including a reference to the new company.
(4E) The requirement of section 294A (permitted company age) is met in relation to the old shares if (and only if) it would be met if—
(a) in section 294A(4) the reference to relevant investments made in the relevant company included a reference to relevant investments made in the new company,
(b) in section 294A(6)(d) and (f) the references to the relevant company included a reference to the new company,
(c) in paragraphs (a)(ii) and (b)(iii) of the definition of “the total relevant turnover amount” in section 294A(8) the reference to a company which becomes a 51% subsidiary of the relevant company after the investment date included a reference to a company which becomes a 51% subsidiary of the new company after that date otherwise than as a result of the exchange.
(4F) If—
(a) there is an exchange under the arrangements of any new shares for any old shares,
(b) that exchange occurs during the period of 3 years beginning with the issue of the old shares, and
(c) those old shares are shares in relation to which the requirement of section 297B (proportion of skilled employees requirement) is met,
that requirement is to be treated as met in relation to the matching new shares.
(4G) The requirement of section 297B is met in relation to the old shares if (and only if) it would be met in relation to those shares were references to the relevant company, in subsections (1) and (3) of that section (and, in the definitions of the terms mentioned in subsection (4) as they apply for the purposes of those subsections), read as references to the new company in relation to times in that 3 year period which fall at or after the exchange.
(5) If there is a time following any exchange under the arrangements of any new shares for any old shares when (apart from the arrangements) the requirement of section 293 would have ceased under—
(a) subsection (1) of that section, or
(b) this subsection,
to be met in relation to those old shares, that requirement ceases at that time to be met in relation to the matching new shares.
(6) For the purposes of section 287, any new shares acquired under the arrangements are to be treated as representing an investment which—
(a) raised the same amount of money as was raised (or, by virtue of this subsection, is treated as having been raised) by the issue of the matching old shares, and
(b) raised that amount by an issue of shares in the new company made at the time when the issue of the matching old shares took place (or, as the case may be, is treated as having taken place).
(7) In determining whether the requirements of section 296 are met in relation to the old company or the new company at a time in the period for giving effect to the arrangements, ignore both—
(a) the arrangements themselves, and
(b) any exchange of new shares for old shares that has already taken place under the arrangements.
(8) For the purposes of section 289, the value of the new shares, both—
(a) immediately after the time of their acquisition, and
(b) immediately after the time of any subsequent relevant event occurring by virtue of the arrangements,
is to be taken to be the same as the value, when last valued in accordance with that section, of the old shares for which they are exchanged.
(1) Subsections (2) and (3) apply where—
(a) this section applies (see section 326(1)),
(b) the acquisition by the new company of all the old shares, which is provided for by the arrangements mentioned in section 326(1), takes place, and
(c) the acquisition falls within section 326(2).
(2) If, after the acquisition, another company makes an investment in the new company, section 280C (the permitted maximum age condition) has effect in relation to that investment as if—
(a) in subsection (4)(a) the reference to a relevant investment having been made in the relevant company before the end of the initial investing period included a reference to a relevant investment having been made in the old company before the acquisition and before the end of the initial investing period, and
(b) in subsection (6)(a) the reference to relevant investments made in the relevant company included a reference to relevant investments made in the old company before the acquisition.
(3) In relation to any relevant holding issued by the new company after the acquisition, section 294A (the permitted company age requirement) has effect as if—
(a) in subsection (3)(a) the reference to a relevant investment having been made in the relevant company before the end of the initial investing period included a reference to a relevant investment having been made in the old company before the acquisition and before the end of the initial investing period, and
(b) in subsection (5)(a) the reference to relevant investments made in the relevant company included a reference to relevant investments made in the old company before the acquisition.
(4) In subsection (3) “relevant holding” has the same meaning as in Chapter 4.
(1) Subject to subsection (2), references in sections 326 and 327 and this section, except in the expression “subscriber shares”, to shares in a company include references to any securities of that company.
(2) For the purposes of subsection (1) a relevant security of the old company is not to be treated as a security of the old company if—
(a) the arrangements do not provide for the acquisition of the security by the new company, or
(b) such treatment prevents section 326(1)(b) from being met in connection with the arrangements.
(3) In subsection (2) “relevant security” means an instrument which is a security for the purposes of Chapter 4 merely because of section 285(2).
(4) References in section 327 to the period for giving effect to the arrangements are references to the period which—
(a) begins with the time when the arrangements first came into existence, and
(b) ends with the time when the new company completes its acquisition under the arrangements of all the old shares.
(5) For the purposes of sections 326 and 327 and this section—
(a) old shares and new shares are of a corresponding description if, were they shares in the same company, they would be of the same description, and
(b) old shares and new shares are matching shares in relation to each other if the old shares are the shares for which the new shares are exchanged under the arrangements.
329 Conversion of convertible shares and securities
(1) This section applies if—
(a) shares have been issued to a company (“the investing company”) by the exercise by it of any right of conversion attached to other shares or securities held by it (“the convertibles”),
(b) the shares so issued are in the same company as the convertibles to which the right was attached,
(c) the convertibles to which the right was attached were first issued to the investing company and were held by it from the time they were issued until converted, and
(d) the right was attached to the convertibles when they were first so issued and was not varied before it was exercised.
(2) If this section applies, subsections (3) and (4) have effect to determine the extent to which, and the times for which, the requirements of the following provisions of Chapter 4 are met in relation to the shares issued to the investing company by the exercise by it of the right of conversion—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 291 (the carrying on of a qualifying activity requirement),
section 293 (the use of the money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying activity requirement), and
section 297 (the gross assets requirement).
(3) Subsections (3) to (6) of section 327 apply in relation to the exchange of convertibles for shares by virtue of the exercise of the right of conversion as if—
(a) that exchange were an exchange, under any arrangements to which that section applies, of new shares for old shares, and
(b) the references in those subsections and section 328(5)(b) to the arrangements were references to the provision conferring the right of conversion.
(4) For the purposes of section 289 the value of the new shares immediately after the time of their acquisition by the investing company is to be taken as the same as the value, when last valued in accordance with that section, of the convertibles for which they are exchanged.
330 Power to facilitate company reorganisations etc involving exchange of shares
(1) The Treasury may by regulations make provision for cases where—
(a) a holding of shares or securities that meets the requirements of Chapter 4 is exchanged for other shares or securities,
(b) the exchange is made for genuine commercial reasons and does not form part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and
(c) the new shares or securities do not meet some or all of the requirements of Chapter 4,
providing that the new shares or securities are to be treated as meeting those requirements.
(1A) The Treasury may by regulations make provision for the purposes of this Part for cases where—
(a) a holding of shares or securities that does not meet the requirements of Chapter 4 is exchanged for other shares or securities not meeting those requirements, and
(b) the exchange is made for genuine commercial reasons and does not form part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
(2) The references in subsections (1) and (1A) to an exchange of shares or securities include any form of company reorganisation or other arrangement which involves a holder of shares in or securities of a company receiving other shares or securities—
(a) whether the original shares or securities are transferred, cancelled or retained, and
(b) whether the new shares or securities are in or of the same or another company.
(3) Regulations under subsection (1) must specify—
(a) the cases in which, and conditions subject to which, they apply,
(b) which requirements of Chapter 4 are to be treated as met, and
(c) the period for which those requirements are to be treated as met.
(3A) Regulations under subsection (1A) may, among other things, make provision—
(a) for the new shares or securities to be treated in any respect in the same way as the original shares and securities for any period;
(b) as to when the new shares or securities are to be regarded as having been acquired;
(c) as to the valuation of the original or the new shares or securities.
(4) Regulations under this section may contain such administrative provisions (including provision for advance clearances) as appear to the Treasury to be necessary or appropriate.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) Regulations under this section —
(a) may make different provision for different cases,
(b) may contain incidental, supplemental, consequential and transitional provision and savings, and
(c) in the case of regulations under subsection (1) may include provision having retrospective effect.
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.
330B Powers to amend Chapters 3 and 4 by Treasury regulations
(1) The Treasury may by regulations add to, repeal or otherwise amend any provision of Chapter 3 or 4.
(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) The provision which may be made as a result of subsection (2)(b) includes provision amending any provision of this or any other Act (including an Act passed after this Act).
(4) Regulations under this section may, so long as they do not increase any person's liability to any tax, be made to have retrospective effect in relation to any time in the tax year in which they are made or the previous tax year.
(5) This section is without prejudice to any other power to amend any provision of this Part.
(6) A statutory instrument containing regulations under this section may not be made unless a draft of it has been laid before and approved by a resolution of the House of Commons.
331 Meaning of a company being “in administration” or “in receivership”
(1) References in this Part to a company being “in administration” or “in receivership” are to be read as follows.
(2) A company is “in administration” if—
(a) it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986 (c. 45) or Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or
(b) there is in force in relation to it under the law of a country or territory outside the United Kingdom any appointment corresponding to an appointment of an administrator under either of those Schedules.
(3) A company is “in receivership” if there is in force in relation to it—
(a) an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter 1 or 2 of Part 3 of the Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland) Order 1989, or
(b) any corresponding order under the law of a country or territory outside the United Kingdom.
(1) For the purposes of this Part, the relevant company is a “knowledge-intensive company” at the applicable time if the company meets—
(a) one or both of the operating costs conditions (see subsections (3) and (4)), and
(b) one or both of—
(i) the innovation condition (see subsection (6)), and
(ii) the skilled employee condition (see subsection (9)).
(2) “The applicable time” means—
(a) in relation to references to a knowledge-intensive company in section 280B or 280C, the date the current investment (within the meaning of the section in question) is made, and
(b) in relation to any other reference to a knowledge-intensive company, the date the relevant holding is issued.
(3) The first operating costs condition is that in at least one of the relevant three preceding years at least 15% of the relevant operating costs constituted expenditure on research and development or innovation.
(4) The second operating costs condition is that in each of the relevant three preceding years at least 10% of the relevant operating costs constituted such expenditure.
(5) In subsections (3) and (4)—
“relevant operating costs” means—
if the relevant company is a single company at the applicable time, the operating costs of that company, and
if the relevant company is a parent company at the applicable time, the sum of—
the operating costs of the relevant company, and
the operating costs of each company which is a qualifying subsidiary of the relevant company at that time;
“the relevant three preceding years” means, subject to subsection (5A), the three consecutive years the last of which ends immediately before the beginning of the last accounts filing period.
(5A) If the last accounts filing period ends more than 12 months before the applicable time, the relevant three preceding years are the three consecutive years the last of which ends 12 months before the applicable time.
(6) “The innovation condition” is—
(a) where the relevant company is a single company, that—
(i) the relevant company is engaged in intellectual property creation at the applicable time, and
(ii) it is reasonable to assume that, within 10 years of the applicable time, one or a combination of—
(a) the exploitation of relevant intellectual property held by the company, and
(b) business which results from new or improved products, processes or services utilising relevant intellectual property held by the company,
will form the greater part of its business;
(b) where the relevant company is a parent company, that—
(i) the parent company or one or more of its qualifying subsidiaries (or both that company and one or more of those subsidiaries) is or are engaged in intellectual property creation at the applicable time, and
(ii) it is reasonable to assume that, within 10 years of the applicable time, one or a combination of—
(a) the exploitation of relevant intellectual property held by the parent company or any of its qualifying subsidiaries, and
(b) business which results from new or improved products, processes or services utilising relevant intellectual property held by the parent company or any of its qualifying subsidiaries,
will form the greater part of the business of the group, if the activities of the group companies taken together are regarded as one business.
(7) For the purposes of subsection (6), a company is engaged in intellectual property creation if—
(a) relevant intellectual property is being created by the company, or has been created by it within the previous three years,
(b) the company is taking, or preparing to take, steps in order that relevant intellectual property will be created by it, or
(c) the company is carrying on activity which is the subject of a written evaluation which—
(i) has been prepared by an independent expert, and
(ii) includes a statement to the effect that, in the opinion of the expert, it is reasonable to assume that relevant intellectual property will, in the foreseeable future, be created by the company.
(8) For the purposes of this section—
(a) intellectual property is “relevant” intellectual property, in relation to a company, if the whole or greater part (in terms of value) of it is created by the company, and
(b) intellectual property is created by a company if it is created in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).
(9) “The skilled employee condition” is that at the applicable time—
(a) if the relevant company is a single company, the FTE skilled employee number is at least 20% of the FTE employee number, and
(b) if the relevant company is a parent company, the FTE group skilled employee number is at least 20% of the FTE group employee number.
(10) In this section—
“FTE employee number” for a company is the full-time equivalent employee number determined in accordance with section 297A(3);
“FTE group employee number” means the sum of—
the FTE employee number for the relevant company, and
the FTE employee number for each of its qualifying subsidiaries;
“FTE group skilled employee number” means the sum of—
the FTE skilled employee number for the relevant company, and
the FTE skilled employee number for each of its qualifying subsidiaries;
“FTE skilled employee number” for a company is determined in accordance with section 297A(3) in the same way as the full-time equivalent employee number except that only employees of the company who—
hold a relevant HE qualification, and
are engaged directly in research and development or innovation activities carried on—
if the relevant company is a single company, by that company, or
if the relevant company is a parent company, by that company or any qualifying subsidiary of that company,
are to be taken into account;
“independent expert”, in relation to an evaluation of activity of a company, means an individual who—
is not connected with the relevant company,
holds a relevant HE qualification, and
is an expert in the area of research and development or innovation being or to be pursued by the company in question,
and, for the purposes of paragraph (a), sections 167, 170 and 171 (but not section 168) apply to determine if an individual is connected with the relevant company (with references in those sections to the issuing company read as references to the relevant company);
“intellectual property” has the meaning given by section 306(6);
“the last accounts filing period” means the last period for filing (within the meaning of section 442 of the Companies Act 2006) for the relevant company which ends before the applicable time;
“operating costs”, of a company for a period, means expenses of the company which are recognised as expenses in the company's profit and loss account or income statement for that period, other than expenses relating to transactions between that company and another company at a time when both companies are members of the same group (but see also subsection (11));
“relevant HE qualification” means—
a qualification which is at level 7, or a higher level, of the framework for higher education qualifications in England, Wales and Northern Ireland (as that framework may be amended or replaced from time to time),
a qualification which is at level 11, or a higher level, of the framework for qualifications of higher education institutions in Scotland (as that framework may be amended or replaced from time to time), or
a comparable qualification to one within paragraph (a) or (b).
(11) Such apportionments as are just and reasonable are to be made to amounts recognised in a company's profit and loss account or income statement for the purpose of determining the company's operating costs for a year.
(12) The Treasury may by regulations amend this section for the purposes of adding, amending or removing a condition which must be met for a company to be a knowledge-intensive company.
(13) A statutory instrument containing regulations under subsection (12) may not be made unless a draft of it has been laid before and approved by a resolution of the House of Commons.
331B Knowledge-intensive company reaching turnover of £200,000
(1) This section has effect for the purposes of sections 280C(3)(a)(ii) and 294A(2)(a)(ii) (alternative initial investing period in case of knowledge-intensive company).
(2) Where—
(a) the annual turnover of the relevant company in relation to an accounting period (see subsection (3)) is £200,000 or more, and
(b) the annual turnover for the company in relation to each previous accounting period is less than £200,000,
the company is treated as reaching an annual turnover of £200,000 or more by reference to the specified date (see subsection (4)).
(3) The annual turnover in relation to an accounting period is—
(a) the turnover for that accounting period (if the accounting period is for 12 months), or
(b) the turnover for the period of 12 months ending when that accounting period ends (if not).
(4) The specified date is—
(a) in the case of an accounting period of 12 months or less, the last day of that accounting period;
(b) in the case of an accounting period of more than 12 months, the last day of the period of 12 months beginning when that accounting period begins.
(5) The turnover of the relevant company for a period (“the period”) is treated for the purposes of this section as including the relevant turnover of any company that is a member of the same group as the relevant company during the whole or any part of the period (a “group company”).
(6) The relevant turnover of a group company is—
(a) its turnover for the period, if the group company is a member of the same group as the relevant company for the whole of the period;
(b) if the group company is a member of the same group as the relevant company for part of the period, its turnover for that part of the period.
(7) Any necessary apportionments of turnover are to be made, on a time basis according to the respective lengths of the periods in question, for the purposes of subsections (3)(b) and (6).
(8) In this section “turnover” has the meaning given by section 474(1) of the Companies Act 2006 and is to be determined by reference to—
(a) the accounts of the company, and
(b) amounts recognised for accounting purposes.
331C Meaning of “specified Northern Ireland company”
For the purposes of this Part, a “specified Northern Ireland company” means a company that—
(a) has its registered office in Northern Ireland, and
(b) carries on a trade involving—
(i) a trade in goods, or
(ii) the generation, transmission, distribution, supply, wholesale trade or cross-border exchange of electricity.
In this Part—
“associate” has the meaning given by section 253,
“company” includes any body corporate or unincorporated association but does not include a partnership, and is to be read in accordance with section 99 of TCGA 1992 (unit trust schemes),
“director” is read in accordance with section 452 of CTA 2010,
“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,
“research and development” has the meaning given by section 1006, and
“shares” includes stock.
This Part provides for community investment tax relief (“CITR”), that is, entitlement to tax reductions in respect of amounts invested by individuals in community development finance institutions.
(1) An individual (“the investor”) who makes an investment (“the investment”) in a body is eligible for CITR in respect of the investment if—
(a) that body is accredited as a community development finance institution under Chapter 2 at the time the investment is made,
(b) the investment is a qualifying investment (see Chapter 3), and
(c) the general conditions of Chapter 4 are met.
(2) In this Part references to “the CDFI” are to the body in which the investment is made.
(1) If the investor is eligible for CITR in respect of the investment, the investor may make a claim in respect of the investment for any one or more of the relevant tax years.
(2) If the investor makes a claim for a relevant tax year, the investor is entitled to a tax reduction for that year of 5% of the invested amount in respect of the investment for the year.
(3) For the purposes of this section and section 335A the “relevant” tax years are—
(a) the tax year in which the investment date falls, and
(b) each of the 4 subsequent tax years.
(4) The tax reduction is given effect at Step 6 of the calculation in section 23.
(5) The investor is entitled to make a claim for CITR for a relevant tax year if—
(a) the investor considers that the conditions for the CITR are for the time being met, and
(b) the investor has received a tax relief certificate (see section 348) relating to the investment from the CDFI,
but no claim may be made before the end of the tax year to which it relates.
(6) Subsection (5) is subject to the following provisions—
(a) section 354 (loans: no claim after disposal or excessive repayments or receipts of value),
(b) section 355 (securities or shares: no claim after disposal or excessive receipts of value), and
(c) section 356 (no claim after loss of accreditation by CDFI).
(1) This section applies if—
(a) the investor is entitled to a tax reduction for a relevant tax year under section 335 in respect of the investment, but
(b) the amount of the tax reduction is not fully deducted at Step 6 for that relevant tax year.
(2) The amount (“the excess amount”) not deducted is treated as follows.
(3) For each subsequent relevant tax year for which the investor—
(a) is entitled to a tax reduction under section 335 in respect of the investment, and
(b) makes a claim under this subsection,
the investor is also entitled to a tax reduction under this subsection which is given effect at Step 6.
(4) The amount of the tax reduction under subsection (3) for any relevant tax year is the excess amount so far as it has not been deducted at Step 6 for any earlier relevant tax year by virtue of that subsection.
(5) In this section “Step 6” means Step 6 of the calculation in section 23.
(1) For the purposes of this Part, an individual makes an investment in a body at any time when—
(a) the individual makes a loan (whether secured or unsecured) to the body, or
(b) an issue of securities of or shares in the body, for which the individual has subscribed, is made to the individual.
(2) The following provisions of this section apply for the purposes of subsection (1)(a).
(3) An individual does not make a loan to a body if—
(a) the body uses overdraft facilities provided by the individual, or
(b) the individual subscribes for or otherwise acquires securities of the body.
(4) If the loan agreement authorises the body to draw down amounts of the loan over a period of time, the loan is treated as made at the time when the first amount is drawn down.
(1) This section applies for the purpose of determining “the invested amount” in respect of any loan, securities or shares included in the investment.
This is subject to sections 363(2) and 369 (which adjust “the invested amount” in certain cases where value is received).
(2) In the case of a loan, the invested amount is—
(a) for the tax year in which the investment date falls, the average capital balance for the first year of the 5 year period,
(b) for the next tax year, the average capital balance for the second year of the 5 year period, and
(c) for any subsequent tax year—
(i) the average capital balance for the period of 12 months beginning with the anniversary of the investment date falling in the tax year concerned, or
(ii) if less, the average capital balance for the period of 6 months beginning 18 months after the investment date.
(3) In the case of securities or shares, the invested amount for a tax year is the amount subscribed by the investor for the securities or shares.
(4) For the purposes of this section, the average capital balance of the loan for a period is the mean of the daily balances of capital outstanding during the period.
338 Meaning of “the 5 year period” and “the investment date”
In this Part—
“the 5 year period” means the period of 5 years beginning with the investment date, and
“the investment date” means the day the investment is made.
In this Part—
(a) Chapter 5 provides for the making of claims for CITR and the attribution of CITR to investments,
(b) Chapter 6 provides for CITR to be withdrawn or reduced in the circumstances mentioned in that Chapter, and
(c) Chapter 7 contains supplementary and general provision.
(1) Applications for accreditation as a community development finance institution must be made to the Secretary of State in the form and manner specified by the Secretary of State.
(2) The Secretary of State is to accredit a body if (and only if) the Secretary of State is satisfied—
(a) that the body's principal objective is to provide (directly or indirectly)—
(i) finance, or
(ii) finance and access to business advice,
for enterprises for disadvantaged communities, and
(b) that the body meets any other criteria specified in regulations made by the Treasury.
(3) For the purposes of this section “enterprises for disadvantaged communities” include—
(a) enterprises located in disadvantaged areas, and
(b) enterprises owned or operated by, or designed to serve, members of disadvantaged groups.
(4) The criteria mentioned in paragraph (b) of subsection (2) may include criteria relating to the enterprises to which the body provides or proposes to provide finance or access to business advice.
(5) Regulations under that paragraph may make the provision authorised by that paragraph by reference to any material published by, or on behalf of, the Secretary of State (whether before or after the coming into force of this section).
(5A) Regulations under that paragraph may include provision for the purposes of Part 7 of CTA 2010 in addition to provision made for the purposes of this Part.
(6) Regulations under that paragraph—
(a) may make different provision for different cases or circumstances or in relation to different areas, and
(b) may, in particular, make different provision in the case of bodies whose principal objective in providing finance as mentioned in subsection (2)(a) is to invest directly in enterprises that meet the conditions of subsection (7).
(7) An enterprise meets the conditions of this subsection if it uses the money invested in it for the purposes of its business and either—
(a) that business does not include the provision of finance for other enterprises, or
(b) if it does, the nature and extent of such provision meets any conditions prescribed by regulations made by the Treasury.
(8) If the Secretary of State accredits a body of a kind mentioned in subsection (6)(b), the Secretary of State must specify in the accreditation that the body is accredited as a retail community development finance institution.
(1) An accreditation under this Chapter must—
(a) be made on—
(i) any terms required by regulations, and
(ii) any other terms the Secretary of State considers appropriate, and
(b) be made conditional on compliance with—
(i) any requirements imposed by regulations, and
(ii) any other requirements the Secretary of State considers appropriate.
(2) The requirements that may be imposed by virtue of subsection (1)(b) include requirements relating to the provision of information.
(3) Regulations may—
(a) make provision for appeals to the tribunal against refusals to grant accreditation under this Chapter,
(b) make provision about the consequences of a failure to comply with any requirement of an accreditation, including—
(i) provision for the withdrawal of the accreditation with effect from the time of the failure or a later time, and
(ii) provision for the imposition of penalties,
(c) make provision for the making of decisions by the Secretary of State as to any matter required to be decided for the purposes of the regulations,
(d) make different provision for different cases or circumstances or in relation to different areas, and
(e) contain incidental, supplemental, consequential and transitional provision and savings.
(3A) Regulations under this section may include provision for the purposes of Part 7 of CTA 2010 in addition to provision made for the purposes of this Part.
(4) In this section “regulations” means regulations made by the Treasury.
(1) An accreditation has effect for a period (an “accreditation period”) of 3 years beginning on the day specified in the accreditation.
(2) Subject to subsection (4), the accreditation must not specify a day which is earlier than—
(a) if the body is not accredited under this Chapter at the time the application is made, the day the accreditation is granted, and
(b) if the body is so accredited, the time the body's current accreditation expires.
(3) Subsection (4) applies if—
(a) the body is accredited at the time the application is made, and
(b) it makes a request under this subsection.
(4) The new accreditation may specify that the existing accreditation is to be treated for the purposes of this Part (including subsection (2)(b)) as expiring immediately before the grant of the new accreditation (if it would otherwise expire at a later time).
(5) This section has effect subject to section 341(3)(b) (power to provide for the withdrawal of accreditation).
For the purposes of this Part the investment is a “qualifying investment” in the CDFI if—
(a) the investment consists of—
(i) a loan in relation to which the conditions of section 345 are met,
(ii) securities in relation to which the conditions of section 346 are met, or
(iii) shares in relation to which the conditions of section 347 are met,
(b) the investor receives from the CDFI a valid tax relief certificate in relation to the investment (see section 348), and
(c) the requirements of section 349 (no pre-arranged protection against risks) are met.
(1) Condition A of this section is that either—
(a) the CDFI receives from the investor, on the investment date, the full amount of the loan, or
(b) if the loan agreement authorises the CDFI to draw down amounts of the loan over a period of time, the end of that period is not later than 18 months after the investment date.
(2) Condition B is that the loan must not carry any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within the 5 year period.
(3) Condition C is that the loan must not have been made on terms that allow any person to require—
(a) the repayment during the first two years of the 5 year period of any of the loan capital advanced in those two years,
(b) the repayment during the third year of that period of more than 25% of the loan capital outstanding at the end of those two years,
(c) the repayment before the end of the fourth year of that period of more than 50% of that loan capital, or
(d) the repayment before the end of that period of more than 75% of that loan capital.
(4) Subsection (3) does not apply if the CDFI is required to make the repayment as a result of its failure to meet any obligation of the loan agreement which—
(a) is imposed merely because of the commercial risks to which the investor is exposed as lender under that agreement, and
(b) is no more likely to be breached than any obligation that might reasonably have been agreed in respect of the loan in the absence of this Part.
(5) The Treasury may by order substitute any other percentage for any percentage for the time being specified in subsection (3).
(6) Any such substitution is to have effect in relation to loans made by an individual on or after the date specified in the order.
346 Conditions to be met in relation to securities
(1) Condition A of this section is that the securities must be—
(a) subscribed for wholly in cash, and
(b) fully paid for on the investment date.
(2) Condition B is that the securities must not carry—
(a) any present or future right to be redeemed within the 5 year period, or
(b) any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within that period.
(3) For the purposes of subsection (1)(b), securities are not fully paid for if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the securities.
(1) Condition A of this section is that the shares must be—
(a) subscribed for wholly in cash, and
(b) fully paid up on the investment date.
(2) Condition B is that the shares must not carry—
(a) any present or future right to be redeemed during the 5 year period, or
(b) any present or future right to be converted into or exchanged for a loan which is, or securities, shares or other rights which are, redeemable within that period.
(3) Shares are not fully paid up for the purposes of subsection (1)(b) if there is any undertaking to pay cash to the CDFI at a future date in connection with the acquisition of the shares.
(1) A “tax relief certificate” means a certificate issued by the CDFI in respect of the investment which is in the form specified by the Commissioners for Her Majesty's Revenue and Customs.
(2) The CDFI must not issue tax relief certificates under this section in respect of investments made in the CDFI in an accreditation period if the total value of—
(a) those investments, and
(b) any investments to which subsection (3) applies,
will exceed the limit for that period.
(3) This subsection applies to investments ...—
(a) which have been made in the CDFI in the accreditation period, and
(b) in respect of which the CDFI has issued tax relief certificates under section 229 of CTA 2010 (which makes in relation to corporation tax provision corresponding to that made by this section).
(4) The limit for an accreditation period is—
(a) £25 million if the CDFI is accredited for the period as a retail community development finance institution (see section 340(8)), and
(b) £100 million in any other case.
(5) For the purposes of subsection (2) the value of an investment made in the CDFI is—
(a) if the investment consists of a loan—
(i) the amount of the loan, or
(ii) if the loan agreement authorises the CDFI to draw down amounts of the loan over a period of time, the amount committed under the loan agreement, and
(b) if the investment consists of securities or shares, the amount subscribed for them.
(6) The Treasury may by order substitute any other amount for any amount for the time being specified in subsection (4).
(7) Any such substitution is to have effect in relation to such accreditation periods as may be specified in the order; and those periods may, if the substitution increases an amount for the time being specified in subsection (4), include periods beginning before the order comes into force.
(8) Any tax relief certificate issued in contravention of subsection (2) is invalid.
(9) A body is liable to a penalty of not more than £3,000 if it issues a tax relief certificate which is made fraudulently or negligently.
(1) Any arrangements—
(a) under which the investment is made, or
(b) made, before the investor makes the investment, in relation to or in connection with the making of the investment,
must not include excluded arrangements.
(2) For the purposes of subsection (1) “excluded arrangements”—
(a) means arrangements the main purpose or one of the main purposes of which is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for the investor against what would otherwise be the risks attached to making the investment, but
(b) does not include any arrangements which are confined to the provision for the investor of any protection against those risks which might reasonably be expected to be provided for commercial reasons if the investment were made in the course of a business of banking.
(3) For the purposes of this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.
(1) The investor must not control the CDFI at any time during the 5 year period.
(2) In this section references to the investor include any person connected with the investor.
(3) If the CDFI is a body corporate, the question whether the investor controls the CDFI is, for the purposes of this section, determined in accordance with section 995.
This is subject to subsection (6).
(4) In any other case the investor is treated, for those purposes, as having control of the CDFI if the investor has power to secure, as a result of—
(a) the possession of voting power in the CDFI, or
(b) any powers conferred by the constitution of, or any other document regulating, the CDFI,
that the affairs of the body are conducted in accordance with the investor's wishes.
This is subject to subsections (5) and (6).
(5) If—
(a) the CDFI is a partnership, and
(b) the investor is a member of that partnership,
for the purposes of determining in accordance with this section whether the investor controls the CDFI, the other members of that partnership are not, as a result of their membership of the CDFI, treated as partners of the investor.
(6) In determining whether the investor controls the CDFI there are attributed to the investor (so far as it would not otherwise be the case)—
(a) any rights or powers that the investor is entitled to acquire at a future date or will, at a future date, become entitled to acquire, and
(b) any rights or powers which another person holds on behalf of the investor or may be required to exercise, by direction, on the investor's behalf.
(1) The investor must be the sole beneficial owner of the investment when it is made.
(2) If the investment consists of a loan, the person beneficially entitled to repayment of the loan is treated as the beneficial owner of the loan for the purposes of this Part.
(1) If the CDFI is a partnership, the investment must not consist of or include any amount of capital contributed by the investor on becoming a member of the partnership.
(2) For this purpose the amount of capital contributed by the investor on becoming a member of the partnership includes any amount which—
(a) purports to be provided by the investor by way of loan capital, and
(b) is accounted for as partners' capital in the accounts of the partnership.