Income Tax Act 2007

Giving of approval

274 Requirements for the giving of approval

(1) Subject to section 275, the Commissioners for Her Majesty’s Revenue and Customs must not approve a company for the purposes of this Part unless it is shown to their satisfaction that the conditions mentioned in subsection (2)—

(a) are met in relation to the most recent complete accounting period of the company, and

(b) will be met in relation to the accounting period of the company which is current when the application for approval is made.

(2) The conditions applied by subsection (1) (which are also applied by section 275(1) and other provisions of this Chapter) are set out in column 2 of the following table together with, in column 1 of the table, the descriptions by which they are referred to.

In each of those conditions “the relevant period” means the accounting period that is relevant for the purposes of the particular provision by which the condition is applied.

Description	Condition
The listing condition	The shares making up the company’s ordinary share capital (or, if there are such shares of more than one class, those of each class) have been or will be listed throughout the relevant period in the Official List of the Stock Exchange
The nature of income condition	The company’s income in the relevant period has been or will be derived wholly or mainly from shares or securities
The income retention condition	The company has not retained or will not retain an amount which is greater than 15% of the income it derived or will derive in the relevant period from shares or securities
The 15% holding limit condition	No holding in any company, other than a VCT or a company that would qualify as a VCT but for the listing condition, has represented or will represent at any time during the relevant period more than 15% by value of the company’s investments
The 70% qualifying holdings condition	At least 70% by value of the company’s investments has been or will be represented throughout the relevant period by shares or securities included in qualifying holdings of the company
The 30% eligible shares condition	At least 30% by value of the company’s qualifying holdings has been or will be represented throughout the relevant period by holdings of eligible shares

(3) The conditions mentioned in subsection (2) are supplemented as follows—

(a) the nature of income condition and the income retention condition by section 276,

(b) the 15% holding limit condition by section 277,

(c) the 15% holding limit condition, the 70% qualifying holdings condition and the 30% eligible shares condition by sections 278 and 279, and

(d) the 70% qualifying holdings condition and the 30% eligible shares condition by section 280.

275 Alternative requirements for the giving of approval

(1) This section applies if one or more of the conditions mentioned in section 274(2) are not met with respect to a company in relation to its most recent complete accounting period.

(2) The Commissioners for Her Majesty’s Revenue and Customs may still approve the company for the purposes of this Part if they are satisfied that the condition or conditions in question—

(a) will be met in relation to the period mentioned in subsection (3), and

(b) will continue to be met in relation to accounting periods following that period.

(3) The period is—

(a) in relation to the listing condition, the nature of income condition, the income retention condition and the 15% holding limit condition, the accounting period of the company which is current when the application for approval is made, or its next accounting period,

(b) in relation to the 70% qualifying holdings condition and the 30% eligible shares condition, an accounting period of the company beginning no more than 3 years after the time when the approval is given or, if earlier, when the approval takes effect.

276 Conditions relating to income

(1) Subsections (2) and (3) apply in determining for the purposes of the nature of income condition and the income retention condition—

(a) the amount of a company’s income, or

(b) the amount of income which a company derives from shares or securities.

(2) The amounts to be brought into account under Chapter 2 of Part 4 of FA 1996 in respect of the company’s loan relationships are to be determined without reference to any debtor relationship of the company.

(3) The excess of any relevant credits over any relevant debits is to be treated as income which the company derives from shares or securities.

In this subsection “relevant credits” and “relevant debits” are credits and debits brought into account by virtue of paragraph 14(3) of Schedule 26 to FA 2002 as if they were non-trading credits or non-trading debits.

(4) The income retention condition does not apply as regards an accounting period if the amount which the company would be required to distribute in order to meet that condition is less than—

(a) £10,000, or

(b) if the period is shorter than 12 months, a proportionately reduced amount.

(5) The income retention condition does not apply as regards an accounting period if—

(a) the company is required to retain income in respect of the period by virtue of a restriction imposed by law, and

(b) the amount of income which the company is so required to retain in respect of the period exceeds an amount equal to 15% of the income the company derives from shares or securities.

(6) Subsection (5) does not apply if—

(a) the amount of income the company retains in respect of the accounting period exceeds the amount of income it is required, by virtue of a restriction imposed by law, to retain in respect of the period, and

(b) the sum of the excess and any amount of income the company distributes in respect of the period is at least—

(i) £10,000, or

(ii) if the period is shorter than 12 months, a proportionately reduced amount.

277 The 15% holding limit condition

(1) If the 15% holding limit condition was met when a holding in a company was acquired or last added to, the condition is treated as continuing to be met until an addition is next made to it.

(2) “Holding in a company” means the shares or securities (whether of one class or more than one class) held in any one company.

(3) An addition is made to a holding in a company whenever the company whose holding it is—

(a) acquires further shares or securities in the company, but

(b) does not do so by being allotted shares or securities without becoming liable to give any consideration.

(4) For the purposes of this section—

(a) holdings in companies which—

(i) are members of a group, whether or not including the company whose holdings they are (“company A”), and

(ii) are not excluded from the 15% holding limit condition,

are to be treated as holdings in a single company, and

(b) if company A is a member of a group, money owed to it by another member of the group is to be treated—

(i) as a security of the latter held by company A, and

(ii) accordingly as, or as part of, the holding of company A in the company owing the money.

For the purposes of this subsection “group” means a company and all companies which are its 51% subsidiaries.

(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 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.

278 Conditions relating to value of investments: general

(1) This section and section 279 apply for the purposes of the 15% holding limit condition, the 70% qualifying holdings condition and the 30% eligible shares condition (“the relevant conditions”).

(2) The value of a holding of investments of any description is to be taken, unless subsection (3) applies, to be its value when acquired.

(3) If, in the case of a holding of investments of any description—

(a) the holding is added to by a further holding of investments of that description, or

(b) any payment is made in discharge, in whole or in part, of any obligation attached to the holding that (by discharging the whole or any part of the obligation) increases the value of the holding,

the value of the holding is to be taken to be its value immediately after the most recent addition or payment.

(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.