Income Tax Act 2007

Part 6U.K.Venture capital trusts

Chapter 1U.K.Introduction

258Overview of PartU.K.

In this Part—

(a)Chapter 2 provides for VCT income tax relief (“VCT relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares issued to them by venture capital trusts,

(b)Chapter 3 provides for VCT approvals,

(c)Chapter 4 makes provision as to the meaning of “qualifying holding” for the purposes of Chapter 3,

(d)Chapter 5 confers power for regulations to make provision in relation to the winding up and merger of venture capital trusts, and

(e)Chapter 6 makes supplementary and general provision.

259Venture capital trusts and VCT approvalsU.K.

(1)In this Part “venture capital trust” means a company which—

(a)is not a close company, and

(b)is for the time being approved for the purposes of this Part by the Commissioners for Her Majesty's Revenue and Customs (see Chapter 3),

and “VCT” means a venture capital trust.

(2)In this Part “VCT approval” means an approval of a company for the purposes of this Part.

260Other tax reliefs relating to VCTsU.K.

(1)Chapter 5 of Part 6 of ITTOIA 2005 (venture capital trust dividends) provides that, if conditions are met, no liability to income tax arises in respect of dividends paid in respect of shares in a VCT.

(2)Section 100 of TCGA 1992 (exemption for venture capital trusts etc) provides that gains accruing to a VCT are not to be chargeable gains.

(3)Section 151A of TCGA 1992 (venture capital trusts: reliefs) provides that a gain or loss accruing to an individual on a qualifying disposal of any ordinary shares in a company which—

(a)was a VCT at the time when the individual acquired the shares, and

(b)is still a VCT at the time of the disposal,

is not to be a chargeable gain or, as the case may be, an allowable loss.

(4)Schedule 5C to TCGA 1992 (venture capital trusts: deferred charge on re-investment, but only in relation to shares issued before 6 April 2004) provides that, if conditions are met, an individual's unused qualifying expenditure on shares in a VCT may be set against what would otherwise be chargeable gains.

Chapter 2U.K.VCT relief

Entitlement to reliefU.K.

261Eligibility for reliefU.K.

(1)An individual (“A”) is eligible for VCT relief for a tax year if—

(a)a VCT issues eligible shares to A in that year,

(b)the VCT issues the shares for raising money, and

(c)A subscribes for the shares on A's own behalf.

(2)The amount in respect of which A is eligible for VCT relief for the tax year by reference to any shares is the amount subscribed by A for the shares.

(3)A is eligible for VCT relief by reference to any shares only if—

[F1(za)the shares are issued before 6 April 2025,]

(a)the shares are both subscribed for and issued—

(i)for genuine commercial reasons, and

(ii)not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and

(b)A is at least 18 years old when the shares are issued.

(4)A is not eligible for VCT relief by reference to any shares if they are treated as issued to A by virtue of section 195(8) of FA 2003 (tax treatment of disposal by company of its own shares).

See section 271(4) for provision requiring the giving of notices about the effect of this subsection.

[F2(5)The Treasury may, by regulations, amend subsection (3)(za) to substitute a different date for the date for the time being specified there.]

262Entitlement to claim reliefU.K.

(1)An individual (“A”) who is eligible for VCT relief by reference to shares issued in a tax year is entitled to claim VCT relief for that year.

(2)A is entitled to claim VCT relief in respect of the amount on which A is eligible for VCT relief by reference to all or some of the shares.

This is subject to subsection (3).

(3)A is not entitled to claim VCT relief for any tax year on an amount of more than £200,000.

263Form and amount of reliefU.K.

(1)An individual who—

(a)is entitled to claim VCT relief for a tax year, and

(b)claims such relief for the year on any amount,

is entitled to a tax reduction for the year.

(2)The tax reduction is equal to 30% of the amount in respect of which the claim is made.

(3)The tax reduction is given effect at Step 6 of the calculation in section 23.

264No entitlement to relief if there is a linked loanU.K.

(1)An individual is not entitled to VCT relief by reference to any shares (“the relevant shares”) if a linked loan is made by any person, at any time in the relevant period, to the individual or an associate of the individual.

(2)References in this section to the making by any person of a loan to an individual or any associate of the individual include references—

(a)to the giving by that person of any credit to the individual or any associate of the individual, and

(b)to the assignment to that person of any debt due from the individual or any associate of the individual.

(3)In this section—

• “linked loan” means a loan which—

  (a)

  would not have been made, or

  (b)

  would not have been made on the same terms,

  if the individual had not subscribed for the relevant shares or had not been proposing to do so,

• “the relevant period”, in relation to VCT relief in respect of any shares in a company which is a VCT, means the period—

  (a)

  beginning with—

  (i)

  the incorporation of the company, or

  (ii)

  if later, the date two years before the issue of the shares, and

  (b)

  ending immediately before the fifth anniversary of that issue.

[F3264ARestricting relief where there is a linked saleU.K.

(1)This section applies where—

(a)an individual subscribes for shares (“the relevant shares”) in a VCT (“the VCT”), and

(b)there is at least one linked sale of other shares by the individual.

(2)For the purposes of this Part, the amount the individual subscribes for the shares is to be treated as reduced (but not below nil) by the total consideration given for the linked sales of other shares.

This is subject to subsection (3).

(3)If a sale is linked in relation to more than one subscription for shares—

(a)the consideration for it is to be applied to reduce subscriptions under subsection (2) in the order in which the subscriptions are made, and

(b)accordingly, to the extent that any consideration has been used to reduce an earlier subscription, it is not available to reduce a later one.

(4)A sale of shares (“the sold shares”) is “linked” if conditions A and B are met.

(5)Condition A is that the sold shares are in—

(a)the VCT, or

(b)[F4if subsection (7A) applies,] a company which is (or later becomes) a successor or predecessor of the VCT.

(6)Condition B is that—

(a)the individual subscribes for the relevant shares in circumstances where—

(i)the purchase of the sold shares from the individual was conditional upon the individual subscribing for shares in the VCT, or

(ii)the individual's subscription for shares in the VCT was conditional upon that purchase, or

(b)the subscription for the relevant shares and the sale of the sold shares are within 6 months of each other (irrespective of which came first).

(7)A company (“company X”) is a “successor or predecessor of the VCT” if—

(a)there is a merger of two or more companies for the purposes of Chapter 5 (see section 323) and—

(i)the VCT is one of the merged companies and company X is “the successor company” (as defined by that section), or

(ii)the VCT is “the successor company” and company X is one of the merged companies, or

(b)section 327 (effect of restructuring of VCT) applies and—

(i)the VCT is “the old company” and company X is “the new company” for the purposes of that section, or

(ii)company X is “the old company” and the VCT is “the new company” for those purposes.

[F5(7A)This subsection applies if—

(a)the date of the merger or restructuring referred to in subsection (7) (“D2”) is before, or the same as, the date when the individual subscribes for the relevant shares (“D1”), or

(b)D2 is after D1 but no more than two years after, and either—

(i)the individual could reasonably be expected to know at the time of subscribing for the relevant shares that the merger or restructuring referred to in subsection (7) was likely to take place, or

(ii)the main purpose of the merger or restructuring, or one of its main purposes, is to enable individuals to obtain a tax advantage in connection with VCT relief.

(7B)For the purposes of subsection (7A)—

(a)the date of the merger or restructuring is the date of the issue of shares referred to in section 323(1)(a) or (2)(a) or section 326(2)(a) (or, if there is more than one such issue, the date of the first of them);

(b)a “tax advantage” includes—

(i)relief or increased relief from tax,

(ii)repayment or increased repayment of tax,

(iii)avoidance or reduction of a charge to tax or an assessment to tax, and

(iv)avoidance of a possible assessment to tax.]

(8)This section does not apply if, or to the extent that, the subscription for the relevant shares is a result of the individual electing to reinvest dividends payable to the individual on shares in the VCT, in acquiring further shares in the VCT.]

265No entitlement to relief which would have been lost if it had already been obtainedU.K.

An individual is not entitled to VCT relief by reference to any shares if circumstances have arisen which would have resulted in the withdrawal or reduction of the relief, if that relief had already been obtained.

Loss of reliefU.K.

266Loss of relief if shares disposed of within 5 yearsU.K.

(1)This section applies, subject to section 267 (spouses or civil partners), if an individual—

(a)obtains VCT relief in respect of eligible shares in a VCT, and

(b)makes a disposal of those shares within 5 years of their issue to the individual.

(2)In the case of a disposal that is made otherwise than by way of a bargain made at arm's length, any VCT relief obtained by reference to the shares which are disposed of is to be withdrawn.

(3)In the case of a disposal that is made by way of a bargain made at arm's length, any VCT relief obtained by reference to the shares disposed of must—

(a)if it is greater than A, be reduced by A, and

(b)in any other case, be withdrawn.

(4)A is 30% of the amount or value of the consideration which the individual receives for the shares.

(5)The rules in subsections (6) and (7) are for determining which eligible shares of any class are treated as disposed of for the purposes of—

(a)this section, and

(b)section 267,

if a person disposes of some but not all of the eligible shares of that class which the person holds in a company.

(6)Shares acquired on an earlier day are treated as disposed of before shares acquired on a later day.

(7)Shares acquired on the same day are treated as disposed of in the following order—

(a)shares by reference to which VCT relief has not been obtained, and

(b)shares by reference to which VCT relief has been obtained.

267Transfers of shares between spouses or civil partnersU.K.

(1)Section 266 does not apply in the case of any disposal of shares made by an individual to the individual's spouse or civil partner, if it is made at a time when they are living together.

(2)Subsection (3) applies if any eligible shares which—

(a)have been issued to any individual (“the transferor”), and

(b)are shares by reference to which any VCT relief has been obtained,

are transferred to the transferor's spouse or civil partner (“the transferee”) by a disposal such as is mentioned in subsection (1).

(3)If this subsection applies, section 266 and subsection (2) have effect, in relation to any subsequent disposal or other event, as if—

(a)the transferee were the person who had subscribed for the shares,

(b)the shares had been issued to the transferee at the time when they were issued to the transferor,

(c)there had been, in relation to the transferred shares, such a reduction by way of VCT relief in the transferee's liability to income tax as is equal to the actual reduction in respect of those shares of the transferor's liability, and

(d)that deemed reduction were (despite the transfer) to be treated for the purposes of section 266 as an amount of VCT relief obtained by reference to the shares transferred.

(4)Any assessment for withdrawing or reducing VCT relief because of a disposal or other event falling within subsection (3) is to be made on the transferee.

268Loss of relief if VCT approval withdrawnU.K.

(1)This section applies if—

(a)the approval of any company as a VCT is withdrawn, and

(b)the withdrawal of the approval is not one to which section 281(3) (VCT approval treated as never having been given) applies.

(2)Any person who, at the time when the withdrawal takes effect, is holding any shares issued by the company by reference to which VCT relief has been obtained is treated for the purposes of section 266 as having disposed of those shares—

(a)immediately before that time, and

(b)otherwise than by way of a bargain made at arm's length.

269Loss of relief which is subsequently found not to have been dueU.K.

Any VCT relief obtained which is subsequently found not to have been due is to be withdrawn.

270Assessment on withdrawal or reduction of reliefU.K.

(1)An assessment for withdrawing or reducing VCT relief under any of sections 266 to 269 must be made for the tax year for which the relief was obtained[F6, and may be made at any time not more than 6 years after the end of that tax year].

(2)No assessment for withdrawing or reducing VCT relief obtained by reference to shares issued to any individual may be made because of any event occurring after the individual's death.

SupplementaryU.K.

271Provision of informationU.K.

(1)If an event occurs that results in any VCT relief falling to be withdrawn or reduced, the individual by whom the relief was obtained must, within 60 days of coming to know of the event, give notice to an officer of Revenue and Customs containing particulars of the event.

F7(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F7(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)If a company which is a VCT issues to any individual eligible shares to which section 261(4) applies, it must—

(a)at the time of the issue of those shares, give the individual a notice stating that the individual is not eligible for VCT relief by reference to those shares, and

(b)not later than 3 months after the issue of those shares, give a copy of that notice to an officer of Revenue and Customs.

(5)No obligation as to secrecy imposed by statute or otherwise prevents an officer of Revenue and Customs from disclosing to a VCT that VCT relief has been obtained by reference to a particular number or proportion of its shares.

272Regulations as to procedure etcU.K.

(1)This section applies to VCT relief and relief for which the following provide—

(a)section 151A of TCGA 1992 (VCTs: reliefs),

(b)Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment),

(c)Chapter 5 of Part 6 of ITTOIA 2005 (VCT dividends), and

(d)regulations under Chapter 5 of this Part.

(2)The Treasury may by regulations make such provision as they consider appropriate for—

(a)giving effect to relief to which this section applies, and

(b)preventing such relief from being given unless a claim is made in accordance with the regulations and such other requirements as may be imposed by the regulations have been met.

(3)Regulations under this section may make provision as to the manner in which, and the persons by whom, relief to which this section applies is to be claimed.

273Interpretation of ChapterU.K.

(1)In this Chapter “eligible shares”, in relation to a company which is a VCT, means ordinary shares in the VCT which, throughout the period of 5 years beginning on the date on which they are issued, carry—

(a)no present or future preferential right to dividends or to a company's assets on its winding up, and

(b)no present or future right to be redeemed.

(2)In this Chapter references to a disposal of shares include references to a disposal of an interest or right in or over shares.

Chapter 3U.K.VCT approvals

Giving of approvalU.K.

274Requirements for the giving of approvalU.K.

(1)Subject to section 275, the Commissioners for Her Majesty's Revenue and Customs must not approve a company for the purposes of this Part unless it is shown to their satisfaction that the conditions mentioned in subsection (2)—

(a)are met in relation to the most recent complete accounting period of the company, and

(b)will be met in relation to the accounting period of the company which is current when the application for approval is made.

(2)The conditions applied by subsection (1) (which are also applied by section 275(1) and other provisions of this Chapter) are set out in column 2 of the following table together with, in column 1 of the table, the descriptions by which they are referred to. In each of those conditions “the relevant period” means the accounting period that is relevant for the purposes of the particular provision by which the condition is applied.

(3)The conditions mentioned in subsection (2) are supplemented as follows—

(a)the nature of income condition and the income retention condition by section 276,

(b)the 15% holding limit condition by section 277,

(c)the 15% holding limit condition, the [F1680%] qualifying holdings condition and the [F1770%] eligible shares condition by sections 278 and 279, F18...

(d)the [F1680%] qualifying holdings condition and the [F1970%] eligible shares condition by section 280[F20, F21...

(e)the [F2280%] qualifying holdings condition by section 280A], F23...

(f)the investment limits condition by [F24subsection [F25(3ZA)] and by] section 280B.

[F26(fa)the minimum investment on further issue condition by section 280BA,]

[F27(g)the permitted maximum age condition by subsection [F28(3ZA)] and by section 280C, and

(h)the no business acquisition condition by subsection [F29(3ZA)] and by section 280D.]

[F30(3ZA)In the second column of the table in subsection (2), in the entries for the investment limits condition, the permitted maximum age condition and the no business acquisition condition, any reference to an investment made by the company in a company does not include an investment falling within subsection (3A).]

[F31(3A)[F32An investment made by a company (“the investor”) falls within this subsection if it is] any of the following investments—

(a)shares or units in an AIF (within the meaning given by regulation 3 of the Alternative Investment Fund Managers Regulations 2013) which may be repurchased or redeemed on 7 days' notice given by the investor;

(b)shares or units in a UCITS (within the meaning given by section 363A(4) of TIOPA 2010) which may be repurchased or redeemed on 7 days' notice given by the investor;

(c)ordinary shares or securities in a company which are acquired by [F33the investor] on a regulated market.]

[F34(d)money in the investor's possession;

(e)a sum owed to the investor which—

(i)under section 285(4)(b) (read with section 285(5) and (6)) is to be regarded as an investment of the investor, and

(ii)is such that the investor's right mentioned in section 285(5)(a) may be exercised on 7 days' notice given by the investor.]

[F35(3B)In subsection (3A), any reference to a thing which may be done on 7 days' notice includes a case where that thing may be done—

(a)on less than 7 days' notice, or

(b)without notice.]

[F36[F37(4)In this section “regulated market” means—

(a)a UK regulated market within the meaning given by Article 2.1(13A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments,

(b)an EU regulated market within the meaning given by Article 2.1(13B) of that Regulation, and

(c)[F38a Gibraltar regulated market within the meaning given by Article 26(11)(b)(i) of that Regulation.]]

[F39(5)The Treasury may by regulations—

(a)amend the first entry in the table in subsection (2) (the listing condition),

(b)add, remove or amend an entry in the list of investments in subsection (3A),

[F40(ba)amend or repeal subsection (3B) in consequence of any provision made under paragraph (b),]

(c)amend this section so as to make provision to restrict the period for which an investment [F41falling within subsection (3A) may be held by the company], or

(d)amend subsection (4).]]

275Alternative requirements for the giving of approvalU.K.

(1)This section applies if one or more of the conditions mentioned in section 274(2) are not met with respect to a company in relation to its most recent complete accounting period.

(2)The Commissioners for Her Majesty's Revenue and Customs may still approve the company for the purposes of this Part if they are satisfied that the condition or conditions in question—

(a)will be met in relation to the period mentioned in subsection (3), and

(b)will continue to be met in relation to accounting periods following that period.

(3)The period is—

(a)in relation to the listing condition, the nature of income condition, the income retention condition and the 15% holding limit condition, the accounting period of the company which is current when the application for approval is made, or its next accounting period,

(b)in relation to the [F4280%] qualifying holdings condition and the [F4370%] eligible shares condition, an accounting period of the company beginning no more than 3 years after the time when the approval is given or, if earlier, when the approval takes effect.

276Conditions relating to incomeU.K.

(1)Subsections (2) and (3) apply in determining for the purposes of the nature of income condition and the income retention condition—

(a)the amount of a company's income, or

(b)the amount of income which a company derives from shares or securities.

(2)The amounts to be brought into account under [F44Part 5 of CTA 2009] in respect of the company's loan relationships are to be determined without reference to any debtor relationship of the company.

(3)The excess of any relevant credits over any relevant debits is to be treated as income which the company derives from shares or securities.

In this subsection “relevant credits” and “relevant debits” are credits and debits brought into account by virtue of [F45section 574 of CTA 2009 (non-trading credits and debits to be brought into account under Part 5 of that Act)].

(4)The income retention condition does not apply as regards an accounting period if the amount which the company would be required to distribute in order to meet that condition is less than—

(a)£10,000, or

(b)if the period is shorter than 12 months, a proportionately reduced amount.

(5)The income retention condition does not apply as regards an accounting period if—

(a)the company is required to retain income in respect of the period by virtue of a restriction imposed by law, and

(b)the amount of income which the company is so required to retain in respect of the period exceeds an amount equal to 15% of the income the company derives from shares or securities.

(6)Subsection (5) does not apply if—

(a)the amount of income the company retains in respect of the accounting period exceeds the amount of income it is required, by virtue of a restriction imposed by law, to retain in respect of the period, and

(b)the sum of the excess and any amount of income the company distributes in respect of the period is at least—

(i)£10,000, or

(ii)if the period is shorter than 12 months, a proportionately reduced amount.

277The 15% holding limit conditionU.K.

(1)If the 15% holding limit condition was met when a holding in a company was acquired or last added to, the condition is treated as continuing to be met until an addition is next made to it.

(2)“Holding in a company” means the shares or securities (whether of one class or more than one class) held in any one company.

(3)An addition is made to a holding in a company whenever the company whose holding it is—

(a)acquires further shares or securities in the company, but

(b)does not do so by being allotted shares or securities without becoming liable to give any consideration.

(4)For the purposes of this section—

(a)holdings in companies which—

(i)are members of a group, whether or not including the company whose holdings they are (“company A”), and

(ii)are not excluded from the 15% holding limit condition,

are to be treated as holdings in a single company, and

(b)if company A is a member of a group, money owed to it by another member of the group is to be treated—

(i)as a security of the latter held by company A, and

(ii)accordingly as, or as part of, the holding of company A in the company owing the money.

For the purposes of this subsection “group” means a company and all companies which are its 51% subsidiaries.

(5)Subsection (6) applies if, in connection with a scheme of reconstruction—

(a)a company issues shares or securities,

(b)the shares or securities are issued to persons holding shares or securities in a second company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings in the second company, and

(c)those persons do not become liable to give any consideration for the shares or securities.

In this subsection “scheme of reconstruction” has the same meaning as in section 136 of TCGA 1992.

(6)For the purposes of this section—

(a)a holding of the shares or securities in the second company, and

(b)a corresponding holding of the shares or securities issued by the company,

are to be regarded as the same holding.

278Conditions relating to value of investments: generalU.K.

(1)This section and section 279 apply for the purposes of the 15% holding limit condition, the [F4680%] qualifying holdings condition and the [F4770%] eligible shares condition (“the relevant conditions”).

(2)The value of a holding of investments of any description is to be taken, unless subsection (3) applies, to be its value when acquired.

(3)If, in the case of a holding of investments of any description—

(a)the holding is added to by a further holding of investments of that description, or

(b)any payment is made in discharge, in whole or in part, of any obligation attached to the holding that (by discharging the whole or any part of the obligation) increases the value of the holding,

the value of the holding is to be taken to be its value immediately after the most recent addition or payment.

(4)For the purposes of this section an addition is made to a holding of investments of any description whenever the company whose holding it is—

(a)acquires further investments of that description, but

(b)does not do so by being allotted shares or securities in a company without becoming liable to give any consideration.

(5)Subsection (6) applies if, in connection with a scheme of reconstruction—

(a)a company issues shares or securities,

(b)the shares or securities are issued to persons holding shares or securities in a second company in respect of and in proportion to (or as nearly as may be in proportion to) their holdings in the second company, and

(c)those persons do not become liable to give any consideration for the shares or securities.

In this subsection “scheme of reconstruction” has the same meaning as in section 136 of TCGA 1992.

(6)For the purposes of this section—

(a)a holding of the shares or securities of any description in the second company, and

(b)a corresponding holding of the shares or securities issued by the company,

are to be regarded as the same holding.

279Conditions relating to value of investments: qualifying holdingsU.K.

(1)If—

(a)any shares (“new shares”) are exchanged for other shares (“old shares”) under arrangements in relation to which section 326 (restructuring arrangements) applies, and

(b)those arrangements have not ceased by virtue of section 326(5) to be arrangements by reference to which requirements of Chapter 4 are treated as met,

the value of the new shares is taken to be the same as the value, when last valued in accordance with subsection (2) or (3) of section 278, of the old shares for which they are exchanged.

(2)In subsection (1)—

(a)references to shares in a company include references to any securities of that company, and

(b)the reference to the value of the new shares includes references to the value of those shares both—

(i)at the time of their acquisition, and

(ii)immediately after any subsequent addition to a holding of the new shares that is made under the arrangements.

(3)If—

(a)shares (“new shares”) are issued to a company as a result of the exercise by that company of any right of conversion attached to other shares, or securities, held by that company (“convertibles”), and

(b)section 329 (conversion of convertible shares and securities) applies in relation to the issue of the new shares,

the value of the new shares at the time of their acquisition is taken to be the same as the value, when last valued in accordance with subsection (2) or (3) of section 278, of the convertibles for which they are exchanged.

(4)Regulations under section 330 may make provision for securing that if—

(a)there is an exchange of shares to which regulations under section 330 apply, and

(b)the new shares are treated by virtue of the regulations as meeting the requirements of Chapter 4,

the value of the holding of the new shares, and of any original shares that are retained under the exchange, is taken to be an amount such that the requirements of the relevant conditions do not cease to be met because of the exchange.

(5)In subsection (4)—

(a)“shares” includes securities, and

(b)“exchange of shares”, “new shares” and “original shares” have the same meaning as in section 330.

280Conditions relating to qualifying holdings and eligible sharesU.K.

(1)Subsection (2) applies, subject to any regulations under subsection (3), if—

(a)there has been an issue of ordinary share capital of a company (“the first issue”),

(b)a VCT approval of that company has taken effect on or before the day of the making of the first issue, and

(c)a further issue of ordinary share capital of that company has been made since the making of the first issue.

(2)If this subsection applies, the use to which the money raised by the further issue is put, and the use of any money deriving from that use, are ignored in determining whether either or both of the [F4880%] qualifying holdings condition and the [F4970%] eligible shares condition are, have been or will be met in relation to—

(a)the accounting period in which the further issue is made, or

(b)any later accounting period ending no more than 3 years after the making of the further issue.

(3)The Treasury may by regulations make provision for subsection (2)—

(a)not to apply, or to be treated as not having applied, in specified cases, or

(b)to apply, or to be treated as having applied, in specified cases—

(i)only to a specified extent, or

(ii)only if specified conditions (including conditions requiring approvals to be obtained) are met.

(4)Provision made by regulations under subsection (3) may (but need not) be made so that, in any particular case, subsection (2)—

(a)does not apply, or is treated as not having applied, at prescribed times or with effect from a prescribed time, or

(b)applies, or is treated as having applied, in accordance with provision made under subsection (3)(b) at prescribed times or with effect from a prescribed time.

(5)In subsection (3) “specified” means specified by regulations and in subsection (4) “prescribed” means specified by, or determined under, regulations.

(6)Section 324 applies in relation to—

(a)regulations under subsection (3), and

(b)any power conferred by that subsection,

as it applies in relation to regulations under Chapter 5 and a power conferred by any provision of that Chapter.

[F50280AThe [F5180%] qualifying holdings condition: disposal of holdingU.K.

(1)This section applies if—

(a)a company which is a VCT disposes of shares or securities (“the holding”),

(b)the consideration for the disposal does not consist wholly of new qualifying holdings, and

(c)the holding was comprised in the company's qualifying holdings throughout the 6 months ending immediately before the disposal.

(2)For the purpose of determining whether the [F5280%] qualifying holdings condition is, has been or will be met—

(a)the company is to be treated as if it continued to hold the holding for the period of [F5312] months beginning with the disposal (but see subsection (4)), and

(b)the value of the company's investments in that period is to be treated as reduced by the amount of any monetary consideration for the disposal.

(3)The value of the holding in the period mentioned in subsection (2)(a) is to be treated as equal to its value (determined in accordance with this Chapter) immediately before the disposal.

(4)If the consideration for the disposal includes new qualifying holdings, subsection (2)(a) has effect as if the reference to the holding were to the appropriate proportion of the holding (the value of which is that proportion of the value of the holding, determined in accordance with subsection (3)).

(5)The appropriate proportion is—

(6)If at any time the value of the company's investments would by virtue of subsection (2)(b) be reduced to an amount less than the value of its qualifying holdings, the value of its investments at that time is to be treated as equal to the value of its qualifying holdings.

(7)“New qualifying holdings” means shares or securities which (on transfer to the company) are comprised in the company's qualifying holdings.

(8)If (and to the extent that) the holding was acquired with money the use of which is at any time ignored by virtue of section 280(2), subsections (2) to (6) do not apply in relation to that time.

(9)Nothing in this section applies in relation to disposals between companies that are merging (within the meaning of section 323).]

[F54280BThe investment limits conditionU.K.

(1)This section applies for the purposes of the investment limits condition.

(2)Where a company (“the investor”) makes an investment (“the current investment”) in another company (“the relevant company”), that investment breaches the permitted investment limits [F55if one or more of the following applies—

(a)the total annual investment in the relevant company exceeds the amount for the time being specified in section 292A(1);

(b)the total investment in the relevant company at the investment date exceeds the amount specified in—

(i)if the relevant company is a knowledge-intensive company (see section 331A) at the investment date, section 292AA(1)(a), and

(ii)in any other case, section 292AA(1)(b);

(c)condition A or B is met and the total investment in the relevant company at any time during the 5-year post-investment period exceeds the amount specified in—

(i)if the relevant company is a knowledge-intensive company at the investment date, section 292AB(4)(a), and

(ii)in any other case, section 292AB(4)(b).]

[F56(2A)In this section—

• “the investment date” means the date the current investment is made;

• “the 5-year post-investment period” means the period of 5 years beginning with the day after the investment date.]

[F57(3)For the purposes of subsection (2)(a), the total annual investment in the relevant company is the sum of—

(a)the amount of the current investment,

(b)the total amount of other relevant investments made (whether or not by the investor), in the year ending with the day on which the current investment is made, in—

(i)the relevant company, or

(ii)a company that has at any time in that year been a 51% subsidiary of the relevant company,

(including investments made in such a company before it became such a subsidiary but, if it is not such a subsidiary at the end of that year, not investments made in it after it last ceased to be such a subsidiary), and

(c)the total amount of any other relevant investments (whether or not made by the investor) which are relevant imported investments.

(3A)For the purposes of subsection (2)(b), the total investment in the relevant company at the investment date is the sum of—

(a)the amount of the current investment,

(b)the total amount of other relevant investments made (whether or not by the investor), on or before the investment date, in—

(i)the relevant company, or

(ii)a company that is at the investment date, or has at any time before that date been, a 51% subsidiary of the relevant company,

(including investments made in such a company before it became such a subsidiary but, if it is not such a subsidiary at the investment date, not investments made in it after it last ceased to be such a subsidiary), and

(c)the total amount of any other relevant investments (whether or not made by the investor) which are relevant imported investments.

(3B)For the purposes of subsection (2)(c)—

(a)condition A is that—

(i)a company becomes a 51% subsidiary of the relevant company during the 5-year post-investment period,

(ii)all or part of the money raised by the current investment is employed for the purposes of an activity which consists wholly or in part of a trade carried on by that company, and

(iii)that trade (or a part of it) was carried on by that company before it became a 51% subsidiary as mentioned in sub-paragraph (i);

(b)condition B is that all or part of the money raised by the current investment is employed for the purposes of an activity which consists wholly or in part of a trade which, during the 5-year post-investment period, becomes a relevant transferred trade (see subsection (3F).

(3C)For the purposes of subsection (2)(c), the total investment in the relevant company at a time during the 5-year post-investment period (“the relevant time”) is the sum of—

(a)the amount of the current investment,

(b)the total amount of other relevant investments made, before the relevant time (whether or not by the investor), in—

(i)the relevant company, or

(ii)a company that at the relevant time is, or before that time has been, a 51% subsidiary of the relevant company,

(including investments made in such a company before it became such a subsidiary but, if it is not such a subsidiary at the relevant time, not investments made in it after it last ceased to be such a subsidiary), and

(c)the total amount of any other relevant investments (whether or not made by the investor) which are relevant imported investments.

(3D)In this section “relevant imported investment” means—

(a)a relevant investment

(i)which is made in a company at a qualifying time, and

(ii)the money raised by which is employed for the purposes of a trade carried on by another company that is, at a qualifying time, a 51% subsidiary of the relevant company (but, if at the latest possible qualifying time it has ceased to be such a subsidiary, ignoring any money so employed after it last ceased to be such a subsidiary), or

(b)a relevant investment—

(i)which is made in a company at a qualifying time, and

(ii)the money raised by which is employed for the purposes of a trade carried on by that company or another person,

where, at a qualifying time but after that investment was made, that trade (or a part of it) became a relevant transferred trade (see subsection (3F)).

(3E)In subsection (3D) “a qualifying time” means—

(a)for the purposes of subsection (3), any time in the year mentioned in that subsection,

(b)for the purposes of subsection (3A), any time on or before the investment date,

(c)for the purposes of subsection (3C), any time before the relevant time.

(3F)For the purposes of this section if—

(a)a trade is transferred—

(i)to the relevant company,

(ii)to a company that is a 51% subsidiary of the relevant company, or

(iii)to a partnership of which a company within sub-paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-paragraph (ii), or a partnership of which such a company is a member, before the company became such a subsidiary), and

(b)the trade, or a part of it, was previously (at any time) carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ relevant transferred trade ” at the time it is transferred as mentioned in paragraph (a).]

(4)A “relevant investment” is made in a company if—

(a)an investment (of any kind) in the company is made by a VCT,

(b)the company issues shares (money having been subscribed for them), and (at any time) the company provides—

(i)a compliance statement under section 205 (enterprise investment scheme), or

(ii)a compliance statement under section 257ED (seed enterprise investment scheme),

in respect of the shares,F58...

[F59(ba)an investment is made in the company and (at any time) the company provides a compliance statement under section 257PB (tax relief for social investments) in respect of the investment, or]

(c)any other investment is made in the company which is aid received by it pursuant to a measure approved by the European Commission as compatible with Article 107 of the Treaty on the Functioning of the European Union in accordance with the principles laid down in the [F60European Commission's Guidelines on State aid to promote risk finance investment] [F61(as those guidelines had effect at the time of the approval)].

(5)For the purposes of subsections (2) [F62to (3E)], an investment within subsection (4)(b) is regarded as made when the shares are issued.]

[F63(6)Section 257KB applies in determining for those purposes when an investment within subsection (4)(ba) is made as it applies for the purposes of Part 5B (tax relief on social investments).

(7)If only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which became a relevant transferred trade as mentioned in subsection (3D), only the corresponding proportion of the relevant investment falls within that subsection.

(8)For the purposes of this section—

(a)references to a trade include a part of a trade (and references to the carrying on of a trade are to be construed accordingly), and

(b)when determining the amount of money raised by a relevant investment which has been employed for the purposes of a trade such apportionments are to be made as are just and reasonable.

(9)In this section “trade” includes—

(a)any business or profession,

(b)so far as not within paragraph (a), the carrying on of research and development activities from which it is intended a trade will be derived or will benefit, and

(c)preparing to carry on a trade.]

[F64280BAThe minimum investment on further issue conditionU.K.

(1)A company breaches the minimum investment on further issue condition where—

(a)there has been an issue of ordinary share capital of the company (“the first issue”),

(b)a VCT approval of the company has taken effect on or before the day of the making of the first issue,

(c)a further issue (“the further issue”) of ordinary share capital of the company has been made since the making of the first issue, and

(d)the company does not, on or before the relevant deadline, invest at least 30% of the money raised by the further issue in shares or securities which when held by the company are comprised in the company's qualifying holdings.

(2)The relevant deadline is the last day of the period of 12 months immediately following the end of the accounting period in which the further issue is made.]

[F65280CThe permitted maximum age conditionU.K.

(1)This section applies for the purposes of the permitted maximum age condition.

(2)Where a company makes an investment in another company (“the relevant company”), that investment (“the current investment”) breaches the permitted maximum age limits if—

(a)the investment is made after the initial investing period, and

(b)none of conditions A to C is met.

(3)“The initial investing period” means—

(a)where the relevant company is a knowledge-intensive company on the investment date, the period of 10 years [F66beginning with—

(i)the relevant first commercial sale, or

(ii)if the relevant company so elects, the date by reference to which that company is treated as reaching an annual turnover of £200,000 (see section 331B),] and

(b)in any other case, the period of 7 years beginning with that sale.

(4)Condition A is that—

(a)a relevant investment was made in the relevant company before the end of the initial investing period, and

(b)some or all of the money raised by that investment was employed for the purposes of the same activities as the money raised by the current investment (or some of those activities).

(5)Condition B is that—

(a)the sum of—

(i)the amount of the current investment, and

(ii)the total amount of any other relevant investments made in the relevant company in a period of 30 consecutive days which includes the investment date,

is at least 50% of the average turnover amount, and

(b)the money raised by the current investment and the investments mentioned in paragraph (a)(ii) is employed for the purpose of entering a new product or geographical market.

(6)Condition C is that—

(a)condition B in subsection (5) or condition B in section 175A(4) (EIS: permitted company age requirement) was previously met in relation to one or more relevant investments made in the relevant company, and

(b)some or all of the money raised by those investments was employed for the purposes of the same activities as the money raised by the current investment.

(7)“The relevant first commercial sale” means the earliest of the following—

(a)the first commercial sale made by the relevant company,

(b)the first commercial sale made by a company that is at the investment date, or before that date has been, a 51% subsidiary of the relevant company (including a sale made by a company before it became such a subsidiary but, if it is not such a subsidiary at the investment date, not a sale made after it last ceased to be such a subsidiary),

(c)the first commercial sale made by any person who previously (at any time) carried on a trade which was subsequently carried on, on or before the investment date, by—

(i)the relevant company, or

(ii)a company that is at the investment date, or before that date has been, a 51% subsidiary of the relevant company,

(including a trade subsequently carried on by such a company before it became such a subsidiary but, if it is not such a subsidiary at the investment date, not a trade which it carried on only after it last ceased to be such a subsidiary);

(d)the first commercial sale made by a company which becomes a 51% subsidiary of the relevant company after the investment date in circumstances where all or part of the money raised by the current investment is employed for the purposes of an activity carried on by that subsidiary (including a sale made by such a company before it became such a subsidiary);

(e)the first commercial sale made by any person who previously (at any time) carried on a trade which was subsequently carried on by a company mentioned in paragraph (d) (including a trade carried on by such a company before it became such a subsidiary);

(f)if the money raised by the current investment or any part of it is employed for the purposes of a trade which has been transferred after the investment date to the relevant company or a 51% subsidiary of that company (or to a partnership of which the relevant company or such a subsidiary is a member), having previously been carried on (at any time) by another person, the first commercial sale made by that other person.

(8)“The average turnover amount” means one fifth of the total relevant turnover amount for the [F67relevant five year period.]

[F68(8A)Subject to subsection (8B), the relevant five year period is the five year period which ends immediately before the beginning of the last accounts filing period.

(8B)If the last accounts filing period ends more than 12 months before the investment date, the relevant five year period is the five year period which ends 12 months before the investment date.]

(9)In this section—

• “entering a new product or geographical market” has the same meaning as in Commission Regulation (EU) No 651/2014 (General block exemption Regulation) [F69as it had effect in the United Kingdom immediately before IP completion day];

• “first commercial sale” has the same meaning as in the European Commission's Guidelines on State aid to promote risk finance investments [F70(as those guidelines had effect in the United Kingdom immediately before IP completion day)];

• “the investment date” means the day on which the current investment is made;

• “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 date on which the current investment is made;

• “relevant investment” has the meaning given by section 280B(4) (and section 280B(5) and (6) apply for the purposes of this section as they apply for section 280B(2) to (3E));

• “the total relevant turnover amount” for a period is—

  (a)

  if the relevant company is a single company at the investment date, the sum of—

  (i)

  the relevant company's turnover for that period,

  (ii)

  if all or part of the money raised by the current investment is employed for the purposes of an activity carried on by a company which becomes a 51% subsidiary of the relevant company after the investment date, the turnover for that period of that subsidiary (or, if there is more than one, each of them), and

  (iii)

  if all or part of the money raised by the current investment is employed for the purposes of a transferred trade, the turnover of that trade for so much of that period as falls before the trade became a transferred trade (except to the extent that it is already included in calculating the amounts within sub-paragraphs (i) and (ii));

  (b)

  if the relevant company is a parent company at the investment date, the sum of—

  (i)

  the relevant company's turnover for that period,

  (ii)

  the turnover for that period of each company which at the investment date is a 51% subsidiary of the relevant company,

  (iii)

  if all or part of the money raised by the issue of the current investment is employed for the purposes of an activity carried on by a company which becomes a 51% subsidiary of the relevant company after the investment date, the turnover for that period of that subsidiary (or, if there is more than one, each of them), and

  (iv)

  if all or part of the money raised by the current investment is employed for the purposes of a transferred trade, the turnover of that trade for so much of that period as falls before the trade became a transferred trade (except to the extent that it is already included in calculating the amounts within sub-paragraphs (i) to (iii));

• “transferred trade” means a trade which has been transferred to the company which is carrying on the trade at the time the money raised by the current investment is employed or to a partnership of which that company is a member;

• “turnover”—

  (a)

  in relation to a company, has the meaning given by section 474(1) of the Companies Act 2006 and is to be determined by reference to the accounts of companies and amounts recognised for accounting purposes (and such apportionments of those amounts as are just and reasonable are to be made for the purpose of determining a company's turnover for a period);

  (b)

  in relation to any other person carrying on a trade, also has the meaning given by section 474(1) of that Act (reading references in that provision to a company as references to the person) and is to be determined by reference to the accounts of the person and amounts recognised for accounting purposes (and such apportionments of those amounts as are just and reasonable are to be made for the purpose of determining a person's turnover for a period);

  (c)

  in relation to a transferred trade carried on by a company or other person, means such proportion of the turnover of the company or other person as it is just and reasonable to attribute to the transferred trade;

and section 280B(8) and (9) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 280B.

280DThe no business acquisition conditionU.K.

(1)This section applies for the purposes of the no business acquisition condition.

(2)Where a company makes an investment in another company (“the relevant company”), that investment breaches the prohibition on business acquisitions if any of the money raised by it is employed (whether on its own or together with other money) on the acquisition, directly or indirectly, of—

(a)an interest in another company such that a company becomes a 51% subsidiary of the relevant company,

(b)a further interest in a company which is a 51% subsidiary of the relevant company,

(c)a trade,

(d)intangible assets employed for the purposes of a trade, or

(e)goodwill employed for the purposes of a trade.

(3)The Treasury may by regulations provide that subsection (2) does not apply in relation to acquisitions of intangible assets which are of a description specified, or which occur in circumstances specified, in the regulations.

(4)In this section—

• “goodwill” has the same meaning as in Part 8 of CTA 2009 (see section 715(3));

• “intangible assets” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accountancy practice;

and section 280B(8) and (9) apply for the purposes of this section as they apply for the purposes of section 280B.]

Withdrawal of approvalU.K.

281Withdrawal of VCT approval of a companyU.K.

(1)The Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”) may withdraw the VCT approval of a company if at any time it appears to them that there are reasonable grounds for believing—

(a)that the conditions for the approval of the company were not met at the time of the approval,

(b)in a case where the Commissioners were satisfied for the purposes of section 274(1)(b) or 275(2) that any of the conditions mentioned in section 274(2) would be met in relation to any period, that the condition is one which will not be, or has not been, met in relation to that period,

(c)in the case of a company approved under subsection (2) of section 275 (read with paragraph (b) of subsection (3) of that section), that the company has not met such other conditions as may be prescribed by regulations made by the Commissioners in relation to—

(i)the period of 3 years mentioned in that paragraph, or

(ii)any part of that period,

(d)in a case where the use of any money falls to be ignored for any accounting period in accordance with section 280(2), that—

(i)the first accounting period of the company for which the use of that money will not be ignored will be a period in relation to which any of the conditions mentioned in section 274(2) will fail to be met, or

(ii)the company has not met such other conditions as may be prescribed by regulations made by the Commissioners in relation to, or to any part of, an accounting period for which the use of that money falls to be ignored, F71...

(e)that—

(i)the company's most recent complete accounting period or its current one is a period in relation to which there has been or will be a failure of any of the conditions mentioned in section 274(2) to be met, and

(ii)the failure was not or will not be one which, at the time of the approval, was allowed for in relation to that period by virtue of section 275(2).

F72[F73(f)that, while it has been a VCT, the company has issued shares and, before the end of the restricted period, the company, other than for the purpose of redeeming or repurchasing any of those shares, has—

(i)made a payment to all or any of its shareholders of an amount representing (directly or indirectly) a repayment of its share capital, whether that payment was made out of a reserve arising from a reduction of share capital or otherwise,

(ii)where the shares were issued at a premium, made a payment to all or any of its shareholders of an amount representing (directly or indirectly) that premium or any part of it, whether that payment was made out of a share premium reserve or otherwise, or

(iii)used an amount which represents (directly or indirectly) the company's share capital or an amount by which that share capital has been diminished, or, where the shares were issued at a premium, that premium (or any part of it), to pay up new shares to be allotted to all or any of its shareholders.]

[F74(1A)In subsection (1)(f)—

• “payment”—

  (a)

  does not include any distribution of assets made in connection with the winding up of the company, but

  (b)

  does include every other description of distribution of the company's assets to its members,

  and for this purpose “distribution” includes (but is not limited to) a distribution within the meaning of section 989,

• “reduction of share capital” has the same meaning as in section 1027A(2) of CTA 2010, and

• “the restricted period” means the period of 3 years beginning at the end of the accounting period of the company in which the shares were issued.]

(2)Subject to subsections (3) and (4), the withdrawal of the approval of a company for the purposes of this Part has effect as from the time when notice of the withdrawal is given to the company.

(3)If, in the case of a company approved as a VCT in the exercise of the power conferred by section 275(2), the approval is withdrawn at a time before all of the conditions mentioned in section 274(2) have been met with respect to the company concerned—

(a)in relation to a complete accounting period of 12 months, or

(b)in relation to successive complete accounting periods constituting a continuous period of at least 12 months,

the withdrawal of the approval has the effect that the approval is for all purposes treated as never having been given.

(4)A notice withdrawing the approval of a company for the purposes of this Part may specify a time falling before the time mentioned in subsection (2) as the time from which the withdrawal is to be treated as having effect for the purposes of section 100 of TCGA 1992 (exemption for venture capital trusts etc).

But the time so specified must be no earlier than the beginning of the accounting period in relation to which it appears to the Commissioners that the condition by reference to which the approval is withdrawn has not been, or will not be, met.

(5)Despite any limitation on the time for making assessments, an assessment to any tax chargeable in consequence of the withdrawal of any VCT approval may be made at any time before the end of the period of 3 years beginning with the time when the notice of withdrawal is given.

282Withdrawal of VCT approval in cases for which provision made under section 280(3)U.K.

(1)The Treasury may by regulations make provision for withdrawal of VCT approval of a company to be treated—

(a)in a case where the withdrawal is by reference to a condition for approval that would have been, or would be, met but for provision made under section 280(3), and

(b)for the purposes of enactments specified by regulations,

as having taken effect as from a time specified in the notice of withdrawal that is earlier than the time when the notice is given to the company.

(2)Provision made under subsection (1) has effect subject to the provisions of section 281(4) (retrospective effect of notices of withdrawal of VCT approval) as to the earliest time that may be specified by such a notice.

(3)Section 324 applies in relation to—

(a)regulations under subsection (1), and

(b)any power conferred by that subsection,

as it applies in relation to regulations under Chapter 5 and a power conferred by any provision of that Chapter.

SupplementaryU.K.

283Time as from which VCT approval has effectU.K.

(1)A VCT approval has effect as from the time specified in the approval.

(2)That time, if it falls before the time when the VCT approval is given, must be no earlier than the time when the application was made.

(3)If the Commissioners for Her Majesty's Revenue and Customs give a VCT approval, they may stipulate that the approval is to have effect as from the time when the application for the approval was made or any subsequent time.

284Power to make regulations as to procedureU.K.

[F75(1)Regulations under section 272 may make provision—

(a)as to the making of applications for VCT approvals and otherwise as to the procedure to be followed in relation to any such applications and the giving of such approvals,

[F76(aa)for and in connection with the making by a company of an application to the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”) for relief in respect of a breach (including a future breach) of the conditions for its VCT approval to continue in force,]

(b)as to the procedure to be followed in connection with the withdrawal of VCT approvals,

(c)as to the obligations of a company which is a VCT if it should appear to the company

[F77(i)that the conditions for its VCT approval to continue in force are no longer met, or

(ii)that it is likely that those conditions will cease to be met,]

(d)as to the accounts, records, returns and other information to be kept, and provided or otherwise made available to the Commissioners F78..., by companies which are or have been VCTs and by persons [F79(including nominees)] who hold or have held shares in such companies, and

(e)as to the persons liable to account for any tax becoming due where a VCT approval is withdrawn.]

[F80(2)In subsection (1)(aa), the reference to relief in respect of a breach of the conditions mentioned there is to a determination by the Commissioners that they will not exercise their power to withdraw the company's VCT approval by reason of the breach for such period as they may determine (and subject to such conditions as they may determine).

(3)The provision that may be made by virtue of subsection (1)(aa) includes—

(a)provision as to the procedure to be followed in relation to applications and determinations,

(b)provision as to the grounds on which applications may be made or determined, and

(c)provision conferring a discretion to be exercised by the Commissioners.]

285Interpretation of ChapterU.K.

(1)Chapter 4 has effect for interpreting references in this Chapter to a “qualifying holding”.

(2)In this Chapter and the following Chapters of this Part “securities”, in relation to a company, includes any liability of the company in respect of a loan F81..., except that it does not include—

(a)any liability of the company in respect of a loan which has been made to the company on terms which allow any person to require—

(i)the loan to be repaid, or

(ii)any stock or security relating to the loan to be re-purchased or redeemed,

within the period of 5 years from the making of the loan or, as the case may be, the issue of the stock or security, or

(b)any stock or security relating to a loan which has been made to the company on terms which allow any person to require the loan to be repaid, or the stock or security to be re-purchased or redeemed, within that period [F82, or

(c)any liability of the company in respect of a loan to which subsection (2A) applies that has been made to the company.]

But see sections 317(4) and 328(2).

[F83(2A)This subsection applies to a loan if—

(a)the return on the loan represents more than a commercial rate of return, or

(b)the loan is made on terms which grant to a person or allow a person to acquire—

(i)any security or preferential rights in relation to assets of the company, or

(ii)the ability to control the company.

In sub-paragraph (ii) “control” has the meaning given by sections 450 and 451 of CTA 2010.

(2B)The return on a loan is not to be treated as representing more than a commercial rate for the purposes of subsection (2A)(a) if—

(a)the return on the loan during the period of 5 years from the making of the loan does not exceed 50% of the amount lent, and

(b)the total return on the loan does not exceed—

(2C)The Treasury may by regulations substitute a different figure for a figure that is at any time specified in subsection (2B)(a) or (b).

(2D)In subsections (2A)(a) and (2B) “return” means interest, fees, charges and other amounts payable in respect of the loan.

(2E)Where it is to any extent not known, before the end of the term of a loan, what amounts will be payable in respect of the loan—

(a)subsections (2A)(a) and (2B) apply, until the relevant matters are ascertained, on the basis of what amounts can reasonably be expected to be payable;

(b)when those matters are ascertained, any necessary adjustments must be made by making or amending assessments or by repayment or discharge of tax (regardless of any limitation on the time within which assessments or amendments may be made).]

[F84(3A)For the purposes of this Chapter, shares in a company are “eligible” unless they carry—

(a)a present or future preferential right to dividends that is within subsection (3B),

(b)a present or future preferential right to the company's assets on its winding up, or

(c)a present or future right to be redeemed.

(3B)A preferential right to dividends carried by a share in a company is within this subsection if—

(a)the amount of any dividends payable pursuant to the right, or the date or dates on which they are payable, depend to any extent on a decision of the company, the holder of the share or any other person, or

(b)the amount of any dividends that become payable at any time pursuant to the right includes any amount that became payable at any earlier time pursuant to the right, but has not been paid.]

(4)Any reference in this Chapter to a company's investments is taken to include, so far as it would not otherwise do so—

(a)money in the company's possession, and

(b)any sum owed to the company by another person if the company has account-holder's rights over that sum.

(5)For the purposes of subsection (4)(b) a company has “account-holder's rights” over a sum owed to the company if—

(a)the company has a right (whether or not the exercise of the right is subject to conditions) to require the other person to pay out the sum, or amounts out of the sum, to the company or at the company's direction, and

(b)the sum is owed to the company—

(i)as a result of amounts having been paid to the other person by or for the company, or

(ii)as a result of the other person having identified a sum in respect of which the company may exercise such a right.

(6)Subsection (5) does not have effect to cause a company's investments to be taken to include anything to which the company is not beneficially entitled, but for this purpose a company is taken to be beneficially entitled to—

(a)sums subscribed for shares issued by it, and

(b)anything to which it is entitled that (directly or indirectly) represents such sums.

Chapter 4U.K.Qualifying holdings

IntroductionU.K.

286Qualifying holdings: introductionU.K.

(1)If any shares in or securities of any company (“the relevant company”) are at any time held by another company (“the investing company”), this Chapter applies for determining whether and to what extent those shares or securities (“the relevant holding”) are, for the purposes of Chapter 3, to be regarded as at that time comprised in the investing company's qualifying holdings.

(2)The relevant holding is to be regarded as comprised in the investing company's qualifying holding at any time if—

(a)all the following requirements of this Chapter are met at that time in relation to the relevant company and the relevant holding, F85...

(b)the relevant holding consists of shares or securities which were first issued by the relevant company to the investing company and have been held by the investing company ever since [F86, and

(c)those shares or securities were first issued by the relevant company in order to raise money for the purposes of promoting growth and development of—

(i)if the relevant company is a single company, the business of that company, and

(ii)if it is a parent company, what would be the business of the group if the activities of the group companies taken together were regarded as one business.]

(3)The requirements are those imposed as to—

[F87(1za)risk to capital (see section 286ZA),]

[F88(za)UK permanent establishment (see section 286A),

(zb)financial health (see section 286B),]

(a)maximum qualifying investment (see section 287),

(b)no guaranteed loan (see section 288),

(c)proportion of eligible shares (see section 289),

(d)trading (see section 290),

(e)the carrying on of a qualifying activity (see section 291),

[F89(ea)the maximum amount raised annually through risk [F90finance investments] (see section 292A),]

[F91(eaa)the maximum risk finance investments when the relevant holding is issued (see section 292AA),

(eab)the maximum risk finance investments during the 5-year post-investment period (see section 292AB),]

F92(eb). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f)use of the money raised (see section 293),

(g)the relevant company carrying on the relevant qualifying activity (see section 294),

[F93(ga)the permitted company age requirement (see section 294A),]

(h)unquoted status (see section 295),

(i)control and independence (see section 296),

(j)gross assets (see section 297),

[F94(ja)number of employees (see section 297A),]

[F95(jb)the proportion of skilled employees (see section 297B),]

(k)qualifying subsidiaries (see section 298), F96...

(l)property managing subsidiaries (see section 299) [F97, and

(m)no disqualifying arrangements (see section 299A)].

(4)Subject to section 293(7), subsection (5) applies if—

(a)the requirements of section 287, 293 or 294 would be met as to only part of the money raised by the issue of the relevant holding, and

(b)that holding is not otherwise capable of being treated as comprising separate holdings.

(5)If this subsection applies, this Chapter has effect in relation to the relevant holding as if it were two separate holdings consisting of—

(a)a holding from which the part of the money mentioned in subsection (4)(a) was raised, and

(b)a holding from which the remainder was raised.

Chapter 3 has effect as if the value of the relevant holding were to be apportioned between the two holdings treated as subsisting by this subsection.

The requirementsU.K.

[F98286ZAThe risk-to-capital requirementU.K.

(1)The requirement of this section is that, having regard to all the circumstances existing at the time of the issue of the relevant holding, it would be reasonable to conclude that—

(a)the relevant company has objectives to grow and develop its trade in the long-term, and

(b)there is a significant risk that, for the investing company, there will be a loss of capital of an amount greater than its net investment return.

(2)For the purposes of subsection (1)(b)—

(a)the reference to a loss of capital is to a loss of some or all of the amounts given in consideration for the relevant holding, and

(b)the reference to the net investment return is to the net investment return to the investing company irrespective of whether the return takes the form of income, capital growth, fees or other payments or anything else.

(3)For the purposes of subsection (1) the circumstances to which regard may be had include—

(a)the extent to which the company's objectives include increasing the number of its employees or the turnover of its trade,

(b)the nature of the company's sources of income, including the extent to which there is a significant risk of the company not receiving some or all of the income,

(c)the extent to which the company has or is likely to have assets, or is or could become a party to arrangements for acquiring assets, that could be used to secure financing from any person,

(d)the extent to which the activities of the company are sub-contracted to persons who are not connected with it,

(e)the nature of the company's ownership structure or management structure, including the extent to which others participate in or devise the structure,

(f)how any opportunity for investment in the company is marketed, and

(g)the extent to which arrangements are in place under which opportunities for investments in the company are or may be marketed with, or otherwise associated with, opportunities for investments in other companies or entities.

(4)If the relevant company is a parent company—

(a)any reference in this section to the company's trade is to what would be the trade of the group if the activities of the group companies taken together were regarded as one trade, and

(b)any reference in subsection (3)(a) to (e) to the company is to any group company.]

[F99286AThe UK permanent establishment requirementU.K.

The requirement of this section, at any time on or after the issue of the relevant holding, is that the relevant company has a permanent establishment in the United Kingdom at all times from the issue of the holding to the time in question.

286BThe financial health requirementU.K.

(1)The requirement of this section is that the relevant company is not, at the time of the issue of the relevant holding, in difficulty.

(2)The relevant company 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) [F100as those guidelines had effect in the United Kingdom immediately before IP completion day].]

287The maximum qualifying investment requirementU.K.

(1)The requirement of this section is that [F101, if the condition in subsection (1A) is met,] the relevant holding did not, when it was issued, represent an investment in excess of the maximum qualifying investment for the relevant period.

[F102(1A)The condition is that—

(a)at the time of the issue of the relevant holding the relevant company or any of its qualifying subsidiaries was a member of a partnership or a party to a joint venture,

(b)the trade which meets the requirement of section 291 was at that time being carried on, or to be carried on, by those partners in partnership or by the parties to the joint venture, and

(c)the other partners or parties to the joint venture include at least one other company.]

(2)[F103The] maximum qualifying investment for any period is exceeded so far as the total amount of money which—

(a)is raised in that period, and

(b)is so raised by the issue to the investing company during that period of shares in or securities of the relevant company,

exceeds [F104the relevant fraction of] £1 million.

[F105(2A)The relevant fraction is—

(3)If the relevant holding represented, when issued, an investment in excess of the maximum qualifying investment for the relevant period—

(a)the shares or securities which represented the excess are not to be regarded as part of the relevant holding, and

(b)the amount of money raised by those shares or securities is to be ignored for the purposes of any subsequent application of subsection (2).

(4)For the purposes of this section, if there is any question as to whether any shares in or securities of the relevant company which are for the time being held by the investing company represent an investment in excess of the maximum qualifying investment for any period, that question is determined on the following assumption in relation to disposals by the investing company.

(5)The assumption is that, as between shares or securities of the same description, those which represent the whole or any part of the excess are disposed of before those which do not.

F106(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F107(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)For the purposes of this section “the relevant period” is the period beginning with whichever is the earlier of—

(a)the time 6 months before the issue of the relevant holding, and

(b)the beginning of the tax year in which the issue of that holding took place,

and (in either case) ending with the issue of that holding.

288The no guaranteed loan requirementU.K.

(1)The requirement of this section is that there are no securities relating to a guaranteed loan in the relevant holding.

(2)For the purposes of this section, a security relates to a guaranteed loan if (and only if) there are arrangements for the investing company to be or to become entitled to receive anything (whether directly or indirectly) from a third party in the event of the failure by any person to comply with—

(a)the terms of the loan to which the security relates, or

(b)the terms of the security.

(3)For the purposes of subsection (2) it does not matter whether the arrangements apply in all cases of a failure to comply or only in some such cases.

(4)For the purposes of this section “third party” means any person except—

(a)the relevant company, and

(b)if the relevant company is a parent company that meets the trading requirement in section 290(1)(b), the subsidiaries of that company.

289The proportion of eligible shares requirementU.K.

(1)The requirement of this section is that eligible shares represent at least 10% by value of the totality of the shares in or securities of the relevant company (including the relevant holding) which are held by the investing company.

(2)For the purposes of this section the value at any time of any shares in or securities of a company is taken (subject to subsection (4)) to be their value immediately after—

(a)any relevant event occurring at that time, or

(b)if no relevant event occurs at that time, the last relevant event to occur before that time.

(3)In subsection (2) “the relevant event”, in relation to any shares in or securities of the relevant company, means—

(a)the acquisition by the investing company of those shares or securities,

(b)the acquisition by the investing company of any other shares in or securities of the relevant company which—

(i)are of the same description as those shares or securities, and

(ii)are acquired by the investing company otherwise than by being allotted to the investing company without its being liable to give any consideration, or

(c)the making of any such payment in discharge, in whole or in part, of any obligation attached to any shares in or securities of the relevant company held by the investing company as (by discharging that obligation) increases the value of any such shares or securities.

(4)If at any time the value of any shares or securities held by the investing company is less than the consideration given by the investing company for those shares or securities, it is to be assumed for the purposes of this section that the value of the shares or securities at that time is equal to the amount of that consideration.

(5)In this section “eligible shares” has the same meaning as in Chapter 3 (see section [F108285(3A) and (3B)]).

290The trading requirementU.K.

(1)The requirement of this section is that—

(a)the relevant company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, or

(b)the relevant company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.

(2)If the relevant company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—

(a)the relevant company is treated as a parent company for the purposes of subsection (1)(b), and

(b)the reference in subsection (1)(b) to the group includes the relevant company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.

This subsection does not apply at any time after the abandonment of that intention.

(3)For the purposes of subsection (1)(b) 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.

(4)For the purpose of determining the business of a group, activities are ignored so far as they are carried on by a mainly trading subsidiary otherwise than for its main purpose.

(5)For the purpose 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, or

(d)the holding and managing of property used by a group company for the purpose of research and development from which it is intended—

(i)that a qualifying trade to be carried on by a group company will be derived, or

(ii)that a qualifying trade carried on or to be carried on by a group company will benefit.

(6)Any reference in sub-paragraph (i) or (ii) of subsection (5)(d) to a group company includes a reference to any existing or future company which will be a group company at any future time.

(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 company 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—

  (a)

  excluded activities, and

  (b)

  activities carried on otherwise than in the course of a trade.

(8)This section is supplemented by section 300 (meaning of “qualifying trade”) and sections 303 to 310 (excluded activities).

291The carrying on of a qualifying activity requirementU.K.

(1)The requirement of this section, at any time on or after the issue of the relevant holding, is that a qualifying company (whether or not the same such company at every such time) must have been carrying on a qualifying activity at all times from the issue of the holding to the time in question.

(2)[F109Carrying on a qualifying trade] is a qualifying activity.

(3)Preparing to carry on a qualifying trade is a qualifying activity if, at the time when the relevant holding was issued, the trade was intended to be carried on F110... by a qualifying company.

This is subject to subsections (4) and (5).

(4)The requirement of this section is not capable of being met by virtue of subsection (3) at any time after the end of the period of two years beginning with the issue of the relevant holding unless—

(a)the intended trade was begun to be carried on by a qualifying company before the end of that period, and

(b)at all times since the end of that period, a qualifying company (whether or not the same such company at every such time) has been carrying on a qualifying trade F111....

(5)The requirement of this section is also not capable of being met by virtue of subsection (3) at any time after the abandonment, within the period mentioned in subsection (4), of the intention in question.

(6)In determining for the purposes of subsection (4)(a) when the intended trade was begun to be carried on by a qualifying company which is a qualifying 90% subsidiary of the relevant company, any carrying on by it of the trade before it became such a subsidiary of the relevant company is ignored.

(7)In this section “qualifying company” means the relevant company or any qualifying 90% subsidiary of that company.

(8)The reference in subsection (7) to a qualifying company which is a qualifying 90% subsidiary of the relevant company includes, in its application to subsection (3), a reference to any existing or future qualifying company which will be a qualifying 90% subsidiary of the relevant company at any future time.

292Ceasing to meet requirements because of administration or receivershipU.K.

(1)A company is not regarded as ceasing to meet the requirement of section 290 or 291 merely because of anything done in consequence of its being in administration or receivership.

(2)Subsection (1) applies only if—

(a)the entry into administration or receivership, and

(b)everything done as a consequence of the company being in administration or receivership,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

[F112292AThe maximum amount raised annually through risk [F113finance investments] requirementU.K.

(1)The total amount of relevant investments made in the relevant company in the year ending with the date the relevant holding is issued [F114must not exceed—

(a)if the company is a knowledge-intensive company at that date (see section 331A and subsection (6A)), £10 million, and

(b)in any other case, £5 million.]

[F115(2)In subsection (1), the reference to relevant investments made in the relevant company includes—

(a)relevant investments made in any company that has at any time in the year mentioned there been a 51% subsidiary of the relevant company (including investments made in such a company before it became such a subsidiary but, if it was not a subsidiary at the end of that year, not those made after it last ceased to be such a subsidiary),

(b)any other relevant investment made in a company to the extent that the money raised by the investment has been employed for the purposes of a trade carried on by another company that has at any time in that year been a 51% subsidiary of the relevant company (but, if it is not such a subsidiary at the end of that year, ignoring any money so employed after it last ceased to be such a subsidiary), and

(c)any other relevant investment made in a company if—

(i)the money raised by the investment has been employed for the purposes of a trade carried on by that company or another person, and

(ii)in that year, after that investment was made, the trade (or a part of it) became a relevant transferred trade (see subsection (2B)).

(2A)If only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a relevant transferred trade, the reference in subsection (2)(c) to the relevant investment is to be read as a reference to the corresponding proportion of that investment.

(2B)Where—

(a)in the year mentioned in subsection (1) a trade is transferred—

(i)to the relevant company,

(ii)to a company that is, or has at any time during that year been, a 51% subsidiary of the relevant company, or

(iii)to a partnership of which a company within sub-paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-paragraph (ii), or a partnership of which such a company is a member, at a time in the year before the company became such a subsidiary but not where it is transferred to such a company or partnership in that year after the company last ceased to be such a subsidiary), and

(b)that trade or a part of it was previously (at any time) carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ relevant transferred trade ” at the time it is transferred as mentioned in paragraph (a).]

(3)A “relevant investment” is made in a company if—

(a)an investment (of any kind) in the company is made by a VCT, or

(b)the company issues shares (money having been subscribed for them), and (at any time) the company provides—

(i)a compliance statement under section 205 (enterprise investment scheme), or

[F116(ia)a compliance statement under section 257ED (seed enterprise investment scheme).]

F117(ii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

in respect of the shares, or

[F118(ba)an investment is made in the company and (at any time) the company provides a compliance statement under section 257PB (tax relief for social investments) in respect of the investment, or]

(c)any other investment is made in the company which is aid received by it pursuant to a measure approved by the European Commission [F119before IP completion day] as compatible with Article 107 of the Treaty on the Functioning of the European Union in accordance with the principles laid down in the [F120European Commission's Guidelines on State aid to promote risk finance investment] [F121(as those guidelines had effect at the time of the approval)].

(4)For the purposes of subsections (1) [F122to (2B)], an investment within subsection (3)(b) is regarded as made when the shares are issued.

[F123(4A)Section 257KB applies in determining for those purposes when an investment within subsection (3)(ba) is made as it applies for the purposes of Part 5B (tax relief on social investments).]

(5)Subsection (6) applies if, by virtue of the provision of a compliance statement under section 205 [F124, 257ED or 257PB] above F125..., the requirement of this section is not met.

(6)The requirement is to be treated as having been met throughout the period—

(a)beginning with the time the relevant holding was issued, and

(b)ending with the time the compliance statement was provided.

[F126(6A)If the relevant company began to carry on a trade less than three years before the date the relevant holding is issued, section 331A as it applies for the purposes of this section has effect with the substitution of the following subsections for subsections (3) to (5A)—

“(3)The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation.

(4)The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure.

(5)In subsections (3) and (4)—

• “relevant operating costs” means—

  (a)

  if the relevant company is a single company at the applicable time, the operating costs of that company, and

  (b)

  if the relevant company is a parent company at the applicable time, the sum of—

  (i)

  the operating costs of the relevant company, and

  (ii)

  the operating costs of each company which is a qualifying subsidiary of the relevant company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the relevant company;

• “the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant holding is issued.”]

[F127(7)Section 280B(8) and (9) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 280B.]]

[F128292AAMaximum risk finance investments when relevant holding is issued requirementU.K.

(1)The total amount of relevant investments made in the relevant company on or before the investment date must not exceed—

(a)if the relevant company is a knowledge-intensive company at the investment date (see section 331A), £20 million, and

(b)in any other case, £12 million.

(2)In subsection (1), the reference to relevant investments made in the relevant company includes—

(a)relevant investments made in any company that is at the investment date, or has at any time before that date been, a 51% subsidiary of the relevant company (including investments made in such a company before it became such a subsidiary but, if it is not such a subsidiary at the investment date, not investments made in it after it last ceased to be such a subsidiary),

(b)any other relevant investment made in a company to the extent that the money raised by the investment has been employed for the purposes of a trade carried on by another company that has at any time on or before the investment date been a 51% subsidiary of the relevant company (but, if it is not such a subsidiary at the investment date, ignoring any money so employed after it last ceased to be such a subsidiary), and

(c)any other relevant investment made in a company if—

(i)the money raised by the investment has been employed for the purposes of a trade carried on by that company or another person, and

(ii)after the investment was made, but on or before the investment date, that trade became a relevant transferred trade (see subsection (4)).

(3)If only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a relevant transferred trade, the reference in subsection (2)(c) to the relevant investment is to be read as a reference to the corresponding proportion of that investment.

(4)Where—

(a)at any time on or before the investment date, a trade is transferred—

(i)to the relevant company,

(ii)to a company that at the investment date is, or has at any time before that date been, a 51% subsidiary of the relevant company, or

(iii)to a partnership of which a company within sub-paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-paragraph (ii), or a partnership of which such a company is a member, before the company became such a subsidiary but, if the company is not such a subsidiary at the investment date, not where it is transferred to such a company or partnership after the company last ceased to be such a subsidiary), and

(b)the trade or a part of it was previously (at any time) carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ relevant transferred trade ” at the time it is transferred as mentioned in paragraph (a).

(5)In this section—

• “the investment date” means the date the relevant holding is issued;

• “relevant investment” has the meaning given by section 292A(3), and section 292A(4) and (4A) (which determine when certain investments are made) applies for the purposes of this section;

and section 280B(8) and (9) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 280B.

(6)Subsection (7) applies if, by virtue of the provision of a compliance statement under section 205, 257ED or 257PB, the requirement of this section is not met.

(7)The requirement is to be treated as having been met throughout the period—

(a)beginning with the investment date, and

(b)ending with the time the compliance statement was provided.

292ABMaximum risk finance investments during the 5-year post-investment period requirementU.K.

(1)The requirement of this section applies if condition A or B is met.

(2)Condition A is that—

(a)a company becomes a 51% subsidiary of the relevant company at any time during the 5-year post-investment period,

(b)all or part of the money raised by the issue of the relevant holding is employed for the purposes of a relevant qualifying activity which consists wholly or in part of a trade carried on by that company, and

(c)that trade (or a 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 issue of the relevant holding is employed for the purposes of a relevant qualifying activity which consists wholly or in part of a trade which, during the 5-year post-investment period, becomes a relevant transferred trade (see subsection (7)).

(4)The requirement of this section is that, at all times during the 5-year post-investment period, the total of the relevant investments made in the relevant company before the time in question (“the relevant time”) must not exceed—

(a)if the relevant company is a knowledge-intensive company at the investment date (see section 331A), £20 million, and

(b)in any other case, £12 million.

(5)In subsection (4) the reference to relevant investments made in the relevant company includes—

(a)any relevant investment made in any company that has at any time before the relevant time been a 51% subsidiary of the relevant company (including investments made in that company before it became such a subsidiary but, if it is not such a subsidiary at the relevant time, not investments made in it after it last ceased to be such a subsidiary),

(b)any other relevant investment made in a company to the extent that the money raised by the investment has been employed for the purposes of a trade carried on by another company that has at any time before the relevant time been a 51% subsidiary of the relevant company (but, if it is not such a subsidiary at the relevant time, ignoring any money so employed after it last ceased to be such a subsidiary), and

(c)any other relevant investments made in a company where—

(i)the money raised by the investment has been employed for the purposes of a trade carried on by that company or another person, and

(ii)after that investment was made, but before the relevant time, that trade (or a part of it) became a relevant transferred trade (see subsection (7)).

(6)If only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which became a relevant transferred trade, the reference in subsection (5)(c) to the relevant investment is to be read as a reference to the corresponding proportion of that investment.

(7)Where—

(a)a trade is transferred—

(i)to the relevant company,

(ii)to a company that at the relevant time is, or has before that time been, a 51% subsidiary of the relevant company, or

(iii)to a partnership of which a company within sub-paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-paragraph (ii), or a partnership of which such a company is a member, before the company became such a subsidiary but, if the company is not such a subsidiary at the relevant time, not where it is transferred to such a company or partnership after the company last ceased to be such a subsidiary), and

(b)the trade or a part of it was previously (at any time) carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ relevant transferred trade ” at the time it is transferred as mentioned in paragraph (a).

(8)In this section—

• “5-year post-investment period” means the period of 5 years beginning with the day after the investment date;

• “the investment date” means the date on which the relevant holding is issued;

• “relevant investment” has the meaning given by section 292A(3), and section 292A(4) and (4A) (which determines when certain investments are made) applies for the purposes of this section;

and section 280B(8) and (9) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 280B.

(9)Subsection (10) applies if, by virtue of the provision of a compliance statement under section 205, 257ED or 257PB, the requirement of this section is not met.

(10)The requirement is to be treated as having been met throughout the period—

(a)beginning with the investment date, and

(b)ending with the time the compliance statement was provided.]

F129292BThe spending of money raised by SEIS investment requirementU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

293The use of the money raised requirementU.K.

[F130(1)The requirement of this section is that—

(a)less than two years has passed since the trading time, or

(b)at least two years has passed since the trading time and all of the money raised by the issue of the relevant holding has been employed wholly for the purposes of a relevant qualifying activity.]

F131(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F131(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F131(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)In subsection (1) “the trading time” means whichever is applicable of the following—

(a)in a case where the requirement of section 291 was met in relation to the time when the relevant holding was issued and the relevant qualifying activity falls within subsection (2) of that section, the time when the relevant holding was issued, and

(b)in a case where that requirement was met in relation to that time and the relevant qualifying activity falls within subsection (3) of that section, the time when the condition in subsection (4)(a) of that section was met by a qualifying company beginning to carry on the intended trade.

[F132(5ZA)Employing money raised by the issue of the relevant holding (whether on its own or together with other money) on the acquisition, directly or indirectly, of—

(a)an interest in another company such that a company becomes a 51% subsidiary of the relevant company,

(b)a further interest in a company which is a 51% subsidiary of the relevant company,

(c)a trade,

(d)intangible assets employed for the purposes of a trade, or

(e)goodwill employed for the purposes of a trade,

does not amount to employing the money for the purposes of a relevant qualifying activity.

(5ZB)The Treasury may by regulations provide that subsection (5ZA) does not apply in relation to acquisitions of intangible assets which are of a description specified, or which occur in circumstances specified, in the regulations.

(5ZC)For the purposes of subsections (5ZA) and (5ZB)—

• “goodwill” has the same meaning as in Part 8 of CTA 2009 (see section 715(3));

• “intangible assets” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accountancy practice;

and section 280B(8) and (9) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 280B.

(5A)Also, otherwise employing money on the acquisition of shares in a company does not of itself amount to employing the money for the purposes of a relevant qualifying activity.]

(6)For the purposes of this section money is not to be treated as employed otherwise than wholly for the purposes of a relevant qualifying activity if the only amount employed for other purposes is an amount which is not a significant amount.

(7)Nothing in section 286(5) requires any money whose use is ignored by virtue of subsection (6) to be treated as raised by a different holding.

(8)In this section—

• “qualifying activity” and “qualifying company” have the same meaning as in section 291, and

• a qualifying activity is a “relevant qualifying activity” if—

  (a)

  it was also a qualifying activity at the time when the relevant holding was issued, or

  (b)

  it is a qualifying trade and preparing to carry it on was a qualifying activity at that time.

294The relevant company to carry on the relevant qualifying activity requirementU.K.

(1)The requirement of this section is met if, at no time after the issue of the relevant holding, has the relevant qualifying activity in question been carried on by a person other than—

(a)the relevant company, or

(b)a qualifying 90% subsidiary of that company.

In this subsection “the relevant qualifying activity in question” means the relevant qualifying activity by reference to which the requirement of section 293 is met.

(2)The requirement of this section is not to be regarded as failing to be met merely because of the carrying on of the trade in question by a person other than the relevant company, or a qualifying subsidiary of that company, at any time—

(a)after the issue of the relevant holding, and

(b)before the relevant company, or any qualifying 90% subsidiary of that company, carries on that trade.

(3)The requirement of this section is not to be regarded as failing to be met merely because of the carrying on of the trade in question—

(a)by the partners in a partnership of which the relevant company, or a qualifying 90% subsidiary of that company, is a member, or

(b)by the parties to a joint venture to which the relevant company, or a qualifying 90% subsidiary of that company, is a party.

(4)The requirement of this section is not to be regarded as failing to be met if—

(a)merely because of anything done as a consequence of the relevant company or any other company being in administration or receivership, or

(b)merely because of the relevant company or any other company being wound up or dissolved without winding up,

the trade in question ceases to be carried on by the relevant company or a qualifying 90% subsidiary of that company and is subsequently carried on by a person who has not been connected, at any time after the date which is 12 months before the issue of the relevant holding, with the relevant company.

(5)Subsection (4) applies only if—

(a)the entry into administration or receivership and everything done in 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 a scheme or arrangement the purpose or one of the main purposes of which is the avoidance of tax.

(6)In this section “the trade in question” means so much of the relevant qualifying activity mentioned in subsection (1) as consists of—

(a)a trade which was being carried on at the time when the relevant holding was issued, or

(b)a trade for the carrying on of which preparations were being made at that time.

(7)The definition of “relevant qualifying activity” in subsection (8) of section 293 applies for the purposes of this section as it applies for the purposes of that section.

[F133294AThe permitted company age requirementU.K.

(1)The requirement of this section is that, if the relevant holding is issued after the initial investing period, condition A, B or C must be met.

(2)“The initial investing period” means—

(a)where the relevant company is a knowledge-intensive company at the investment date, the period of 10 years [F134beginning with—

(i)the relevant first commercial sale, or

(ii)if the relevant company so elects, the date by reference to which that company is treated as reaching an annual turnover of £200,000 (see section 331B),] and

(b)in any other case, the period of 7 years beginning with that sale.

(3)Condition A is that—

(a)a relevant investment was made in the relevant company before the end of the initial investing period, and

(b)some or all of the money raised by that investment was employed for the purposes of the relevant qualifying activity (or a part of it).

(4)Condition B is that—

(a)the total amount of relevant investments made in the relevant company in a period of 30 consecutive days which includes the investment date is at least 50% of the average turnover amount, and

(b)the money raised by those investments is employed for the purpose of entering a new product or geographical market.

(5)Condition C is that—

(a)condition B in subsection (4) or condition B in section 175A(4) (EIS: permitted company age requirement) was previously met in relation to one or more relevant investments made in the relevant company, and

(b)some or all of the money raised by those investment was employed for the purposes of the relevant qualifying activity.

(6)“The relevant first commercial sale” means the earliest of the following—

(a)the first commercial sale made by the relevant company,

(b)the first commercial sale made by a company that is at the investment date, or before that date has been, a 51% subsidiary of the relevant company (including a sale made by a company before it became such a subsidiary but, if it is not such a subsidiary at the investment date, not a sale made after it last ceased to be such a subsidiary),

(c)the first commercial sale made by any person who previously (at any time) carried on a trade which was subsequently carried on, on or before the investment date, by—

(i)the relevant company, or

(ii)a company that is at the investment date, or before that date has been, a 51% subsidiary of the relevant company,

(including a trade subsequently carried on by such a company before it became such a subsidiary but, if it not such a subsidiary at the investment date, not a trade which it carried on only after it last ceased to be such a subsidiary);

(d)the first commercial sale made by a company which becomes a 51% subsidiary of the relevant company after the investment date in circumstances where all or part of the money raised by the issue of the relevant holding is employed for the purposes of an activity carried on by that subsidiary (including a sale made by such a company before it became such a subsidiary);

(e)the first commercial sale made by any person who previously (at any time) carried on a trade which was subsequently carried on by a company mentioned in paragraph (d) (including a trade carried on by such a company before it became such a subsidiary);

(f)if the money raised by the issue of the relevant holding (or any part of it) is employed for the purposes of a trade which has been transferred after the investment date to the relevant company or a 51% subsidiary of that company (or to a partnership of which the relevant company or such a subsidiary is a member), having previously (at any time) been carried on by another person, the first commercial sale made by that other person.

(7)“The average turnover amount” means one fifth of the total relevant turnover amount for the [F135relevant five year period. ]

[F136(7A)Subject to subsection (7B), the relevant five year period is the five year period which ends immediately before the beginning of the last accounts filing period.

(7B)If the last accounts filing period ends more than 12 months before the investment date, the relevant five year period is the five year period which ends 12 months before the investment date.]

(8)In this section—

• “entering a new product or geographical market” has the same meaning as in Commission Regulation (EU) No 651/2014 (General block exemption Regulation) [F137as it had effect in the United Kingdom immediately before IP completion day];

• “first commercial sale” has the same meaning as in the European Commission's Guidelines on State aid to promote risk finance investments [F138(as those guidelines had effect in the United Kingdom immediately before IP completion day)];

• “the investment date” means the date the relevant holding is issued;

• “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 date on which the relevant holding is issued;

• “relevant investment” has the meaning given by section 292A(3), and section 292A(4) and (4A) (which determines when certain investments are made) applies for the purposes of this section;

• “relevant qualifying activity” means the qualifying activity for which the money raised by the issue of the relevant holding is employed;

• “the total relevant turnover amount” for a period is—

  (a)

  if the relevant company is a single company at the investment date, the sum of—

  (i)

  the relevant company's turnover for that period,

  (ii)

  if all or part of the money raised by the issue of the relevant shares is employed for the purposes of an activity carried on by a company which becomes a 51% subsidiary of the relevant company after the investment date, the turnover for that period of that subsidiary (or, if there is more than one, each of them), and

  (iii)

  if all or part of the money raised by the issue of the relevant shares is employed for the purposes of a transferred trade, the turnover of that trade for so much of that period as falls before the trade became a transferred trade (except to the extent that it is already included in calculating the amounts within sub-paragraphs (i) and (ii));

  (b)

  if the relevant company is a parent company at the investment date, the sum of—

  (i)

  the relevant company's turnover for that period,

  (ii)

  the turnover for that period of each company which at the investment date is a 51% subsidiary of the relevant company,

  (iii)

  if all or part of the money raised by the issue of the relevant holding is employed for the purposes of an activity carried on by a company which becomes a 51% subsidiary of the relevant company after the investment date, the turnover for that period of that subsidiary (or, if there is more than one, each of them), and

  (iv)

  if all or part of the money raised by the issue of the relevant shares is employed for the purposes of a transferred trade, the turnover of that trade for so much of that period as falls before the trade became a transferred trade (except to the extent that it is already included in calculating the amounts within sub-paragraphs (i) to (iii));

• “transferred trade” means a trade which has been transferred to the company which is carrying on the trade at the time the money raised by the issue of the relevant holding is employed or to a partnership of which that company is a member;

• “turnover”—

  (a)

  in relation to a company, has the meaning given by section 474(1) of the Companies Act 2006 and is to be determined by reference to the accounts of companies and amounts recognised for accounting purposes (and such apportionments of those amounts as are just and reasonable are to be made for the purpose of determining a company's turnover for a period);

  (b)

  in relation to any other person carrying on a trade, also has the meaning given by section 474(1) of that Act (reading references in that provision to a company as references to the person) and is to be determined by reference to the accounts of the person and amounts recognised for accounting purposes (and such apportionments of those amounts as are just and reasonable are to be made for the purpose of determining a person's turnover for a period);

  (c)

  in relation to a transferred trade carried on by a company or other person, means such proportion of the turnover of the company or other person as it is just and reasonable to attribute to the transferred trade;

and section 280B(8) and (9) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 280B.]

295The unquoted status requirementU.K.

(1)The requirement of this section is that the relevant company must be an unquoted company.

(2)In this section “unquoted company” means a company none of whose shares, stocks, debentures or other securities are marketed to the general public.

(3)For the purposes of subsection (2), shares, stocks, debentures or other securities are marketed to the general public if they are—

(a)listed on [F139a recognised stock exchange, ]

(b)listed on a designated exchange in a country outside the United Kingdom, or

(c)dealt in F140... outside the United Kingdom by such means as may be designated.

(4)In subsection (3)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty's Revenue and Customs for the purposes of that provision.

(5)An order made for the purposes of subsection (3)(b) may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.

(6)If—

(a)any shares in or securities of a company are included in the qualifying holdings of the investing company, and

(b)that company ceases to be an unquoted company at any time while the investing company is approved as a VCT,

the requirements of this section are to be treated, in relation to shares or securities acquired before that time, as continuing to be met for a period of 5 years after that time.

296The control and independence requirementU.K.

(1)The control element of the requirement is that—

(a)the relevant company must not control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the relevant company, and

(b)no arrangements must be in existence by virtue of which the relevant company could fail to meet paragraph (a).

(2)The independence element of the requirement is that—

(a)the relevant company must not be under the control of another company (or of another company and any other person connected with that other company), and

(b)no arrangements must be in existence by virtue of which the relevant company could fail to meet paragraph (a).

(3)This section is subject to section 327(7) (exchange of shares).

297The gross assets requirementU.K.

(1)The requirement of this section in the case of a relevant company that is a single company is that the value of the company's gross assets—

(a)did not exceed [F141£15 million] immediately before the issue of the relevant holding, and

(b)did not exceed [F142£16 million] immediately afterwards.

(2)The requirement of this section in the case of a relevant company that is a parent company is that the value of the group assets—

(a)did not exceed [F143£15 million] immediately before the issue of the relevant holding, and

(b)did not exceed [F144£16 million] immediately afterwards.

(3)The value of the group assets means the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.

[F145297AThe number of employees requirementU.K.

(1)If the relevant company is a single company, the full-time equivalent employee number for it must be less than [F146the permitted limit] when the relevant holding is issued.

(2)If the relevant company is a parent company, the sum of—

(a)the full-time equivalent employee number for it, and

(b)the full-time equivalent employee numbers for each of its qualifying subsidiaries,

must be less than [F147the permitted limit] when the relevant holding is issued.

(3)The full-time equivalent employee number for a company is calculated as follows—

Step 1

Find the number of full-time employees of the company.

Step 2

Add, for each employee of the company who is not a full-time employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.

[F148(3A)The permitted limit” means—

(a)if the relevant company is a knowledge-intensive company at the time the relevant holding is issued (see section 331A), 500, and

(b)in any other case, 250.

(3B)The Treasury may by regulations amend subsection (3A)(a) or (b) by substituting a different number for the number for the time being specified there.]

(4)In this section references to an employee—

(a)include a director, but

(b)do not include—

(i)an employee on maternity [F149, paternity [F150, shared parental or parental bereavement]] leave, or

(ii)a student on vocational training.]

[F151297BThe proportion of skilled employees requirementU.K.

(1)The requirement of this section is that, where the conditions in subsection (2) are met, at all times in the period of 3 years beginning with the issue of the relevant holding—

(a)if the relevant company is a single company, the FTE skilled employee number must be at least 20% of the FTE employee number, and

(b)if the relevant company is a parent company, the FTE group skilled employee number must be at least 20% of the FTE group employee number.

(2)The conditions are that—

(a)the requirements one or more of sections [F152292A,] 292AA, 294A and 297A (the maximum risk finance investments when relevant holding is issued requirement and the number of employees requirement) is or are met only by reason of the relevant company being a knowledge-intensive company at the time the relevant holding was issued, and

(b)the innovation condition in section 331A(6) was not met by the relevant company at that time.

(3)The requirement of this section is not to be regarded as failing to be met at a time when the relevant company, by virtue of section 292 (companies in administration or receivership), is not regarded as having ceased to meet the trading requirement.

(4)In this section “FTE employee number”, “FTE group employee number”, “FTE skilled employee number” and “FTE group skilled employee number” have the meaning given by section 331A(10) (meaning of “knowledge-intensive company”).]

298The qualifying subsidiaries requirementU.K.

Any subsidiary that the relevant company has must be a qualifying subsidiary of the company.

299The property managing subsidiaries requirementU.K.

(1)Any property managing subsidiary that the relevant company has must be a qualifying 90% subsidiary of the company.

(2)“Property managing subsidiary” means a subsidiary of the relevant company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(3)In subsection (2) references to property deriving its value from land include—

(a)any shareholding in a company deriving its value directly or indirectly from land,

(b)any partnership interest deriving its value directly or indirectly from land,

(c)any interest in settled property deriving its value directly or indirectly from land, and

(d)any option, consent or embargo affecting the disposition of land.

[F153299AThe no disqualifying arrangements requirementU.K.

(1)The relevant holding must not have been issued, nor any money raised by the issue employed, in consequence or anticipation of, or otherwise in connection with, disqualifying arrangements.

(2)Arrangements are “disqualifying arrangements” if—

(a)the main purpose, or one of the main purposes, of the arrangements is to secure—

(i)that a qualifying activity is or will be carried on by the relevant company or a qualifying 90% subsidiary of that company, and

(ii)that shares or securities issued by the relevant company may be comprised in any company's qualifying holdings or that one or more persons may obtain relevant tax relief in respect of such shares which raise money for the purposes of that qualifying activity,

(b)that qualifying activity is the relevant qualifying activity by reference to which the requirement in section 293(1)(b) (money raised to be employed within two years for relevant qualifying activity) is met in relation to the relevant holding, and

(c)one or both of conditions A and B are met.

(3)Condition A is that, as a (direct or indirect) result of the money raised by the issue of the relevant holding being employed as required by section 293(1)(b), an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.

(4)Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying activity would have been carried on as part of another business by a relevant person or relevant persons.

(5)For the purposes of this section it is immaterial whether the relevant company is a party to the arrangements.

(6)In this section—

• “component activities” means—

  (a)

  if the relevant qualifying activity is within section 291(2), the carrying on of a qualifying trade which constitutes that activity, and

  (b)

  if the relevant qualifying activity is within section 291(3), the preparations to carry on a qualifying trade which constitute that activity;

• “arrangements” includes any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable);

• “relevant person” means a person who is a party to the arrangements or a person connected with such a party;

• “qualifying activity” has the same meaning as in section 291;

• “relevant tax relief”, in respect of shares, means one or more of the following—

  (a)

  relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;

  (b)

  EIS relief (within the meaning of Part 5) in respect of the shares;

  (c)

  SEIS relief (within the meaning of Part 5A) in respect of the shares;

  (ca)

  [F154SI relief (within the meaning of Part 5B) in respect of the shares;]

  (d)

  relief under section 150A or 150E of TCGA 1992 (enterprise investment scheme and seed enterprise investment scheme) in respect of the shares;

  (e)

  relief under Schedule 5B to that Act in consequence of which deferral relief is attributable to the shares;

  (f)

  relief under Schedule 5BB to that Act (seed enterprise investment scheme: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).]

DefinitionsU.K.

300Meaning of “qualifying trade”U.K.

(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 consist wholly or as to a substantial part in the carrying on of excluded activities (see sections 303 to 310).

(2)The carrying on of any activities of research and development from which it is intended—

[F155(a)that a trade will be derived which will be a qualifying trade, or

(b)that a trade will benefit which is or will be a qualifying trade,]

is to be treated as the carrying on of a qualifying trade.

(3)But preparing to carry on such activities does not count as preparing to carry on a qualifying trade.

(4)References in this section to a trade are to be read without regard to the definition of “trade” in section 989.

301Meaning of “qualifying 90% subsidiary”U.K.

(1)For the purposes of this Chapter, a company (“the subsidiary”) is a qualifying 90% subsidiary of the relevant company at any time when the following conditions are met—

(a)the relevant company possesses at least 90% of the issued share capital of, and at least 90% of the voting power in, the subsidiary,

(b)the relevant company 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,

(c)the relevant company 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,

(d)no person other than the relevant company has control of the subsidiary, and

(e)no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) would cease to be met.

[F156(1A)For the purposes of this Chapter, a company (“company A”) which is a subsidiary of a company that is not the relevant company (“company B”) is a qualifying 90% subsidiary of the relevant company if—

(a)company A would be a qualifying 90% subsidiary of company B (if company B were the relevant company), and company B is a qualifying 100% subsidiary of the relevant company, or

(b)company A is a qualifying 100% subsidiary of company B, and company B is a qualifying 90% subsidiary of the relevant company.

(1B)For the purposes of subsection (1A), no account is to be taken of any control the relevant company may have of company A.

(1C)For those purposes, a company (“company X”) is a qualifying 100% subsidiary of another company (“company Y”) at any time when the conditions in subsection (1)(a) to (e) would be met if—

(a)company X were the subsidiary,

(b)company Y were the relevant company, and

(c)in subsection (1) for “at least 90%” in each place there were substituted “100%”.]

(2)Subsections (3), (4) and (5) of section 302 apply in relation to the conditions in subsection (1)—

(a)as they apply in relation to the conditions in subsection (2) of that section, but

(b)with the omission from subsection (5) of “or (as the case may be) by another subsidiary of that company”.

(3)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 [F157 Chapter 6 of Part 5 of CTA 2010].

(4)In making that determination—

(a)references in [F158section 166 of that Act to company A] are to be read as references to an equity holder, and

(b)references in that [F159section] to a 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.

302Meaning of “qualifying subsidiary”U.K.

(1)For the purposes of this Chapter, a company (“the subsidiary”) is a qualifying subsidiary of the relevant company if the following conditions are met.

(2)The conditions are that—

(a)the subsidiary is a 51% subsidiary of the relevant company,

(b)no person other than the relevant company, or another of its subsidiaries, has control of the subsidiary, and

(c)no arrangements are in existence by virtue of which either of the conditions in paragraphs (a) and (b) would cease to be met.

(3)The conditions do not cease to be met merely because the subsidiary or any other company is wound up, if the winding up—

(a)is for genuine commercial reasons, and

(b)is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(4)The conditions 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 a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(5)The conditions do not cease to be met merely because arrangements are in existence for the disposal by the relevant company or (as the case may be) by another subsidiary of that company 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 a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

[F160302AMeaning of “permanent establishment”U.K.

(1)This section applies for the purposes of this Chapter.

(2)A company has a “permanent establishment” in the United Kingdom if (and only if)—

(a)it has a fixed place of business there through which the business of the company is wholly or partly carried on, or

(b)an agent acting on behalf of the company has and habitually exercises there authority to enter into contracts on behalf of the company.

(3)For the purposes of this section “fixed place of business” includes (without prejudice to the generality of that expression)—

(a)a place of management,

(b)a branch,

(c)an office,

(d)a factory,

(e)a workshop,

(f)a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, and

(g)a building site or construction or installation project.

(4)If the condition in subsection (5) is met, a company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that—

(a)a fixed place of business is maintained there for the purpose of carrying on activities for the company, or

(b)an agent carries on activities there for and on behalf of the company.

(5)The condition is that, in relation to the business of the company as a whole, the activities carried on are only of a preparatory or auxiliary character.

(6)For this purpose “activities of a preparatory or auxiliary character” include (without prejudice to the generality of that expression)—

(a)the use of facilities for the purpose of storage, display or delivery of goods or merchandise belonging to the company,

(b)the maintenance of a stock of goods or merchandise belonging to the company for the purpose of storage, display or delivery,

(c)the maintenance of a stock of goods or merchandise belonging to the company for the purpose of processing by another person, and

(d)purchasing goods or merchandise, or collecting information, for the company.

(7)A company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that it carries on business there through an agent of independent status (including a broker or a general commission agent) acting in the ordinary course of the agent's business.

(8)A company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that it controls a company that—

(a)is resident there, or

(b)carries on business there (whether through a permanent establishment or otherwise).

(9)The Treasury may by regulations amend this section.]