Finance Act 2000 (c. 17)

SCHEDULES

Section 64.

SCHEDULE 17 U.K. Enterprise investment scheme: amendments

Part I U.K. Reduction of applicable periods

Meaning of “eligible shares" U.K.

1 U.K. In section 289 of the Taxes Act 1988 (eligibility for relief), in subsection (7) (definition of “eligible shares”) for the words “the period of five years beginning with the date on which they are issued," substitute “the period—

(a) beginning with the issue of the shares, and

(b) ending immediately before the termination date relating to those shares,”.

Conditions relating to individuals U.K.

2 In section 291 of the Taxes Act 1988 (individuals qualifying for relief)—

(a) in subsection (1)(b) for “seven year" substitute “ designated ”, and

(b) for subsection (6) (definition of “the seven year period”) substitute—

“(6) In this Chapter “the designated period”, in relation to any eligible shares issued by a company, means the period—

(a) beginning two years before the issue of the shares, and

(b) ending immediately before the termination date relating to those shares.”.

Conditions relating to further investment by connected person U.K.

3 (1) Section 291A of the Taxes Act 1988 (connected persons: directors) is amended as follows.

(2) In subsection (1)(a) for “seven year" substitute “ designated ”.

(3) In subsection (5)(c) (period during which connected person can make a further investment attracting relief)—

(a) for “of five years" substitute “ (i) ”, and

(b) after “paragraph," insert “and

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

Value received from company U.K.

4 In section 300(1) of the Taxes Act 1988 (period during which receipt of value by investor may trigger charge) for “seven year" substitute “ designated ”.

Value received by persons other than claimants U.K.

5 (1) Section 303 of the Taxes Act 1988 (value received by persons other than claimants) is amended as follows.

(2) In subsection (1) for “seven year" substitute “ designated ”.

(3) In subsection (2) for “the seven year periods" substitute “ the applicable periods ”.

(4) After that subsection insert—

“(2A) For the purposes of subsection (2) above “the applicable period” for an issue of eligible shares is—

(a) if the shares were issued before 6th April 2000, the period beginning two years before the issue of the shares and ending immediately before the fifth anniversary of the issue date,

(b) in any other case, the designated period for the issue.”.

(5) In subsection (3) for “seven year" substitute “ designated ”.

Meaning of “termination date" and “relevant period" U.K.

6 (1) Section 312 of the Taxes Act 1988 (interpretation of Chapter III) is amended as follows.

(2) In subsection (1) after the definition of “debenture" insert—

““the designated period” has the meaning given by section 291(6);”.

(3) In that subsection, for “and" at the end of the definition of “51 per cent subsidiary" substitute—

““termination date” in relation to any eligible shares issued by a company, means the third anniversary of the issue date or if—

(a) the shares were issued wholly or mainly in order to raise money for the purpose of a qualifying business activity falling within section 289(2)(a) (company meeting trading activities requirement by reason of the company or a subsidiary carrying on or preparing to carry on a qualifying trade), and

(b) the company or subsidiary concerned had not begun to carry on the trade in question on the issue date,

the third anniversary of the date on which it begins to carry on that trade; and”.

(4) For subsection (1A) (definition of “relevant period”) substitute—

“(1A) In any provision of this Chapter “relevant period”, in relation to any eligible shares issued by a company, means whichever of the following periods is applied for the purposes of that provision—

(a) the period beginning either—

(i) with the incorporation of the company, or

(ii) if the company was incorporated more than two years before the date on which the shares were issued, two years before that date,

and ending immediately before the termination date relating to the shares, and

(b) the period beginning with the issue of the shares and ending immediately before the termination date relating to them.”.

Postponement of chargeable gains on reinvestment U.K.

7 (1) Schedule 5B to the M1 Taxation of Chargeable Gains Act 1992 (enterprise investment scheme: reinvestment) is amended as follows.

(2) In paragraph 19(1), after the definition of “associate" insert—

““the designated period”, in the case of any shares, means the period found by applying section 291(6) of that Act by reference to the company that issued the shares and by reference to the shares;”.

(3) In the following provisions for “five year" substitute “ designated ”

paragraph 3(1)(c) and (d) (chargeable events);

paragraph 16(1)(a) (information).

(4) In the following provisions for “seven year" substitute “ designated ”

paragraph 13(1) (period during which receipt of value by investor may trigger charge);

paragraph 14(1) (period during which value received by other persons may trigger charge).

Marginal Citations

M1 1992 c. 12.

Commencement U.K.

8 U.K. The amendments in this Part of this Schedule have effect in relation to shares issued on or after 6th April 2000.

Part II U.K. Qualifying companies

Company in administration or receivership U.K.

9 (1) In section 293 of the Taxes Act 1988 (qualifying companies), before subsection (5) insert— U.K.

“(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.”.

(2) In section 289(1D) of the Taxes Act 1988 for “Subsection (6)" substitute “ Subsections (4A) and (6) ” and for “it applies" substitute “ they apply ”.

(3) In section 289A of the Taxes Act 1988, after subsection (8) insert—

“(8A) Where the company or subsidiary concerned, by reason of anything done as a consequence of its being in administration or receivership, carries on a trade for a period shorter than four months, subsection (7)(a) above shall have effect as if it referred to that shorter period.

This 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.”.

(4) In section 312 of the Taxes Act 1988 (interpretation), after subsection (2) insert—

“(2A) References in this Chapter to a company being in administration or receivership shall be construed as follows—

(a) references to a company being “in administration” are to there being in force in relation to it—

(i) an administration order under Part II of the M2 Insolvency Act 1986 or Part III of the M3 Insolvency (Northern Ireland) Order 1989, or

(ii) any corresponding order under the law of a country or territory outside the United Kingdom;

(b) references to a company being “in receivership” are to there being in force in relation to it—

(i) an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter I or II of Part III of the M4 Insolvency Act 1986 or Part IV of the M5 Insolvency (Northern Ireland) Order 1989, or

(ii) any corresponding order under the law of a country or territory outside the United Kingdom.”.

Marginal Citations

M2 1986 c. 45.

M3 S.I. 1989/2405 (N.I. 19).

M4 1986 c. 45.

M5 S.I. 1989/2405 (N.I. 19).

Company in liquidation U.K.

10 U.K. In section 293(6) of the Taxes Act 1988 (circumstances in which liquidation does not affect company’s qualifying status), paragraph (b) (requirement as to period within which company’s net assets are distributed) shall cease to have effect.

Independence of qualifying company U.K.

11 U.K. In section 293 of the Taxes Act 1988 (qualifying companies), for subsection (8) substitute—

“(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.”.

Commencement U.K.

12 (1) The amendments in this Part of this Schedule have effect— U.K.

(a) in relation to shares issued on or after 21st March 2000, and

(b) in respect of the application of section 293 of the Taxes Act 1988 on or after that date in relation to shares—

(i) that were issued after 31st December 1993 but before 21st March 2000, and

(ii) to which income tax relief or deferral relief was attributable immediately before 21st March 2000.

(2) In sub-paragraph (1)—

• “income tax relief” means relief under Chapter III of Part VII of the Taxes Act 1988 (enterprise investment scheme); and

• “deferral relief” has the same meaning as in Schedule 5B to the M6 Taxation of Chargeable Gains Act 1992.

Marginal Citations

M6 1992 c. 12.

Part III U.K. Other amendments

Qualifying trades U.K.

13 (1) In section 297 of the Taxes Act 1988 for subsections (4) and (5) (trades consisting of receiving royalties and licence fees) substitute— U.K.

“(4) A trade shall not be treated as failing to comply with this section by reason only that at some time in the relevant period it consists to a substantial extent in the receiving of royalties or licence fees if the royalties and licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.

(5) For this purpose an intangible asset is a “relevant intangible asset” if the whole or greater part (in terms of value) of it has been created—

(a) by the company carrying on the trade, or

(b) by a company which at all times during which it created the intangible asset was—

(i) the parent company of the company carrying on the trade, or

(ii) a qualifying subsidiary of that parent company.

(5A) For the purposes of subsection (5) above—

(a) in the case of an intangible asset that is intellectual property, references to the creation of the asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others);

(b) “parent company” means a company that—

(i) has one or more 51% subsidiaries, but

(ii) is not itself a 51% subsidiary of another company; and

(c) a subsidiary of the parent company referred to in subsection (5)(b) above is a “qualifying subsidiary" of that company if it is a subsidiary of a kind which the parent company may hold by virtue of section 308.

For the purposes of paragraph (c) above, section 308 shall have effect as if the references in that section to the qualifying company were to that parent company.

(5B) For the purposes of subsections (4) to (5A) above “intangible asset” means any asset which falls to be treated as an intangible asset in accordance with normal accounting practice.

For this purpose “normal accounting practice” means normal accounting practice in relation to the accounts of companies incorporated in any part of the United Kingdom.

(5C) In subsection (5A)(a) above “intellectual property” means—

(a) any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right; and

(b) any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a) above.”.

(2) This paragraph has effect in relation to shares issued on or after 6th April 2000.

Meaning of “arrangements" U.K.

14 (1) In section 312 of the Taxes Act 1988 (interpretation), in subsection (1)— U.K.

(a) after “In this Chapter—" insert—

““arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable;”;

and

(b) in the definition of “control", after “291B(4)" insert “ , 293(8)(b) ”.

(2) This paragraph has effect—

(a) in relation to shares issued on or after 21st March 2000, and

(b) in respect of the application of section 312 of the Taxes Act 1988 on or after that date in relation to shares—

(i) that were issued after 31st December 1993 but before 21st March 2000, and

(ii) to which income tax relief or deferral relief was attributable immediately before 21st March 2000.

(3) In sub-paragraph (2)—

• “income tax relief” means relief under Chapter III of Part VII of the Taxes Act 1988 (enterprise investment scheme); and

• “deferral relief” has the same meaning as in Schedule 5B to the M7 Taxation of Chargeable Gains Act 1992.

Marginal Citations

M7 1992 c. 12.

Meaning of “research and development" U.K.

15 (1) In section 312 of the Taxes Act 1988 (interpretation), in subsection (1), for the definition of “research and development" substitute— U.K.

““research and development” has the meaning given by section 837A;”.

(2) This paragraph has effect in relation to shares issued on or after 6th April 2000.

(3) Nothing in this paragraph affects the operation of any of the following provisions in relation to shares issued before 6th April 2000—

(a) Chapter III of Part VII of the Taxes Act 1988 (enterprise investment scheme);

(b) sections 573 and 574 of that Act (relief for losses on shares in trading companies);

(c) Schedule 5B to the M8 Taxation of Chargeable Gains Act 1992.

Marginal Citations

M8 1992 c. 12.