Income and Corporation Taxes Act 1988

293 Qualifying companies. U.K.

[F1 (1) Subject to section 294, a company is a qualifying company (whether it is resident in the United Kingdom or elsewhere) if it complies with the requirements of this section.

[F2 (1A) At the beginning of the relevant period, the company must be—

(a) an unquoted company, and

(b) a company to which subsection (1B) below does not apply.

(1B) This subsection applies to a company—

(a) if arrangements are in existence for it to cease to be an unquoted company; or

(b) if—

(i) arrangements are in existence for it to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, in relation to which section 304A (certain exchanges resulting in acquisition of share capital by new company) applies, and

(ii) arrangements have been made with a view to the new company ceasing to be an unquoted company.]

(2) The company must, throughout the relevant period, F3 . . . be—

(a) a company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities, or

[F4 (aa) the parent company of a trading group.]

(3) In this section “qualifying subsidiary”, in relation to a company, means a subsidiary of a kind which that company may hold by virtue of section 308.]

[F5 (3A) For the purposes of this section a company is the parent company of a trading group if—

(a) it has one or more subsidiaries;

(b) each of its subsidiaries is a qualifying subsidiary of the company; and

(c) the requirements of subsection (3B) below are fulfilled by what would be the business of the company and its subsidiaries if all the activities, taken together, of the company and its subsidiaries were regarded as one business.

(3B) A business fulfils the requirements of this subsection if neither the business nor a substantial part of it consists in, or in either of, the following, that is to say—

(a) activities falling within section 297(2)(a) to (g) but not within subsection (3C) below; and

(b) activities [F6 (other than research and development F7 . . .)] carried on otherwise than in the course of a trade.

(3C) The activities falling within this subsection are—

(a) the receiving of royalties or licence fees in circumstances where [F8 the requirement mentioned in section 297(4) is] satisfied in relation to the company receiving them;

(b) the letting of ships, other than oil rigs or pleasure craft, on charter in circumstances where the requirements mentioned in paragraphs (a) to (d) of section 297(6) are satisfied in relation to the company so letting them.

(3D) Activities of a company or of any of its subsidiaries shall be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in—

(a) the holding of shares in or securities of, or the making of loans to, one or more of the company’s subsidiaries; or

(b) the holding and managing of property used by the company or any of its subsidiaries for the purposes of—

(i) research and development from which it is intended that a qualifying trade to be carried on by the company or any of its subsidiaries will be derived; or

(ii) one or more qualifying trades so carried on.

(3E) Activities of a subsidiary of a company shall also be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in—

(a) the making of loans to the company; or

(b) in the case of a mainly trading subsidiary, activities carried on otherwise than in pursuance of its main purpose.

(3F) For the purposes of subsection (3E) above—

(a) “mainly trading subsidiary” means a subsidiary which, apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, exists wholly for the purpose of carrying on one or more qualifying trades; and

(b) that purpose shall be taken to be its main purpose.]

F9 (4) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F11 (4A) A company which is in administration or receivership shall not be regarded as ceasing to comply with subsection (2) above by reason of anything done as a consequence of its being in administration or receivership.

This subsection has effect subject to subsection (4B) and subsection (5) below.

(4B) Subsection (4A) applies only if—

(a) the making of the order in question, and

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

is for bona fide 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) M1 Without prejudice to the generality of subsection (2) above, but subject to subsection (6) below, a company ceases to comply with that subsection if before the end of the relevant period a resolution is passed, or an order is made, for the winding up of the company (or, in the case of a winding up otherwise than under the M2 Insolvency Act 1986 or the M3 Companies (Northern Ireland) Order 1986, any other act is done for the like purpose) or the company is dissolved without winding up.

(6) A company shall not be regarded as ceasing to comply with subsection (2) above if it does so by reason of being wound up or dissolved without winding up and—

(a) F12 . . . the winding up or dissolution is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax; F13 . . .

(b) F13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F14 (6A) The value of the relevant assets—

(a) must not exceed £15 million immediately before the issue of the eligible shares; and

(b) must not exceed £16 million immediately afterwards.

(6B) Subject to subsection (6C) below, the reference in subsection (6A) above to the value of the relevant assets is a reference—

(a) in relation to a time when the company did not have any qualifying subsidiaries, to the value of the gross assets of the company at that time; and

(b) in relation to any other time, to the aggregate value at that time of the gross assets of all the companies in the company’s group.

(6C) For the purposes of subsection (6B) above assets of any member of the company’s group that consist in rights against, or in shares in or securities of, another member of the group shall be disregarded.

(6D) In subsections (6B) and (6C) above references, in relation to any time, to the company’s group are references to the company and its qualifying subsidiaries at that time.]

(7) F15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F16 [F17 (8) Subject to section 304A, the company must not at any time in the relevant period—

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

(b) be—

(i) a 51% subsidiary of another company, or

(ii) under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company,

and no arrangements must be in existence at any time in that period by virtue of which the company could fall within paragraph (a) or (b) above (whether during that period or otherwise).

(8AA) In subsection (8)(b) above “control” has the meaning given by section 840.]

(8A) Section 312(1A)(b) applies to determine the relevant period for the purposes of this section and sections 294, 295 and 296.]

[F18 (8B) In arriving at the relevant period for the purposes of sections 294 to 296 any time falling on or after 29th November 1994 shall be ignored; and subsection (8A) above shall have effect subject to the preceding provisions of this subsection.]

F19 (9) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F19 (10) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F19 (11) F10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 S. 293(1)-(3) substituted (with effect as mentioned in s. 137(1)(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 15 para. 4(7)(a)

F2 S. 293(1A)(1B) inserted (with effect in accordance with Sch. 15 para. 40(2) of the amending Act) by Finance Act 2001 (c. 9), Sch. 15 para. 12(1)

F3 Words in s. 293(2) repealed (with effect in accordance with Sch. 15 para. 40(2) of the repealing Act) by Finance Act 2001 (c. 9), Sch. 15 para. 12(2), Sch. 33 Pt. 2(3), Note 6

F4 S. 293(2)(aa) substituted for s. 293(2)(b) (with effect as mentioned in Sch. 8 para. 1 of the amending Act) by Finance Act 1997 (c. 16), Sch. 8 para. 4(1)

F5 S. 293(3A)-(3F) inserted (with effect as mentioned in Sch. 8 para. 1 of the amending Act) by Finance Act 1997 (c. 16), Sch. 8 para. 4(2)

F6 Words in s. 293(3)(b) inserted (with effect as mentioned in s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 9(1)

F7 Words in s. 293(3B)(b) repealed (with effect in accordance with Sch. 15 para. 40(2) of the repealing Act) by Finance Act 2001 (c. 9), Sch. 15 para. 4, Sch. 33 Pt. 2(3), Note 6

F8 Words in s. 293(3C) subsituted for specified purposes (retrospectively) by Finance Act 2001 (c. 9), Sch. 15 para. 14

F9 S.293(4)omitted by 1988(F) Sch.4 para.6(2)where s.50 (changes applicable in respect of shares issued on or after 29July 1988and before the end of 1993in respect of private rented housing)applies.

F10 S. 293(4)(9)-(11) repealed (with effect as mentioned in s. 137(1)(2), Sch. 26 Pt. 5(17) Note of the repealing Act) by Finance Act 1994 (c. 9), Sch. 15 para. 7(b)(e), Sch. 26 Pt. 5(17)

F11 S. 293(4A)(4B) inserted (with effect in accordance with Sch. 17 para. 12 of the amending Act) by Finance Act 2000 (c. 17), Sch. 17 para. 9(1)

F12 Words in s. 293(6)(a) repealed (with effect as mentioned in Sch. 13 para. 9(6), Sch. 27 Pt. 3(14) Note 1 of the repealing Act) by Finance Act 1998 (c. 36), Sch. 13 para. 9(2), Sch. 27 Pt. 3(14)

F13 S. 293(6)(b) and preceding word repealed (with effect in accordance with Sch. 17 para. 12 of the repealing Act) by Finance Act 2000 (c. 17), Sch. 17 para. 10, Sch. 40 Pt. 2(5), Note 1

F14 S. 293(6A)-(6D) inserted (with effect as mentioned in s. 74(3) of the amending Act) by Finance Act 1998 (c. 36), Sch. 13 para. 9(3)

F15 S. 293(7) repealed (with effect as mentioned in s. 74(3), Sch. 27 Pt. 3(14) Note 4 of the repealing Act) by Finance Act 1998 (c. 36), Sch. 13 para. 9(4), Sch. 27 Pt. 3(14)

F16 S. 293(8)(8A) substituted for s. 293(8) (with effect as mentioned in s. 137(1)(2) of the amending Act) by Finance Act 1994 (c. 9), Sch. 15 para. 4(7)(d)

F17 S. 293(8)(8AA) substituted for s. 293(8) (with effect in accordance with Sch. 17 para. 12 of the amending Act) by Finance Act 2000 (c. 17), Sch. 17 para. 11

F18 S. 292(8B) inserted (1.5.1995) by Finance Act 1995 (c. 4), s. 66(3)

F19 Subss.(9)-(11)omitted by 1988(F) Sch.4 para.6(2)where s.50 (changes applicable in respect of shares issued on or after 29July 1988and before the end of 1993in respect of private rented housing)applies.

Modifications etc. (not altering text)

C1 S. 293 applied (with effect in accordance with Sch. 13 para. 4(4) of the 1995 amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), Sch. 5B para. 3(2)(c) (as inserted by Finance Act 1995 (c. 4), Sch. 13 para. 4(3))

C2 See Insolvency (Northern Ireland) Order 1989 art.381(2)and Sch.9 para.59 (S.I.1989 No.2405—not reproduced)for change from a day to be appointed.

C3 S. 293(8) excluded (with effect as mentioned in s. 74(3) of the 1998 amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), Sch. 5B para. 8(7) (as inserted by Finance Act 1998 (c. 36), Sch. 13 para. 34)

Marginal Citations

M1 Source-1983 Sch.5(4)-(7)

M2 1986 c. 45.

M3 S.I. 1986/1032 (N.I. 6).