Chapter 4
27.New section 257D is an overview of chapter 4 which contains the conditions that apply to the company.
28.New section 257DA is the “trading requirement”, requiring that the company’s main purpose throughout period B must be to carry on a new qualifying trade or trades. Alternatively if it is the parent company of a group, the business of the group must not consist wholly or as to a substantial part in carrying on non-qualifying activities.
29.Section 257DA(3) provides that if a company intends in the future to have qualifying subsidiaries which will carry on new qualifying trades, then it is treated as a parent company for the purposes of the trading requirement.
30.Sections 257DA(4) and (5) describe how “the business of the group” is to be defined: the activities of the group are to be looked at together as though carried on as one business.
31.Section 257DA(6) provides that certain intra-group transactions are to be ignored in considering what the business of the group involves.
32.New section 257DB provides that the purpose of existence test is not breached due to anything that happens because of the company or a subsidiary being in administration or receivership, or being dissolved or wound up, provided that this is done for genuine commercial reasons and not as part of a tax avoidance arrangement.
33.New section 257DC provides that throughout Period B, the new qualifying trade and any preparation work or research and development leading to it, must be carried on by the issuing company itself or by a qualifying 90 per cent subsidiary.
34.New sections 257DC(4) to (6) provide that this requirement is not breached due to the new qualifying trade being taken over by an unconnected person because of the company or a qualifying 90 per cent subsidiary being in administration or receivership, or being dissolved or wound up, provided that this is done for genuine commercial reasons and not as part of a tax avoidance arrangement.
35.New section 257DD requires the company to have a permanent establishment in the UK throughout period B.
36.New section 257DE requires the company not to be “in difficulty” at the beginning of period B. This means it must not be a “firm in difficulty” under European Commission guidelines.
37.New section 257DF requires the company to be “unquoted” at the beginning of period B and provides that there must be no arrangements at that time for it to cease to be unquoted.
38.A company is “unquoted” if its securities are not marketed to the general public – defined in new section 257DF(3) as being listed on a recognised stock exchange, listed on a designated exchange outside the UK, or dealt with, outside the UK, by any such means as may be designated.
39.New sections 257DF(4) and (5) provide for the Commissioners of HMRC to make the designations referred to in new section 257DF(3).
40.New section 257DG contains the control and independence requirement:
The control part of the requirement is that the company may not, in period A, control (whether on its own or together with any person connected with it) any other company which is not a qualifying subsidiary. There must be no arrangements in existence by virtue of which the company could fail to meet this requirement.
The independence part of the requirement is that the company may not, in period A, be under the control of any other company – either alone or with any connected person – and nor must there be any arrangements for this to happen (whether in period A or outside it). It may not, therefore, be a subsidiary in period A.
41.New section 257DH requires that neither the company nor any qualifying 90 per cent subsidiary may be a member of either a partnership or a limited liability partnership (or any foreign equivalent) at any time in period A.
42.New section 257DI is the gross assets requirement. Immediately before the shares are issued, the total value of the company’s assets (or of the group assets where the company is a parent company), must not exceed £200,000.
43.New section 257DJ is the number of employees requirement. At the time the shares are issued, the company together with any subsidiaries must have fewer than 25 full time equivalent employees.
44.New section 257DK provides that neither the company nor any qualifying subsidiary may have previously raised money under either the EIS or VCT schemes.
45.New section 257DL ensures that any investment under SEIS is kept within the limits which allow SEIS to be regarded under EU regulations as providing de minimis and therefore non-notifiable State aid.
46.New section 257DL(1) provides that the amount of all SEIS investment, together with any other de minimis State aid received by the company in the 3 years to the date of the latest SEIS investment, must not exceed £150,000.
47.New sections 257DL(4) to 6) apply so that where a share issue takes above £150,000 the total aid received by the company in the 3 years to the date of investment, the investment in the share issue is apportioned so that relief is given only on the proportion of the investment which doesn’t exceed the £150,000 limit.
