Income and Corporation Taxes Act 1988

[F1 291A Connected persons: directors. U.K.

(1) An individual is not connected with the issuing company by reason only that he, or an associate of his, is a director of that or another company unless he or his associate (or a partnership of which he or his associate is a member)—

(a) receives a payment from the issuing company or a related person during [F2 the period mentioned in section 291(1)(b)], or

(b) is entitled to receive such a payment in respect of that period or any part of it.

(2) In this section—

(a) “related person”, in relation to the issuing company, means—

(i) any company of which the individual or his associate is a director and which is a subsidiary or a partner of the issuing company or of a subsidiary, and

(ii) any person connected with the issuing company or with a company falling within sub-paragraph (i) above, and

(b) any reference to a payment to an individual includes a payment made to him indirectly or to his order or for his benefit.

(3) For the purposes of subsection (1) above there shall be disregarded—

(a) any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by him or his associate in the performance of his duties as a director,

(b) any interest which represents no more than a reasonable commercial return on money lent to the issuing company or a related person,

(c) any dividend or other distribution which does not exceed a normal return on the investment,

(d) any payment for the supply of goods which does not exceed their market value,

(e) any payment of rent for any property occupied by the issuing company or a related person which does not exceed a reasonable and commercial rent for the property, and

(f) any reasonable and necessary remuneration which —

(i) is paid for services rendered to the issuing company or related person in the course of a trade or profession (not being secretarial or managerial services or services of a kind provided by the person to whom they are rendered), and

(ii) is taken into account in computing the [F3 profits] of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those [F3 profits] are assessed under that Schedule.

(4) An individual (“the subscriber”) who subscribes for eligible shares (“the relevant shares”) may qualify for the relief notwithstanding his connection with the company at any time in the relevant period if—

(a) he is so connected by reason only of his, or his associate’s, being a director of, or of a company which is a partner of, the issuing company or a subsidiary in receipt of, or entitled to receive, remuneration as such, and

(b) the following conditions are satisfied;

and in this subsection and subsection (5) below “remuneration” includes any benefit or facility.

(5) The conditions are that—

(a) in relation to the director (whether he is the subscriber or his associate), his remuneration, or the remuneration to which he is entitled, (leaving out of account any reasonable and necessary remuneration falling within subsection (3)(f) above) consists only of remuneration which is reasonable remuneration for services rendered to the company of which he is a director in his capacity as such,

(b) the subscriber was issued with eligible shares (whether the relevant shares or a previous issue of eligible shares) at a time when he had never been—

(i) connected with the issuing company, or

[F4 (ii) involved in carrying on (whether on his own account or as a partner, director or employee) the whole or any part of the trade carried on by the issuing company or a subsidiary, and]

(c) where the issue of the relevant shares did not satisfy paragraph (b) above, they were not issued after the end of the period—

[F5 (i)] beginning with the date of the latest issue of eligible shares which satisfied that paragraph, [F6 and

(ii) ending immediately before the termination date relating to those eligible shares,]

and in paragraph (b) above “trade” includes any business, profession or vocation F7 . . . .

(6) In this section “subsidiary”, in relation to the issuing company, means a 51 per cent. subsidiary of the issuing company.]

Textual Amendments

F1 Ss. 291-291B substituted for s. 291 (with effect in accordance with s. 137(2) of the amending Act) by Finance Act 1994 (c. 9), s. 137(1), Sch. 15 para. 5

F2 Words in s. 291A(1)(a) substituted (with effect in accordance with Sch. 15 para. 40(2) of the amending Act) by Finance Act 2001 (c. 9), Sch. 15 para. 11

F3 Words in s. 291A(3)(f)(ii) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 1

F4 S. 291A(5)(b)(ii) substituted (with effect in accordance with s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 7(2)(a)

F5 Word in s. 291A(5)(c) substituted (with effect in accordance with Sch. 17 para. 8 of the amending Act) by Finance Act 2000 (c. 17), Sch. 17 para. 3(3)(a)

F6 S. 291A(5)(c)(ii) and preceding word inserted (with effect in accordance with Sch. 17 para. 8 of the amending Act) by Finance Act 2000 (c. 17), Sch. 17 para. 3(3)(b)

F7 Words in s. 291A(5) repealed (with effect in accordance with s. 74(3), Sch. 27 Pt. 3(14) Note 4 of the repealing Act) by Finance Act 1998 (c. 36), Sch. 13 para. 7(2)(b), Sch. 27 Pt. 3(14)