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Income Tax Act 2007 (c. 3)

(The document as of February, 2008)

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(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.

279 Conditions relating to value of investments: qualifying holdings

(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.

280 Conditions relating to qualifying holdings and eligible shares

(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 70% qualifying holdings condition and the 30% 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.



Withdrawal of approval

281 Withdrawal of VCT approval of a company

(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, or

(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).

(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.

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

(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.



Supplementary

283 Time as from which VCT approval has effect

(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.

284 Power to make regulations as to procedure

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,

(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 that the conditions for its VCT approval to continue in force are no longer met,

(d) as to the accounts, records, returns and other information to be kept, and provided or otherwise made available to the Commissioners for Her Majesty's Revenue and Customs, by companies which are or have been VCTs and by persons 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.

285 Interpretation of Chapter

(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 (whether secured or not), 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.

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

(3) In this Chapter "eligible shares", in relation to a company, means ordinary shares in the company which carry--

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

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

(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 4 Qualifying holdings

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Introduction

286 Qualifying holdings: introduction

(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, and

(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.

(3) The requirements are those imposed as to--

(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),

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

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

(h) unquoted status (see section 295),

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

(j) gross assets (see section 297),

(k) qualifying subsidiaries (see section 298), and

(l) property managing subsidiaries (see section 299).

(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 requirements

287 The maximum qualifying investment requirement

(1) The requirement of this section is that the relevant holding did not, when it was issued, represent an investment in excess of the maximum qualifying investment for the relevant period.

(2) Subject to subsection (7), the 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 £1 million.

(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.

(6) Subsection (7) applies if--

(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.

(7) If this subsection applies, this section has effect in relation to the relevant company as if the sum of money for the time being specified in subsection (2) were to be divided by the number of companies (including the relevant company) which, at the time when the relevant holding was issued, were members of the partnership or, as the case may be, parties to the joint venture.

(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.

288 The no guaranteed loan requirement

(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.

289 The proportion of eligible shares requirement

(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 285(3)).

290 The trading requirement

(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).

291 The carrying on of a qualifying activity requirement

(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) A qualifying trade carried on wholly or mainly in the United Kingdom 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 wholly or mainly in the United Kingdom 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 wholly or mainly in the United Kingdom.

(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.

292 Ceasing to meet requirements because of administration or receivership

(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.

293 The use of the money raised requirement

(1) The requirement of this section at any time on or after the issue of the relevant holding is that--

(a) if that time is not more than 12 months after the trading time, any of conditions A, B and C is met,

(b) if that time is more than 12 months but not more than 24 months after the trading time, either of conditions B and C is met, and

(c) in any other case, condition C is met.

(2) Condition A is that at least 80% of the money raised by the issue of the relevant holding has been or is intended to be employed wholly for the purposes of a relevant qualifying activity.

(3) Condition B is that at least 80% of the money raised by the issue of the relevant holding has been employed wholly for the purposes of the activity.

(4) Condition C is that all of the money raised by the issue of the relevant holding has been employed wholly for the purposes of the activity.

(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.

(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.

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