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SCHEDULES

Section 8

SCHEDULE 1E+W+S+N.I.High income child benefit charge

The high income child benefit chargeE+W+S+N.I.

1In Part 10 of ITEPA 2003 (social security benefits), after Chapter 7 insert—

CHAPTER 8E+W+S+N.I.High income child benefit charge

681BHigh income child benefit charge

(1)A person (“P”) is liable to a charge to income tax for a tax year if—

(a)P's adjusted net income for the year exceeds £50,000, and

(b)one or both of conditions A and B are met.

(2)The charge is to be known as a “high income child benefit charge”.

(3)Condition A is that—

(a)P is entitled to an amount in respect of child benefit for a week in the tax year, and

(b)there is no other person who is a partner of P throughout the week and has an adjusted net income for the year which exceeds that of P.

(4)Condition B is that—

(a)a person (“Q”) other than P is entitled to an amount in respect of child benefit for a week in the tax year,

(b)Q is a partner of P throughout the week, and

(c)P has an adjusted net income for the year which exceeds that of Q.

681CThe amount of the charge

(1)The amount of the high income child benefit charge to which a person (“P”) is liable for a tax year is the appropriate percentage of the total of—

(a)any amounts in relation to which condition A is met, and

(b)any amounts in relation to which condition B is met.

For conditions A and B, see section 681B.

(2)“The appropriate percentage” is—

(a)100%, or

(b)if less, the percentage determined by the formula—

Where—

ANI is P's adjusted net income for the tax year;

L is £50,000;

X is £100.

(3)If—

(a)the total of the amounts mentioned in paragraphs (a) and (b) of subsection (1), or the amount of the charge determined under that subsection, is not a whole number of pounds, or

(b)the percentage determined under subsection (2)(b) is not a whole number,

it is to be rounded down to the nearest whole number.

681DExtension of charge in cases where child not living with claimant

(1)This section applies where—

(a)a person (“R”) is entitled to an amount in respect of child benefit for a child for a week in a tax year by virtue of section 143(1)(b) of SSCBA 1992 or section 139(1)(b) of SSCB(NI)A 1992 (persons contributing to the cost of providing for a child),

(b)neither R, nor any person who is a partner of R throughout that week, is liable for a charge to income tax in respect of that amount under section 681B, and

(c)there is another person (“S”) who, for the purposes of section 143(1)(a) of SSCBA 1992 or section 139(1)(a) of SSCB(NI)A 1992 (persons with whom child is living), is a person who has the child living with him or her in that week.

(2)Section 681B applies as if S were entitled to the amount of child benefit mentioned in subsection (1)(a).

(3)Where there is more than one person to whom subsection (1)(c) applies in relation to an amount of child benefit for a week, subsection (2) applies only to the one with the highest adjusted net income for the tax year.

(4)For the purposes of subsection (1)(a), an amount of child benefit to which R is entitled for a week is to be ignored if—

(a)the period (which includes that week) for which R is entitled to child benefit by virtue of section 143(1)(b) of SSCBA 1992 or section 139(1)(b) of SSCB(NI)A 1992 in respect of the same child does not exceed 52 weeks, and

(b)R is entitled to child benefit in respect of the child for the week immediately before and the week immediately after that period by virtue of section 143(1)(a) of SSCBA 1992 or section 139(1)(a) of SSCB(NI)A 1992.

(5)In this section “child” means—

(a)a child within the meaning of section 142 of SSCBA 1992 or section 138 of SSCB(NI)A 1992, or

(b)a qualifying young person within the meaning of either of those sections.

681ESpecial cases

(1)The following amounts are to be disregarded for the purposes of this Chapter—

(a)amounts to which a person is entitled but in respect of which an election under section 13A of the Social Security Administration Act 1992 or section 11A of the Social Security Administration (Northern Ireland) Act 1992 (election for payment of child benefit not to be made if high income child benefit charge would be triggered) has effect;

(b)amounts to which a person is entitled by virtue of section 145A of SSCBA 1992 or section 141A of SSCB(NI)A 1992 (entitlement to child benefit after death of child or qualifying young person).

(2)Subsection (3) applies if—

(a)a person (“T”) is entitled to an amount in respect of child benefit for a week in a tax year or is treated as so entitled by virtue of section 681D(2),

(b)two or more other persons are partners of T throughout the week, and

(c)two or more of those persons would, apart from subsection (3), each be liable to a charge under section 681B(1) in relation to that amount.

(3)Only one of those persons is liable, namely the person with the highest adjusted net income for the tax year.

681FAlteration of income limit etc by Treasury order

(1)The Treasury may by order—

(a)substitute another amount for the amount for the time being specified in section 681B(1)(a) and defined as “L” in section 681C(2), or

(b)substitute another amount for the amount defined as “X” in section 681C(2).

(2)An order under this section has effect for tax years beginning after the order is made.

(3)A statutory instrument containing an order under this section which increases any person's liability to income tax may not be made unless a draft of it has been laid before and approved by a resolution of the House of Commons.

681GMeaning of “partner”

(1)For the purposes of this Chapter a person is a “partner” of another person at any time if any of conditions A to D is met at that time.

(2)Condition A is that the persons are a man and a woman who are married to each other and are neither—

(a)separated under a court order, nor

(b)separated in circumstances in which the separation is likely to be permanent.

(3)Condition B is that the persons are a man and a woman who are not married to each other but are living together as husband and wife.

(4)Condition C is that the persons are two men, or two women, who are civil partners of each other and are neither—

(a)separated under a court order, nor

(b)separated in circumstances in which the separation is likely to be permanent.

(5)Condition D is that the persons are two men, or two women, who are not civil partners of each other but are living together as if they were civil partners.

681HOther interpretation provisions

(1)This section applies for the purposes of this Chapter.

(2)“Adjusted net income” of a person for a tax year means the person's adjusted net income for that tax year as determined under section 58 of ITA 2007.

(3)Week” means a period of 7 days beginning with a Monday; and a week is in a tax year if (and only if) the Monday with which it begins is in the tax year.

Consequential amendmentsE+W+S+N.I.

2In section 7 of TMA 1970 (notice of liability to income tax and capital gains tax), in subsection (3), for the words from “his total income” to the end substitute

(a)the person's total income consists of income from sources falling within subsections (4) to (7) below,

(b)the person has no chargeable gains, and

(c)the person is not liable to a high income child benefit charge.

3After section 13 of the Social Security Administration Act 1992 insert—

13AElection not to receive child benefit

(1)A person (“P”) who is entitled to child benefit in respect of one or more children may elect for all payments of the benefit to which P is entitled not to be made.

(2)An election may be made only if P reasonably expects that, in the absence of the election, P or another person would be liable to a high income child benefit charge in respect of the payments to which the election relates made for weeks in the first tax year.

(3)An election has effect in relation to payments made for weeks beginning after the election is made.

(4)But where entitlement to child benefit is backdated, an election may have effect in relation to payments for weeks beginning in the period of three months ending immediately before the claim for the benefit was made.

(5)An election may be revoked.

(6)A revocation has effect in relation to payments made for weeks beginning after the revocation is made.

(7)But if—

(a)P makes an election which results in all payments, in respect of child benefit, to which P is entitled for one or more weeks in a tax year not being paid, and

(b)had no election been made, neither P nor any other person would have been liable to a high income child benefit charge in relation to the payments,

P may, no later than two years after the end of the tax year, revoke the election so far as it relates to the payments.

(8)Subsections (2) to (7) are subject to directions under subsection (9).

(9)The Commissioners for Her Majesty's Revenue and Customs may give directions as to—

(a)the form of elections and revocations under this section, the manner in which they are to be made and the time at which they are to be treated as made, and

(b)the circumstances in which, if child benefit is not being paid to a person at the full rate or the Commissioners are satisfied that there are doubts as to a person's entitlement to child benefit for a child, an election or revocation is not to have effect or its effect is to be postponed.

(10)For the purposes of this section—

  • child” includes a qualifying young person;

  • first tax year”, in relation to an election, means the tax year in which the first week beginning after the election is made falls;

  • week” means a period of 7 days beginning with a Monday; and a week is in a tax year if (and only if) the Monday with which it begins is in the tax year.

4After section 11 of the Social Security Administration (Northern Ireland) Act 1992 insert—

11AElection not to receive child benefit

(1)A person (“P”) who is entitled to child benefit in respect of one or more children may elect for all payments of the benefit to which P is entitled not to be made.

(2)An election may be made only if P reasonably expects that, in the absence of the election, P or another person would be liable to a high income child benefit charge in respect of the payments to which the election relates made for weeks in the first tax year.

(3)An election has effect in relation to payments made for weeks beginning after the election is made.

(4)But where entitlement to child benefit is backdated, an election may have effect in relation to payments for weeks beginning in the period of three months ending immediately before the claim for the benefit was made.

(5)An election may be revoked.

(6)A revocation has effect in relation to payments made for weeks beginning after the revocation is made.

(7)But if—

(a)P makes an election which results in all payments, in respect of child benefit, to which P is entitled for one or more weeks in a tax year not being paid, and

(b)had no election been made, neither P nor any other person would have been liable to a high income child benefit charge in relation to the payments,

P may, no later than two years after the end of the tax year, revoke the election so far as it relates to the payments.

(8)Subsections (2) to (7) are subject to directions under subsection (9).

(9)The Commissioners for Her Majesty's Revenue and Customs may give directions as to—

(a)the form of elections and revocations under this section, the manner in which they are to be made and the time at which they are to be treated as made, and

(b)the circumstances in which, if child benefit is not being paid to a person at the full rate or the Commissioners are satisfied that there are doubts as to a person's entitlement to child benefit for a child, an election or revocation is not to have effect or its effect is to be postponed.

(10)For the purposes of this section—

  • child” includes a qualifying young person;

  • first tax year”, in relation to an election, means the tax year in which the first week beginning after the election is made falls;

  • week” means a period of 7 days beginning with a Monday; and a week is in a tax year if (and only if) the Monday with which it begins is in the tax year.

5(1)ITEPA 2003 is amended as follows.E+W+S+N.I.

(2)In section 1 (overview of contents of Act)—

(a)in subsection (1)(c), after “see” insert “ Chapters 1 to 7 of ”, and

(b)in subsection (3), after paragraph (a) insert—

(aa)makes provision for the high income child benefit charge (see Chapter 8 of Part 10),.

(3)In section 655 (structure of Part 10), in subsection (1), at the end insert—

Chapter 8 makes provision for the high income child benefit charge.

(4)In section 684 (PAYE regulations), in subsection (2), after Item 2 insert— 2ZA Provision—

(a)for deductions to be made, if and to the extent that the payee does not object, with a view to securing that income tax payable for a tax year by the payee by virtue of section 681B (high income child benefit charge) is deducted from PAYE income of the payee paid during that year,

(b)for repayments to be made in a tax year, if and to the extent that the payee does not object, in respect of any amounts overpaid on account of income tax under that section for that tax year, and

(c)as to the circumstances and manner in which a payee may object to the making of deductions or repayments.

(5)In section 685 (tax tables), in subsection (2)(b), after “2” insert “ , 2ZA ”.

(6)In section 717 (orders and regulations made by Treasury or Commissioners), in subsection (4), after “companies)” insert “ or to which section 681F(3) (variation of income limit etc for high income child benefit charge: orders increasing liability to tax) applies ”.

(7)In Part 2 of Schedule 1 (index of defined expressions), insert at the appropriate places—

adjusted net income (in Chapter 8 of Part 10)section 681H”
“partner (in Chapter 8 of Part 10)section 681G”
“week (in Chapter 8 of Part 10)section 681H

6(1)ITA 2007 is amended as follows.E+W+S+N.I.

(2)In section 1 (overview of the Income Tax Acts), in subsection (1)(a), after “social security income” insert “ and makes provision for the high income child benefit charge ”.

(3)In section 30 (additional tax), in subsection (1), after “section 809ZO (tainted charity donations by trustees: charge to tax),” insert—

Chapter 8 of Part 10 of ITEPA 2003 (high income child benefit charge),.

CommencementE+W+S+N.I.

7(1)The amendments made by this Schedule have effect for the tax year 2012-13 and subsequent tax years.E+W+S+N.I.

(2)In relation to the tax year 2012-13, references in section 681B of ITEPA 2003 (as inserted by paragraph 1) to an amount to which a person is entitled in respect of child benefit for a week in the tax year do not include any amount to which the person is entitled in respect of child benefit for a week beginning before 7 January 2013.

(3)In sub-paragraph (2), “week” means a period of 7 days beginning with a Monday.

Section 19

SCHEDULE 2E+W+S+N.I.Profits arising from the exploitation of patents etc

PART 1 E+W+S+N.I.Amendments of CTA 2010

1(1)In CTA 2010, after Part 8 insert—E+W+S+N.I.

PART 8A E+W+S+N.I.Profits arising from the exploitation of patents etc

CHAPTER 1E+W+S+N.I.Reduced corporation tax rate for profits from patents etc
357AElection for special treatment of profits from patents etc

(1)A company may elect that any relevant IP profits of a trade of the company for an accounting period for which it is a qualifying company are chargeable at a lower rate of corporation tax.

(2)An election under subsection (1) is to be given effect by allowing a deduction to be made in calculating for corporation tax purposes the profits of the trade for the period.

(3)The amount of the deduction is—

where—

RP is the relevant IP profits of the trade of the company,

MR is the main rate of corporation tax, and

IPR is the special IP rate of corporation tax.

(4)The special IP rate of corporation tax is 10%.

(5)Chapter 2 specifies when a company is a qualifying company.

(6)Chapter 3 makes provision for determining the relevant IP profits or relevant IP losses of a trade.

(7)Chapter 4 makes provision for an alternative way of determining the relevant IP profits or losses of a trade known as “streaming”.

(8)Chapter 5 makes provision in relation to the relevant IP losses of a trade.

(9)Chapter 6 contains anti-avoidance provisions.

(10)Chapter 7 contains supplementary provision.

CHAPTER 2E+W+S+N.I.Qualifying companies
357BMeaning of “qualifying company”

(1)A company is a qualifying company for an accounting period if—

(a)condition A or B is met, and

(b)in the case of a company that is a member of a group, condition C is met.

(2)Condition A is that, at any time during the accounting period, the company—

(a)holds any qualifying IP rights, or

(b)holds an exclusive licence in respect of any qualifying IP rights.

For the meaning of “exclusive licence”, see section 357BA.

(3)Condition B is that—

(a)the company has held a qualifying IP right or an exclusive licence in respect of such a right,

(b)the company has received income in respect of an event which occurred in relation to the right or licence, or any part of which so occurred, at a time when—

(i)the company was a qualifying company, and

(ii)an election under section 357A had effect in relation to it, and

(c)the income falls to be taxed in the accounting period.

(4)A right is a qualifying IP right for the purposes of this Part if—

(a)it is a right to which this Part applies (see section 357BB), and

(b)the company meets the development condition in relation to the right (see section 357BC).

(5)Condition C is that the company meets the active ownership condition for the accounting period (see section 357BE).

357BAMeaning of “exclusive licence”

(1)In this Part “exclusive licence”, in relation to a right (“the principal right”), means a licence which—

(a)is granted by the person who holds either the principal right or an exclusive licence in respect of the principal right (“the proprietor”), and

(b)confers on the person holding the licence (“the licence-holder”), or on the licence-holder and persons authorised by it, the rights in respect of the principal right that are listed in subsection (2).

(2)The rights are—

(a)one or more rights conferred to the exclusion of all other persons (including the proprietor) in one or more countries or territories, and

(b)the right—

(i)to bring proceedings without the consent of the proprietor or any other person in respect of any infringement of the rights within paragraph (a), or

(ii)to receive the whole or the greater part of any damages awarded in respect of any such infringement.

(3)Where the licence-holder has any right within subsection (2)(b) by virtue of any enactment or rule of law, the right is to be regarded for the purposes of this section as conferred by the licence.

(4)Where—

(a)a company (“C”) that is a member of a group holds either a right to which this Part applies or an exclusive licence in respect of such a right, and

(b)C confers on another company that is a member of the group all of the rights held by C in respect of the invention,

that other company is to be treated for the purposes of this Part as holding an exclusive licence in respect of that right.

(5)For the purposes of subsection (4) it does not matter if the rights conferred by C do not include the right to enforce, assign or grant a licence of any of those rights.

357BBRights to which this Part applies

(1)This Part applies to the following rights—

(a)a patent granted under the Patents Act 1977,

(b)a patent granted under the European Patent Convention,

(c)a right of a specified description which corresponds to a right within paragraph (a) or (b) and is granted under the law of a specified EEA state,

(d)a supplementary protection certificate,

(e)any plant breeders' rights granted in accordance with Part 1 of the Plant Varieties Act 1997,

(f)any Community plant variety rights granted under Council Regulation (EC) No 2100/94.

(2)Where—

(a)directions are in force under section 22 of the Patents Act 1977 (information prejudicial to national security or safety of public) with respect to an application for a patent under that Act, and

(b)the person making the application has been notified under section 18(4) of that Act that the application complies with the requirements of the Act and the rules,

the person is to be treated for the purposes of this Part as if the person had been granted the patent under that Act.

(3)Where—

(a)a person holds a marketing authorisation in respect of a product in accordance with any EU legislation, and

(b)the product benefits from marketing protection (see subsection (4)) or data protection (see subsection (5)),

the person is to be treated for the purposes of this Part as having been granted a right to which this Part applies in respect of the product.

(4)For the purposes of this section a product benefits from marketing protection if—

(a)the product benefits from marketing protection by virtue of Article 14.11 of Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human use, or

(b)any of the following prohibitions is in force—

(i)the prohibition on placing on the market a generic of the product imposed by Article 10.1 of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use,

(ii)the prohibition imposed by Article 8.1 of Regulation (EC) No 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan medicinal products, and

(iii)the prohibition on placing on the market a generic of the product imposed by Article 13.1 of Directive 2001/82/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to veterinary medicinal products.

(5)For the purposes of this section a product benefits from data protection if—

(a)the product benefits from the data exclusivity conferred by Article 10.5 of Directive 2001/83/EC of the European Parliament and of the Council,

(b)the prohibition on referring to the results of tests or trials in relation to the product imposed by Article 74a of that Directive is in force, or

(c)data relating to the product benefits from data protection under Article 59 of Regulation (EC) No 1107/2009 of the European Parliament and of the Council of 21 October 2009 concerning the placing of plant protection products on the market.

(6)The reference to data in subsection (5)(c) does not include a study necessary for the renewal or review of a marketing authorisation granted in respect of the product in accordance with Regulation (EC) No 1107/2009.

(7)In this section—

  • European Patent Convention” means the Convention on the Grant of European Patents,

  • rules” means rules made under section 123 of the Patents Act 1977,

  • specified” means specified in an order made by the Treasury, and

  • supplementary protection certificate” means a certificate issued under—

    (a)

    Council Regulation (EC) No 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the supplementary protection certificate for medicinal products, or

    (b)

    Regulation (EC) No 1610/96 of the European Parliament and of the Council of 23 July 1996 concerning the creation of a supplementary protection certificate for plant protection products.

(8)The Treasury may by order—

(a)amend this section so as to make provision about the circumstances in which a product benefits from marketing or data protection for the purposes of this section;

(b)make such provision amending any reference in this section to EU legislation as appears to them appropriate in consequence of any EU legislation amending or replacing that EU legislation.

(9)An order made under this section may make any incidental, supplemental, consequential, transitional or saving provision, including provision amending or modifying this Part.

357BCThe development condition

(1)A company meets the development condition in relation to a right if condition A, B, C or D is met.

Section 357BD (meaning of “qualifying development”) applies for the purposes of this section.

(2)Condition A is that—

(a)the company has at any time carried out qualifying development in relation to the right, and

(b)the company has not ceased to be, or become, a controlled member of a group since that time.

(3)Condition B is that—

(a)the company has at any time carried out qualifying development in relation to the right,

(b)the company has ceased to be, or become, a controlled member of a group since that time,

(c)the company has, for a period of 12 months beginning with the day on which it ceased to be, or became, a controlled member of the group, performed activities of the same description as those that constituted the qualifying development, and

(d)the company remains a member of that group or (as the case may be) does not become a controlled member of any other group.

(4)Condition C is that—

(a)the company is a member of a group,

(b)another company that is or has been a member of the group has carried out qualifying development in relation to the right, and

(c)that other company was a member of the group at the time it carried out the qualifying development.

(5)Condition D is that—

(a)the company is a member of a group,

(b)another company that is or has been a member of the group has carried out qualifying development in relation to the right,

(c)that other company (“T”) or, where another member of the group begins to carry on the trade which T carried on immediately before becoming a member of the group, either or both of those companies have, while carrying on that trade as a member of the group, performed activities of the same description as those that constituted the qualifying development, and

(d)those activities of those companies, taken together, have been performed for a period of 12 months beginning with the day on which T became a member of the group.

(6)For the purposes of conditions A and B, a company becomes a controlled member of a group at any time if—

(a)another company (“P”) either becomes the holder of a major interest in the company, or begins to control the company, at that time, and

(b)immediately before that time the company was not associated with P or with any company associated with P immediately before that time.

(7)For the purposes of conditions A and B, a company ceases to be a controlled member of a group at any time if—

(a)every other company which immediately before that time held a major interest in, or controlled, the company ceases to do so, and

(b)as a result the company ceases to be associated with any of those companies.

(8)Where—

(a)a company ceases to be a controlled member of a group at any time, and

(b)at that time the company holds a major interest in, or controls, any other company,

that other company is to be treated for the purposes of conditions A and B as also having ceased to be a controlled member of the group at that time.

(9)In subsections (6) and (7) “associated” is to be read in accordance with section 357GD(3).

(10)The following provisions apply for the purposes of subsections (6) to (8)—

  • section 472 of CTA 2009 (meaning of “control”), and

  • sections 473 and 474 of CTA 2009 (meaning of “major interest”).

(11)A company that meets the development condition in relation to a right by virtue of the performance of the activities mentioned in subsection (3) or (5) for the period of 12 months so mentioned is to be regarded as meeting that condition in relation to the right during that period (as well as at any other time when the company meets the condition).

357BDMeaning of “qualifying development”

(1)A company carries out “qualifying development” in relation to a right if—

(a)it creates, or significantly contributes to the creation of, the invention, or

(b)it performs a significant amount of activity for the purposes of developing the invention or any item or process incorporating the invention.

(2)The reference in subsection (1)(b) to developing the invention includes developing ways in which the invention may be used or applied.

(3)For the purposes of section 357BC it does not matter whether the qualifying development was carried out before or after—

(a)the company, or

(b)where the company is a member of a group, any member of the group,

became the holder of the right or (as the case may be) an exclusive licence in respect of the right.

357BEThe active ownership condition

(1)A company meets the active ownership condition for an accounting period if all or almost all of the qualifying IP rights held by the company in that accounting period are rights in respect of which condition A or B is met.

(2)Condition A is that during the accounting period the company performs a significant amount of management activity in relation to the rights.

(3)In subsection (2) “management activity”, in relation to any qualifying IP rights, means formulating plans and making decisions in relation to the development or exploitation of the rights.

(4)Condition B is that the company meets the development condition in relation to the rights by virtue of section 357BC(2) or (3).

(5)Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence.

CHAPTER 3E+W+S+N.I.Relevant IP profits
Steps for calculating relevant IP profits of a tradeE+W+S+N.I.
357CRelevant IP profits

(1)To determine the relevant IP profits of a trade of a company for an accounting period—

  • Step 1 Calculate the total gross income of the trade for the accounting period (see section 357CA).

  • Step 2 Calculate the percentage (“X%”) given by the following formula—

    where—

    “RIPI” is so much of the total gross income of the trade for the accounting period as is relevant IP income (see sections 357CC and 357CD), and

    “TI” is the total gross income of the trade for the accounting period.

  • Step 3 Calculate X% of the profits of the trade for the accounting period. If there are no such profits, calculate X% of the losses of the trade (expressed as a negative figure) for the accounting period. In calculating the profits of the trade for the purposes of this step, make any adjustments required by section 357CG (and references in this step to the profits or losses of the trade are to be read subject to any such adjustments).

  • Step 4 Deduct from the amount given by Step 3 the routine return figure (see section 357CI). The amount given by this step is the “qualifying residual profit”.

    If the amount of the qualifying residual profit is not greater than nil, go to Step 7.

  • Step 5 If the company has elected for small claims treatment, calculate the small claims amount in relation to the trade (see section 357CM). If the company has not, go to Step 6.

  • Step 6 Deduct from the qualifying residual profit the marketing assets return figure (see section 357CN).

  • Step 7 If the company has made an election under section 357CQ (which provides in certain circumstances for profits arising before the grant of a right to be treated as relevant IP profits), add to the amount given by Step 5 or 6 (or, if the amount of the qualifying residual profit was not greater than nil, Step 4) any amount determined in accordance with subsection (3) of that section.

(2)If the amount given by subsection (1) is greater than nil, that amount is the relevant IP profits of the trade for the accounting period.

(3)If the amount given by subsection (1) is less than nil, that amount is the relevant IP losses of the trade for the accounting period (see Chapter 5).

Total gross income of tradeE+W+S+N.I.
357CATotal gross income of a trade

(1)For the purposes of this Part the “total gross income” of a trade of a company for an accounting period is the aggregate of the amounts falling within the Heads set out in—

(a)subsection (3) (revenue),

(b)subsection (5) (compensation),

(c)subsection (6) (adjustments),

(d)subsection (7) (proceeds from intangible fixed assets),

(e)subsection (8) (profits from patent rights).

(2)But the total gross income of the trade does not include any finance income (see section 357CB).

(3)Head 1 is any amounts which—

(a)in accordance with generally accepted accounting practice (“GAAP”) are recognised as revenue in the company's profit and loss account or income statement for the accounting period, and

(b)are brought into account as credits in calculating the profits of the trade for the accounting period.

(4)Where the company does not draw up accounts for an accounting period in accordance with GAAP, the reference in subsection (3)(a) to any amounts which in accordance with GAAP are recognised as revenue in the company's profit and loss account or income statement for the accounting period is to be read as a reference to any amounts which would be so recognised if the company had drawn up such accounts for that accounting period.

(5)Head 2 is any amounts of damages, proceeds of insurance or other compensation (so far as not falling within Head 1) which are brought into account as credits in calculating the profits of the trade for the accounting period.

(6)Head 3 is any amounts (so far as not falling within Head 1) which are brought into account as receipts under section 181 of CTA 2009 (adjustment on change of basis) in calculating the profits of the trade for the accounting period.

(7)Head 4 is any amounts (so far as not falling within Head 1) which are brought into account as credits under Chapter 4 of Part 8 of CTA 2009 (realisation of intangible fixed assets) in calculating the profits of the trade for the accounting period.

(8)Head 5 is any profits from the sale by the company of the whole or part of any patent rights held for the purposes of the trade which are taxed under section 912 of CTA 2009 in the accounting period.

357CBFinance income

(1)For the purposes of this Part “finance income”, in relation to a trade of a company, means—

(a)any credits which are treated as receipts of the trade by virtue of—

(i)section 297 of CTA 2009 (credits in respect of loan relationships), or

(ii)section 573 of CTA 2009 (credits in respect of derivative contracts),

(b)any amount which in accordance with generally accepted accounting practice falls to be recognised as arising from a financial asset, and

(c)any return, in relation to an amount, which—

(i)is produced for the company by an arrangement to which it is party, and

(ii)is economically equivalent to interest.

(2)In subsection (1)—

  • economically equivalent to interest” is to be construed in accordance with section 486B(2) and (3) of CTA 2009, and

  • financial asset” means a financial asset as defined for the purposes of generally accepted accounting practice.

(3)For the purposes of subsection (1)(c), the amount of a return is the amount which by virtue of the return would, in calculating the company's chargeable profits, be treated under section 486B of CTA 2009 (disguised interest to be regarded as profit from loan relationship) as a profit arising to the company from a loan relationship.

But, in calculating that profit for the purposes of this subsection, sections 486B(7) and 486C to 486E of that Act are to be ignored.

Relevant IP incomeE+W+S+N.I.
357CCRelevant IP income

(1)For the purposes of this Part “relevant IP income” means income falling within any of the Heads set out in—

(a)subsection (2) (sales income),

(b)subsection (6) (licence fees),

(c)subsection (7) (proceeds of sale etc),

(d)subsection (8) (damages for infringement),

(e)subsection (9) (other compensation).

This is subject to section 357CE (excluded income).

(2)Head 1 is income arising from the sale by the company of any of the following items—

(a)items in respect of which a qualifying IP right held by the company has been granted (“qualifying items”);

(b)items incorporating one or more qualifying items;

(c)items that are wholly or mainly designed to be incorporated into items within paragraph (a) or (b).

(3)For the purposes of this Part an item and its packaging are not to be treated as a single item, unless the packaging performs a function that is essential for the use of the item for the purposes for which it is intended to be used.

(4)In subsection (3) “packaging”, in relation to an item, means any form of container or other packaging used for the containment, protection, handling, delivery or presentation of the item, including by way of attaching the item to, or winding the item round, some other article.

(5)In a case where a qualifying item and an item that is designed to incorporate that item (“the parent item”) are sold together as, or as part of, a single unit for a single price, the reference in subsection (2)(b) to an item incorporating a qualifying item includes a reference to the parent item.

(6)Head 2 is income consisting of any licence fee or royalty which the company receives under an agreement granting another person any of the following rights only—

(a)a right in respect of any qualifying IP right held by the company,

(b)any other right in respect of a qualifying item or process, and

(c)in the case of an agreement granting any right within paragraph (a) or (b), a right granted for the same purposes as those for which that right was granted.

In this subsection “qualifying process” means a process in respect of which a qualifying IP right held by the company has been granted.

(7)Head 3 is any income arising from the sale or other disposal of a qualifying IP right or an exclusive licence in respect of such a right.

(8)Head 4 is any amount received by the company in respect of an infringement, or alleged infringement, of a qualifying IP right held by the company at the time of the infringement or alleged infringement.

(9)Head 5 is any amount of damages, proceeds of insurance or other compensation, other than an amount in respect of an infringement or alleged infringement of a qualifying IP right, which is received by the company in respect of an event and—

(a)is paid in respect of any items that fell within subsection (2) at the time of that event, or

(b)represents a loss of income which would, if received by the company at the time of that event, have been relevant IP income.

(10)But income is not relevant IP income by virtue of subsection (8) or (9) unless the event in respect of which the income is received, or any part of that event, occurred at a time when—

(a)the company was a qualifying company, and

(b)an election under section 357A had effect in relation to it.

(11)In a case where the whole of that event does not occur at such a time, subsection (8) or (9) (as the case may be) applies only to so much of the amount received by the company in respect of the event as on a just and reasonable apportionment is properly attributable to such a time.

(12)Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence.

357CDNotional royalty

(1)This section applies where—

(a)a company, for the purposes of any trade of the company, holds any rights mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of any such rights, and

(b)the rights are relevant qualifying IP rights.

(2)For the purposes of this section a qualifying IP right is a “relevant qualifying IP right” in relation to an accounting period if—

(a)the total gross income of the trade of the company for the accounting period includes any income arising from things done by the company that involve the exploitation by the company of that right, and

(b)that income is not relevant IP income or excluded income.

Such income is referred to in this section as “IP-derived income”.

(3)The company may elect that the notional royalty in respect of the trade for the accounting period is to be treated for the purposes of this Part as if it were relevant IP income.

(4)The notional royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the IP-derived income for that accounting period.

(5)The “appropriate percentage” is the proportion of any IP-derived income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant qualifying IP rights in that accounting period if the company were not otherwise able to exploit them.

(6)For the purposes of determining the appropriate percentage under this section, assume that—

(a)the company and P are dealing at arm's length,

(b)the company, or the company and persons authorised by it, will have the right to exploit the relevant qualifying IP rights to the exclusion of any other person (including P),

(c)the company will have the same rights in relation to the relevant qualifying IP rights as it actually has,

(d)the relevant qualifying IP rights are conferred on the relevant day,

(e)the appropriate percentage for the accounting period is determined at the beginning of the accounting period,

(f)the appropriate percentage for the accounting period will apply for each succeeding accounting period for which the company will have the right to exploit the relevant qualifying IP rights, and

(g)no income other than IP-derived income will arise from anything done by the company that involves the exploitation by the company of the relevant qualifying IP rights.

(7)In subsection (6)(d) “the relevant day”, in relation to a relevant qualifying IP right or a licence in respect of such a right, means—

(a)the first day of the accounting period, or

(b)if later, the day on which the company first began to hold the right or licence.

(8)In determining the appropriate percentage, the company must act in accordance with—

(a)Article 9 of the OECD Model Tax Convention, and

(b)the OECD transfer pricing guidelines.

(9)In this section “excluded income” means any income falling within any of the Heads in section 357CE.

357CEExcluded income

(1)For the purposes of this Part income falling within any of the Heads set out in the following subsections is not relevant IP income—

(a)subsection (2) (ring fence income),

(b)subsection (3) (income attributable to non-exclusive licences).

(2)Head 1 is income arising from oil extraction activities or oil rights.

In this subsection “oil extraction activities” and “oil rights” have the same meaning as in Part 8 (see sections 272 and 273).

(3)Head 2 is income which on a just and reasonable apportionment is properly attributable to a licence (a “non-exclusive licence”) held by the company which—

(a)is a licence in respect of an item or process, but

(b)is not an exclusive licence in respect of a qualifying IP right.

(4)In a case where—

(a)a company holds an exclusive licence in respect of a qualifying IP right, and

(b)the licence also confers on the company (or on the company and persons authorised by it) any right in respect of the invention otherwise than to the exclusion of all other persons,

the licence is to be treated for the purposes of this Part as if it were two separate licences, one an exclusive licence that does not confer any such rights, and the other a non-exclusive licence conferring those rights.

357CFMixed sources of income

(1)This section applies to any income that—

(a)is mixed income, or

(b)is paid under a mixed agreement.

(2)Mixed income” means the proceeds of sale in a case where an item falling within subsection (2) of section 357CC and an item not falling within that subsection are sold together as, or as part of, a single unit for a single price.

(3)A “mixed agreement” is an agreement providing for—

(a)one or more of the matters in paragraphs (a) to (c) of subsection (4), and

(b)one or more of the matters in paragraphs (d) to (g) of that subsection.

(4)The matters are—

(a)the sale of an item falling within section 357CC(2),

(b)the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6),

(c)a sale or disposal falling within section 357CC(7),

(d)the sale of any other item,

(e)the grant of any other right,

(f)any other sale or disposal,

(g)the provision of any services.

(5)So much of the income as on a just and reasonable apportionment is properly attributable to—

(a)the sale of an item falling within section 357CC(2),

(b)the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6), or

(c)a sale or disposal falling within section 357CC(7),

is to be regarded for the purposes of this Part as relevant IP income.

(6)But where the amount of income that on such an apportionment is properly attributable to any of the matters in paragraphs (d) to (g) of subsection (4) is a trivial proportion of the income to which this section applies, all of that income is to be regarded for the purposes of this Part as relevant IP income.

Calculating profits of tradeE+W+S+N.I.
357CGAdjustments in calculating profits of trade

(1)This section applies for the purposes of determining the relevant IP profits of a trade of a company for an accounting period.

(2)In calculating the profits of the trade for the accounting period—

(a)there are to be added the amounts in subsection (3), and

(b)there are to be deducted the amounts in subsection (4).

(3)The amounts to be added are—

(a)the amount of any debits which are treated as expenses of the trade by virtue of—

(i)section 297 of CTA 2009 (debits in respect of loan relationships), or

(ii)section 573 of CTA 2009 (debits in respect of derivative contracts), and

(b)the amount of any additional deduction for the accounting period obtained by the company under Part 13 of CTA 2009 for expenditure on research and development in relation to the trade.

(4)The amounts to be deducted are any amounts of finance income brought into account in calculating the profits of the trade for the accounting period.

(For the meaning of “finance income”, see section 357CB.)

(5)In a case where there is a shortfall in R&D expenditure in relation to the trade for a relevant accounting period (see section 357CH), the amount of R&D expenditure brought into account in calculating the profits of the trade for that accounting period is to be increased by the amount mentioned in section 357CH(2).

(6)For the purposes of subsection (5)—

  • R&D expenditure” means expenditure on research and development in relation to the trade,

  • relevant accounting period”, in relation to a company, means—

    (a)

    the first accounting period for which—

    (i)

    the company is a qualifying company, and

    (ii)

    an election under section 357A has effect in relation to it, and

    (b)

    each accounting period that begins before the end of the period of 4 years beginning with that accounting period, and

  • research and development” means activities, other than oil and gas exploration and appraisal, that fall to be treated as research and development in accordance with generally accepted accounting practice.

357CHShortfall in R&D expenditure

(1)There is a shortfall in R&D expenditure in relation to a trade of a company for a relevant accounting period if the actual R&D expenditure of the trade for the accounting period (as adjusted under subsections (8) to (11)) is less than 75% of the average amount of R&D expenditure.

(2)The amount that is to be added to the actual R&D expenditure for the purposes of section 357CG(5) is an amount equal to the difference between—

(a)75% of the average amount of R&D expenditure, and

(b)the actual R&D expenditure, as adjusted under subsections (8) to (11).

(3)In this section—

(a)the “actual R&D expenditure” of a trade of a company for an accounting period is the amount of R&D expenditure that (ignoring section 357CG(5)) is brought into account in calculating the profits of the trade for the accounting period, and

(b)“R&D expenditure” and “relevant accounting period” have the meaning given by section 357CG(6).

(4)The average amount of R&D expenditure is—

where—

E is the amount of R&D expenditure that—

(a)

has been incurred by the company during the relevant period, and

(b)

has been brought into account in calculating the profits of the trade for any accounting period ending before the first relevant accounting period, and

N is the number of days in the relevant period.

(5)The relevant period is the shorter of—

(a)the period of 4 years ending immediately before the first relevant accounting period, and

(b)the period beginning with the day on which the company begins to carry on the trade and ending immediately before the first relevant accounting period.

(6)For a relevant accounting period of less than 12 months, the average amount of R&D expenditure is proportionately reduced.

(7)Subsections (8) to (11) apply for the purposes of determining—

(a)whether there is a shortfall in R&D expenditure for a relevant accounting period, and

(b)if there is such a shortfall, the amount to be added by virtue of subsection (2).

(8)If the amount of the actual R&D expenditure for a relevant accounting period is greater than the average amount of R&D expenditure, the difference between the two amounts is to be added to the actual R&D expenditure for the next relevant accounting period.

(9)If—

(a)there is not a shortfall in R&D expenditure for a relevant accounting period, but

(b)in the absence of any additional amount, there would be a shortfall in R&D expenditure for that accounting period,

the remaining portion of the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period.

(10)For the purposes of this section—

  • additional amount”, in relation to a relevant accounting period, means any amount added to the actual R&D expenditure for that accounting period by virtue of subsection (8), (9) or (11), and

  • “the remaining portion” of an additional amount is so much of that amount as exceeds the difference between—

    (a)

    the actual R&D expenditure for the relevant accounting period in the absence of the additional amount, and

    (b)

    75% of the average amount of R&D expenditure.

(11)If—

(a)there is not a shortfall in R&D expenditure for a relevant accounting period, and

(b)there would not be a shortfall in R&D expenditure for that accounting period in the absence of any additional amount,

the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period (in addition to any additional amount so added by virtue of subsection (8)).

Routine return figureE+W+S+N.I.
357CIRoutine return figure

(1)To determine the routine return figure in relation to a trade of a company for an accounting period—

  • Step 1 Take the aggregate of any routine deductions made by the company in calculating the profits of the trade for the accounting period. For the meaning of “routine deductions”, see sections 357CJ and 357CK.

  • Step 2 Multiply that amount by 0.1.

  • Step 3 Calculate X% of the amount given by Step 2.“X%” is the percentage given by Step 2 in section 357C(1).

(2)In a case where—

(a)the company (“C”) is a member of a group,

(b)another member of the group incurs expenses on behalf of C,

(c)had they been incurred by C, C would have made a deduction in respect of the expenses in calculating the profits of the trade for the accounting period, and

(d)the deduction would have been a routine deduction,

C is to be treated for the purposes of subsection (1) as having made such a routine deduction.

(3)Where expenses are incurred by any member of the group on behalf of C and any other member of the group, subsection (2) applies in relation to so much of the amount of the expenses as on a just and reasonable apportionment may properly be regarded as incurred on behalf of C.

357CJRoutine deductions

(1)For the purposes of section 357CI “routine deductions” means deductions falling within any of the Heads set out in—

(a)subsection (2) (capital allowances),

(b)subsection (3) (costs of premises),

(c)subsection (4) (personnel costs),

(d)subsection (5) (plant and machinery costs),

(e)subsection (6) (professional services),

(f)subsection (7) (miscellaneous services).

This is subject to section 357CK (deductions that are not routine deductions).

(2)Head 1 is any allowances under CAA 2001.

(3)Head 2 is any deductions made by the company in respect of any premises occupied by the company.

(4)Head 3 is any deductions made by the company in respect of—

(a)any director or employee of the company, or

(b)any externally provided workers.

(5)Head 4 is any deductions made by the company in respect of any plant or machinery used by the company.

(6)Head 5 is any deductions made by the company in respect of any of the following services—

(a)legal services, other than IP-related services;

(b)financial services, including—

(i)insurance services, and

(ii)valuation or actuarial services;

(c)services provided in connection with the administration or management of the company's directors and employees;

(d)any other consultancy services.

(7)Head 6 is any deductions made by the company in respect of any of the following services—

(a)the supply of water, fuel or power;

(b)telecommunications services;

(c)computing services, including computer software;

(d)postal services;

(e)the transportation of any items;

(f)the collection, removal and disposal of refuse.

(8)In this section—

  • externally provided worker” has the same meaning as in Part 13 of CTA 2009 (see section 1128 of that Act),

  • IP-related services” means services provided in connection with—

    (a)

    any application for a right to which this Part applies, or

    (b)

    any proceedings relating to the enforcement of any such right,

  • premises” includes any land,

  • telecommunications service” means any service that consists in the provision of access to, and of facilities for making use of, any telecommunication system (whether or not one provided by the person providing the service), and

  • telecommunication system” means any system (including the apparatus comprised in it) which exists for the purpose of facilitating the transmission of communications by any means involving the use of electrical or electro-magnetic energy.

(9)The Treasury may by order amend this section.

357CKDeductions that are not routine deductions

(1)For the purposes of section 357CI a deduction is not a “routine deduction” if it falls within any of the Heads set out in—

(a)subsection (2) (loan relationships and derivative contracts),

(b)subsection (3) (R&D expenses),

(c)subsection (4) (capital allowances for R&D or patents),

(d)subsection (5) (R&D-related employee share acquisitions).

(2)Head 1 is any debits which are treated as expenses of the trade by virtue of —

(a)section 297 of CTA 2009 (debits in respect of loan relationships), or

(b)section 573 of CTA 2009 (debits in respect of derivative contracts).

(3)Head 2 is—

(a)the amount of any expenditure on research and development in relation to the trade for which an additional deduction for the accounting period is obtained by the company under Part 13 of CTA 2009, and

(b)the amount of that additional deduction.

(4)Head 3 is any allowances under—

(a)Part 6 of CAA 2001 (research and development allowances), or

(b)Part 8 of CAA 2001 (patent allowances).

(5)Head 4 is the appropriate proportion of any deductions allowed under Part 12 of CTA 2009 (relief for employee share acquisitions) in a case where—

(a)shares are acquired by an employee or another person because of the employee's employment by the company, and

(b)the employee is wholly or partly engaged directly and actively in relevant research and development (within the meaning of section 1042 of CTA 2009).

(6)In subsection (5) “the appropriate proportion”, in relation to a deduction allowed in respect of an employee, is the proportion of the staffing costs in respect of the employee which are attributable to relevant research and development for the purposes of Part 13 of CTA 2009 (see section 1124 of that Act).

Staffing costs” has the same meaning as in that Part (see section 1123 of that Act).

(7)Subsections (5) and (6) of section 1124 of CTA 2009 apply for the purposes of subsection (5)(b) as they apply for the purposes of that section.

(8)The Treasury may by order amend this section.

Election for small claims treatmentE+W+S+N.I.
357CLCompanies eligible to elect for small claims treatment

(1)A company may elect for small claims treatment for an accounting period if condition A or B is met in relation to the accounting period.

(2)Condition A is that the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period does not exceed £1,000,000.

(3)Condition B is that—

(a)the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period does not exceed the relevant maximum, and

(b)the company did not take Step 6 in section 357C(1) or 357DA(1) for the purpose of calculating the relevant IP profits of any trade of the company for any previous accounting period beginning within the relevant 4-year period.

(4)In subsection (3)(b) “the relevant 4-year period” means the period of 4 years ending immediately before the accounting period mentioned in subsection (3)(a).

(5)If the company has no associated company in the accounting period, the relevant maximum is £3,000,000.

(6)If the company has one or more associated companies in the accounting period, the relevant maximum is—

where N is the number of those associated companies in relation to which an election under section 357A has effect for the accounting period.

(7)For an accounting period of less than 12 months, the relevant maximum is proportionately reduced.

(8)Any amount of qualifying residual profit of a trade of the company that is not greater than nil is to be disregarded for the purposes of this section.

(9)Sections 25 to 30 (definition of “associated companies”) have effect for the purposes of this section.

357CMSmall claims amount

(1)This section applies where a company elects for small claims treatment for an accounting period.

(2)The small claims amount in relation to each trade of the company for the accounting period is—

(a)if the amount in subsection (3) is lower than the small claims threshold, 75% of the qualifying residual profit of the trade for the accounting period;

(b)in any other case, the amount given by—

where—

SCT is the small claims threshold, and

T is the number of trades of the company.

(3)The amount referred to in subsection (2)(a) is—

where QRP is the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period (but see subsection (4)).

(4)Any amount of qualifying residual profit of a trade of the company that is not greater than nil is to be disregarded for the purposes of subsection (3).

(5)If the company has no associated company in the accounting period, the small claims threshold is £1,000,000.

(6)If the company has one or more associated companies in the accounting period, the small claims threshold is—

where N is the number of those associated companies in relation to which an election under section 357A has effect for the accounting period.

(7)For an accounting period of less than 12 months, the small claims threshold is proportionately reduced.

(8)Sections 25 to 30 (definition of “associated companies”) have effect for the purposes of this section.

Marketing assets return figureE+W+S+N.I.
357CNMarketing assets return figure

(1)The marketing assets return figure in relation to a trade of a company for an accounting period is—

where—

NMR is the notional marketing royalty in respect of the trade for the accounting period (see section 357CO), and

AMR is the actual marketing royalty in respect of the trade for the accounting period (see section 357CP).

(2)Where—

(a)AMR is greater than NMR, or

(b)the difference between NMR and AMR is less than 10% of the qualifying residual profit of the trade for the accounting period,

the marketing assets return figure is nil.

357CONotional marketing royalty

(1)The notional marketing royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the relevant IP income for that accounting period.

In this section “relevant IP income”, in relation to a trade of a company for an accounting period, means so much of the total gross income of the trade for the accounting period as is relevant IP income.

(2)The “appropriate percentage” is the proportion of any relevant IP income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant marketing assets in that accounting period if the company were not otherwise able to exploit them.

(3)For the purposes of this section a marketing asset is a “relevant marketing asset” in relation to an accounting period if the relevant IP income of the trade of the company for the accounting period includes any income arising from things done by the company that involve the exploitation by the company of that marketing asset.

(4)For the purposes of determining the appropriate percentage under this section, assume that—

(a)the company and P are dealing at arm's length,

(b)the company, or the company and persons authorised by it, will have the right to exploit the relevant marketing assets to the exclusion of any other person (including P),

(c)the company will have the same rights in relation to the relevant marketing assets as it actually has,

(d)the right to exploit the relevant marketing assets is conferred on the relevant day,

(e)the appropriate percentage for the accounting period is determined at the beginning of the accounting period,

(f)the appropriate percentage for the accounting period will apply for each succeeding accounting period for which the company will have the right to exploit the relevant marketing assets, and

(g)no income other than relevant IP income will arise from anything done by the company that involves the exploitation by the company of the relevant marketing assets.

(5)In subsection (4)(d) “the relevant day”, in relation to a relevant marketing asset, means—

(a)the first day of the accounting period, or

(b)if later, the day on which the company first acquired the relevant marketing asset or the right to exploit the asset.

(6)In determining the appropriate percentage, the company must act in accordance with—

(a)Article 9 of the OECD Model Tax Convention, and

(b)the OECD transfer pricing guidelines.

(7)In this section “marketing asset” means any of the following (whether or not capable of being transferred or assigned)—

(a)anything in respect of which proceedings for passing off could be brought, including a registered trade mark (within the meaning of the Trade Marks Act 1994),

(b)anything that corresponds to a marketing asset within paragraph (a) and is recognised under the law of a country or territory outside the United Kingdom,

(c)any signs or indications (so far as not falling within paragraph (a) or (b)) which may serve, in trade, to designate the geographical origin of goods or services, and

(d)any information which relates to customers or potential customers of the company, or any other member of a group of which the company is a member, and is intended to be used for marketing purposes.

357CPActual marketing royalty

(1)The actual marketing royalty in respect of a trade of a company for an accounting period is X% of the aggregate of any sums which—

(a)were paid by the company for the purposes of acquiring any relevant marketing assets, or the right to exploit any such assets, and

(b)were brought into account as debits in calculating the profits of the trade for the accounting period.

(2)In this section—

  • relevant marketing assets” has the same meaning as in section 357CO, and

  • “X%” is the percentage given by Step 2 in section 357C(1).

Profits arising before grant of rightE+W+S+N.I.
357CQProfits arising before grant of right

(1)This section applies where a company—

(a)holds a right mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of such a right, or

(b)would hold such a right or licence but for the fact that the company disposed of any rights in the invention or (as the case may be) the licence before the right was granted.

(2)The company may elect that, for the purposes of determining the relevant IP profits of a trade of the company for the accounting period in which the right is granted, there is to be added the amount determined in accordance with subsection (3) (the “ additional amount ”).

(3)The additional amount is the difference between—

(a)the aggregate of the relevant IP profits of the trade for each relevant accounting period, and

(b)the aggregate of what the relevant IP profits of the trade for each relevant accounting period would have been if the right had been granted on the relevant day.

(4)For the purposes of determining the additional amount, the amount of any relevant IP profits to which section 357A does not apply by virtue of Chapter 5 (relevant IP losses) is to be disregarded.

(5)In this section “relevant accounting period” means—

(a)the accounting period of the company in which the right is granted, and

(b)any earlier accounting period of the company which meets the conditions in subsection (6).

(6)The conditions mentioned in subsection (5)(b) are—

(a)that it is an accounting period for which an election made by the company under section 357A has effect,

(b)that it is an accounting period for which the company is a qualifying company, and

(c)that it ends on or after the relevant day.

(7)In this section “the relevant day” is the later of—

(a)the first day of the period of 6 years ending with the day on which the right is granted, or

(b)the day on which—

(i)the application for the grant of the right was filed, or

(ii)in the case of a company that holds an exclusive licence in respect of the right, the licence was granted.

(8)Where the company would be a qualifying company for an accounting period but for the fact that the right had not been granted at any time during that accounting period, the company is to be treated for the purposes of this section as if it were a qualifying company for that accounting period.

(9)Where the company would be a qualifying company for the accounting period in which the right was granted but for the fact that the company disposed of the rights or licence mentioned in subsection (1)(b) before the right was granted, the company is to be treated for the purposes of section 357A as if it were a qualifying company for that accounting period.

CHAPTER 4E+W+S+N.I.Streaming
357DAlternative method of calculating relevant IP profits: “streaming”

(1)A company may elect to apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of any trade of the company for an accounting period.

(2)An election made under subsection (1) is known as a “streaming election”.

(3)A streaming election has effect—

(a)for the accounting period for which it is made, and

(b)for each subsequent accounting period.

This is subject to section 357DB.

(4)If any of the mandatory streaming conditions in section 357DC is met in relation to a trade of a company for an accounting period, the company must apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of the trade for that accounting period.

357DARelevant IP profits

(1)To determine the relevant IP profits of a trade of a company for an accounting period in accordance with this section—

  • Step 1 Take any amounts which are brought into account as credits in calculating the profits of the trade for the accounting period, other than any amounts of finance income (see section 357CB), and divide them into two “streams”, amounts of relevant IP income (see sections 357CC and 357CD) and amounts that are not amounts of relevant IP income. The stream consisting of relevant IP income is “the relevant IP income stream”.

  • Step 2 Take any amounts which are brought into account as debits in calculating the profits of the trade for the accounting period, other than any amounts referred to in section 357CG(3), and allocate them on a just and reasonable basis between the two streams. (See also section 357CG(5).)

  • Step 3 Deduct from the relevant IP income stream the amounts allocated to that stream under Step 2.

  • Step 4 Deduct from the amount given by Step 3 the routine return figure (see subsection (4)). The amount given by this step is the “qualifying residual profit”.

    If the amount of the qualifying residual profit is not greater than nil, go to Step 7.

  • Step 5 If the company has elected for small claims treatment, calculate the small claims amount in relation to the trade (see section 357CM). If the company has not, go to Step 6.

  • Step 6 Deduct from the qualifying residual profit the marketing assets return figure (see section 357CN and subsection (6)).

  • Step 7 If the company has made an election under section 357CQ (which provides in certain circumstances for profits arising before the grant of a right to be treated as relevant IP profits), add to the amount given by Step 5 or 6 (or, if the amount of the qualifying residual profit was not greater than nil, Step 4) any amount determined in accordance with subsection (3) of that section.

(2)If the amount given by subsection (1) is greater than nil, that amount is the relevant IP profits of the trade for the accounting period.

(3)If the amount given by subsection (1) is less than nil, that amount is the relevant IP losses of the trade for the accounting period (see Chapter 5).

(4)The routine return figure, in relation to a trade of a company for an accounting period, is 10% of the aggregate of any routine deductions which—

(a)have been made by the company in calculating the profits of the trade for the accounting period, and

(b)have been allocated to the relevant IP income stream under Step 2.

In this subsection “routine deductions” is to be read in accordance with sections 357CJ and 357CK.

(5)Subsections (2) and (3) of section 357CI have effect for the purposes of subsection (4) of this section as they have effect for the purposes of that section.

(6)For the purposes of determining the marketing assets return figure in Step 6, section 357CP (actual marketing royalty) has effect as if the reference to X% of the aggregate of any sums falling within subsection (1) of that section were a reference to the aggregate of any such sums which have been allocated to the relevant IP income stream under Step 2.

357DBMethod of allocation

(1)In this section “method of allocation” means the method of allocating, for the purposes of Step 2 in section 357DA(1), the amounts mentioned in that step.

(2)A company that applies section 357DA for the purposes of determining the relevant IP profits of a trade of the company for an accounting period must use the same method of allocation in relation to the trade for that accounting period as it used in the last accounting period of the company for which it applied that section for the purposes of determining the relevant IP profits of the trade.

(3)But subsection (2) does not apply if there is a change of circumstances relating to the trade which makes the use of that method of allocation in relation to the trade for the accounting period inappropriate.

(4)In such a case, the company may—

(a)use a different method of allocation in relation to the trade for the accounting period (and subsection (2) applies accordingly for subsequent accounting periods), or

(b)elect not to apply section 357DA for the purposes of determining the relevant IP profits of the trade for the accounting period.

(5)Subsection (4)(b) does not prevent the company making a fresh streaming election in relation to the trade for any subsequent accounting period.

357DCThe mandatory streaming conditions

(1)Mandatory streaming condition A is met in relation to a trade of a company for an accounting period if—

(a)any amount brought into account as a credit in calculating the profits of the trade for the accounting period is not fully recognised as revenue for the accounting period, and

(b)the amount, or the aggregate of any such amounts, is substantial.

(2)An amount is a “substantial” amount for the purposes of this section if it is greater than—

(a)£2,000,000, or

(b)20% of the total gross income of the trade for the accounting period,

whichever is the lower.

(3)But an amount is not a substantial amount for the purposes of this section if it does not exceed £50,000.

(4)The reference in subsection (1)(a) to an amount brought into account as a credit includes a reference to any amount brought into account by virtue of section 147 of TIOPA 2010 (basic transfer-pricing rule).

(5)Mandatory streaming condition B is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes—

(a)relevant IP income, and

(b)a substantial amount of licensing income that is not relevant IP income.

(6)In subsection (5) “licensing income” means income consisting of any licence fee, royalty or other payment which the company has received under an agreement granting another person any right in respect of any intellectual property held by the company.

Intellectual property” has the meaning given by section 712(3) of CTA 2009.

(7)Mandatory streaming condition C is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes—

(a)income that is not relevant IP income, and

(b)a substantial amount of relevant Head 2 income.

(8)Income is “relevant Head 2 income” for the purposes of subsection (7) if—

(a)it is relevant IP income received under an agreement falling within subsection (6) of section 357CC, and

(b)every qualifying IP right—

(i)in respect of which a right within paragraph (a) of that subsection is granted by the agreement, or

(ii)which is granted in respect of an invention in respect of which a right within paragraph (b) of that subsection is granted by the agreement,

is a right in respect of which the company holds an exclusive licence.

(9)In a case where—

(a)relevant IP income is received under an agreement falling within section 357CC(6), but

(b)the condition in paragraph (b) of subsection (8) above is not met,

so much of the relevant IP income as on a just and reasonable apportionment is attributable to any qualifying IP right falling within that paragraph is relevant Head 2 income for the purposes of subsection (7).

CHAPTER 5E+W+S+N.I.Relevant IP losses
357ECompany with relevant IP losses: set-off amount

Where a company would be entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period but for the fact that there are relevant IP losses of the trade for the accounting period, there is a “set-off amount” in relation to the trade of the company for the accounting period which is equal to the amount of the relevant IP losses.

357EAEffect of set-off amount on company with more than one trade

(1)This section applies where—

(a)there is a set-off amount in relation to a trade of a company for an accounting period, and

(b)the company carries on any other trade.

(2)The set-off amount is to be reduced (but not to below nil) by any relevant IP profits of that other trade for the accounting period.

(3)Section 357A does not apply in relation to so much of the amount of relevant IP profits of that other trade for the accounting period as is equal to the amount by which the set-off amount is reduced under subsection (2).

357EBAllocation of set-off amount within a group

(1)This section applies where—

(a)there is a set-off amount in relation to a trade of a company for an accounting period,

(b)the company is a member of a group, and

(c)the set-off amount has not been reduced to nil by the operation of section 357EA(2).

(2)The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to be reduced (but not to below nil) by any relevant IP profits of a trade of a relevant group member for the relevant accounting period.

(3)For the purposes of this section—

(a)relevant group member” means another member of the group that has made an election under section 357A and is a qualifying company for the relevant accounting period, and

(b)relevant accounting period”, in relation to a company, means the accounting period of the company in or at the end of which the accounting period mentioned in subsection (1)(a) ends.

(4)Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the relevant group member for the relevant accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2)) is reduced under subsection (2).

(5)Where there is more than one relevant group member, the relevant group members may jointly determine the order in which subsection (2) is to apply to them.

(6)If no determination is made under subsection (5), subsection (2) is to apply first to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period, then to the trade that has the second greatest amount of relevant IP profits of any of those trades for such a period, and so on.

357ECCarry-forward of set-off amount

(1)This section applies where—

(a)there is a set-off amount in relation to a trade of a company for an accounting period, and

(b)the set-off amount has not been reduced to nil by the operation of section 357EA(2) or 357EB(2).

(2)The set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is to be reduced (but not to below nil) by the amount of any relevant IP profits of the trade of the company for the current accounting period.

The “current accounting period” is the accounting period immediately following the accounting period mentioned in subsection (1)(a).

(3)Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the company for the current accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is reduced under subsection (2).

(4)If any portion of the set-off amount remains after the operation of subsection (2), that portion (“the remaining portion”) is to be treated as the set-off amount in relation to the trade of the company for the current accounting period (and the provisions of this Chapter apply accordingly).

(5)If there are relevant IP losses of the trade of the company for the current accounting period, the set-off amount in relation to the trade of the company for that accounting period is the aggregate of the remaining portion and an amount equal to the amount of those relevant IP losses (and the provisions of this Chapter apply accordingly).

357EDCompany ceasing to carry on trade, etc

(1)This section applies where—

(a)there is a set-off amount in relation to a trade of a company for an accounting period, and

(b)at any time in the accounting period immediately following that accounting period, the company meets any of the conditions in subsection (2).

(2)The conditions are—

(a)that the company ceases to carry on the trade,

(b)that the company ceases to be within the charge to corporation tax in respect of the trade, or

(c)that any election made by the company under section 357A ceases to have effect.

(3)Sections 357EA to 357EC continue to have effect in relation to the set-off amount subject to the following provisions of this section.

(4)Section 357EB has effect as if—

(a)the reference in subsection (1)(b) to the company being a member of a group were a reference to the company having been a member of the group at the time referred to in subsection (1)(b) of this section,

(b)for subsection (2) there were substituted—

(2)The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to become, or be added to, the set-off amount in relation to a trade of a relevant group member for the relevant accounting period.,

(c)subsection (4) were omitted,

(d)for the words after “determine” in subsection (5) there were substituted “ the relevant group member to which subsection (2) is to apply ”, and

(e)for subsection (6) there were substituted—

(6)If no determination is made under subsection (5), subsection (2) is to apply to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period.

(7)If there is no relevant group member with any relevant IP profits of a trade for the relevant accounting period, subsection (2) is to apply to the trade that has the greatest set-off amount in relation to any trade of any of the relevant group members for a relevant accounting period.

(5)Sections 357EA to 357EC cease to have effect in relation to the set-off amount in relation to the trade of the company for an accounting period if—

(a)the company is not carrying on any other trade in that accounting period, and

(b)in the case of a company that was a member of a group at the time referred to in subsection (1)(b) of this section, none of the members of the group is a relevant group member (within the meaning of section 357EB).

(6)In such a case, the set-off amount (so far as remaining after the operation of those sections) is to be reduced to nil.

357EETransfer of a trade between group members

(1)This section applies where—

(a)there is a set-off amount in relation to a trade of a company for an accounting period,

(b)the company is a member of a group,

(c)the company ceases to carry on the trade, and

(d)another company (“the transferee”) that is a member of the group begins to carry on that trade.

(2)For the purposes of this Chapter an amount equal to the set-off amount is to become, or be added to, the set-off amount in relation to the trade of the transferee for the accounting period in which the transferee begins to carry on the trade.

357EFPayments between group members in consequence of section 357EB

(1)This section applies if—

(a)there is a set-off amount in relation to a trade of a company for an accounting period,

(b)subsection (2) of section 357EB has effect in relation to a relevant group member for the relevant accounting period (within the meaning of that section),

(c)the company and the relevant group member have an agreement between them in relation to the relevant IP losses of the company, and

(d)as a result of the agreement the company makes a payment to the relevant group member that does not exceed the reduction in the relevant IP profits of the relevant group member arising under section 357EB(4).

(2)The payment—

(a)is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and

(b)is not for any purposes of the Corporation Tax Acts to be regarded as a distribution.

(3)In a case where section 357ED applies (company ceasing to carry on trade, etc), the reference in subsection (1)(d) to the reduction in the relevant IP profits of the relevant group member is to be read as a reference to the amount that becomes, or is added to, the set-off amount in relation to a trade of the relevant group member for the relevant accounting period under section 357EB(2).

CHAPTER 6E+W+S+N.I.Anti-avoidance
Licences conferring exclusive rightsE+W+S+N.I.
357FLicences conferring exclusive rights

A licence that confers any right in respect of a qualifying IP right to the exclusion of all other persons is not to be regarded as an exclusive licence if the main purpose, or one of the main purposes, of conferring the right is to secure that the licence is an exclusive licence for the purposes of this Part.

Incorporation of qualifying itemsE+W+S+N.I.
357FAIncorporation of qualifying items

(1)Income arising from the sale of any item that incorporates a qualifying item is not relevant IP income if the main purpose, or one of the main purposes, of incorporating the qualifying item is to secure that income arising from any such sale is relevant IP income.

(2)Qualifying item” has the same meaning as in section 357CC(2).

Tax advantage schemesE+W+S+N.I.
357FBTax advantage schemes

(1)This section applies where—

(a)a company is entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period,

(b)the company is or has at any time been a party to a scheme, and

(c)the main purpose, or one of the main purposes, of the company or, where the company is a member of a group, any member of the group in being a party to the scheme is (or was) to obtain the chance of securing a relevant tax advantage.

(2)There is a “relevant tax advantage” for the purposes of this section if—

(a)(apart from this section) there would be an increase in the amount of any deduction made under section 357A(2) in calculating the profits of a trade of the company or (as the case may be) any other member of the group for any accounting period, and

(b)the increase would arise from—

(i)the avoidance of the operation of any provision of this Part,

(ii)artificially inflating the amount of relevant IP income brought into account in calculating those profits (see subsection (3)), or

(iii)a mismatch between relevant IP income and expenditure (see subsection (4)).

(3)The reference in subsection (2)(b) to artificially inflating the amount of relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is a reference to doing any of the following—

(a)bringing into account in calculating those profits an amount of relevant IP income that wholly or substantially corresponds to an increase in the amounts brought into account as debits in calculating those profits;

(b)bringing into account in calculating those profits an additional amount of relevant IP income that wholly or substantially corresponds to a decrease in the amount of income that is not relevant IP income which is brought into account in calculating those profits.

(4)For the purposes of this section there is a mismatch between relevant IP income and expenditure if—

(a)any relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is attributable to any qualifying IP right or an exclusive licence in respect of any such right, and

(b)any expenditure incurred in relation to that right is brought into account in calculating the profits of a trade of the company or (as the case may be) any other member of the group for an accounting period for which an election under section 357A did not have effect.

(5)The amount of the deduction which may be made by the company for the accounting period mentioned in subsection (1)(a) is the amount that would secure that no relevant tax advantage arises (and may be nil).

(6)In this section “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions.

CHAPTER 7E+W+S+N.I.Supplementary
Elections under section 357AE+W+S+N.I.
357GMaking of election under section 357A

(1)An election made by a company under section 357A is made by giving notice to an officer of Revenue and Customs.

(2)The notice must specify the first accounting period of the company for which the election is to have effect.

(3)The notice must be given on or before the last day on which an amendment of the company's tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998.

(4)The election has effect in relation to each trade carried on by the company.

(5)Subject to section 357GA, the election has effect for the accounting period specified in the notice and all subsequent accounting periods of the company.

357GARevocation of election made under section 357A

(1)A company may revoke an election made by it under section 357A by giving notice to an officer of Revenue and Customs.

(2)The notice must specify the first accounting period of the company for which the revocation is to have effect.

(3)The notice must be given on or before the last day on which an amendment of the company's tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998.

(4)The revocation has effect in relation to the accounting period specified in the notice and all subsequent accounting periods of the company.

(5)An election made under section 357A by a company that has given notice under this section does not have effect in relation to any accounting period of the company that begins before the end of the period of 5 years beginning with the day after the last day of the accounting period specified in the notice.

PartnershipsE+W+S+N.I.
357GBApplication of this Part in relation to partnerships

(1)This section applies if a firm (within the meaning of CTA 2009) carries on a trade and any partner in the firm is a company within the charge to corporation tax.

Such a partner is referred to in this section as a “corporate partner”.

(2)Subject to the following provisions of this section, this Part applies in relation to the firm as it applies in relation to a company.

(3)Any election under this Part—

(a)may be made or revoked not by the firm but instead by any one or more of the corporate partners (whether jointly or otherwise), and

(b)has effect in relation to each corporate partner making or revoking it as if made or revoked by the firm.

(4)Accordingly, any reference in section 357G(3) or 357GA(3) (time limit for making or revoking elections under section 357A) to the company making or revoking the election is to be read as a reference to the corporate partner so doing.

(5)Section 1261 of CTA 2009 (accounting periods of firms) applies for the purposes of this Part as it applies for the purposes of Part 17 of that Act.

(6)Section 357B (meaning of “qualifying company”) has effect as if in subsection (1) the words “in the case of a company that is a member of a group” were omitted.

(7)For the purposes of this Part the firm meets the development condition in relation to a right to which this Part applies if—

(a)the firm has at any time carried out qualifying development in relation to the right, or

(b)there is a relevant corporate partner in the firm who meets the development condition in relation to the right.

(8)A “relevant corporate partner” is a corporate partner who is entitled to a share of at least 40% of the profits or losses of the firm for any accounting period of the firm.

(9)Section 357BD applies for the purposes of subsection (7)(a) of this section as it applies for the purposes of section 357BC.

(10)Section 357BE (active ownership condition) has effect as if the reference in subsection (4) to section 357BC(2) or (3) included a reference to subsection (7)(a) of this section.

(11)Sections 357CL and 357CM (election for small claims treatment) have effect as if—

(a)any reference to a company having one or more associated companies were a reference to any corporate partner in relation to which an election under section 357CL has effect having one or more associated companies, and

(b)any reference to a company having no associated company were a reference to each such corporate partner having no associated company.

(12)Subsection (13) applies where a corporate partner is a party to an arrangement at any time during an accounting period of the firm which produces for the corporate partner a return within section 357CB(1)(c).

(13)For the accounting period of the firm the corporate partner's share of a profit or loss of a trade carried on by the firm is determined for corporation tax purposes as if no election under section 357A had effect in relation to the trade.

Cost-sharing arrangementsE+W+S+N.I.
357GCApplication of this Part in relation to cost-sharing arrangements

(1)This section applies where a company is a party to an arrangement under which—

(a)one of the parties to the arrangement holds a qualifying IP right or an exclusive licence in respect of such a right,

(b)each of the parties to the arrangement is required to contribute to the cost of, or perform activities for the purpose of, creating or developing the invention or any item or process incorporating the invention,

(c)under the arrangement each of those parties—

(i)is entitled to a share of any income attributable to the right or licence, or

(ii)has one or more rights in respect of the invention, and

(d)the amount of any income received by each of those parties is proportionate to its participation in the arrangement as described in paragraph (b).

(2)The company is to be treated for the purposes of this Part as if it held the qualifying IP right or (as the case may be) the exclusive licence in respect of the qualifying IP right.

(3)But this section does not apply where the arrangement produces for the company a return within section 357CB(1)(c).

(4)The reference in subsection (1)(b) to developing the invention includes developing ways in which the invention may be used or applied.

InterpretationE+W+S+N.I.
357GDMeaning of “group”

(1)For the purposes of this Part a company (“company A”) is a member of a group at any time if any other company is at that time associated with company A.

(2)The group consists of company A and each company in relation to which the condition in subsection (1) is met.

(3)For the purposes of this section a company (“company B”) is associated with company A at a time (“the relevant time”) if any of the following five conditions is met.

(4)The first condition is that the financial results of company A and company B, for a period that includes the relevant time, meet the consolidation condition.

(5)The second condition is that there is a connection between company A and company B for the accounting period of company A in which the relevant time falls.

(6)The third condition is that, at the relevant time, company A has a major interest in company B or company B has a major interest in company A.

(7)The fourth condition is that—

(a)the financial results of company A and a third company, for a period that includes the relevant time, meet the consolidation condition, and

(b)at the relevant time the third company has a major interest in company B.

(8)The fifth condition is that—

(a)there is a connection between company A and a third company for the accounting period of company A in which the relevant time falls, and

(b)at the relevant time the third company has a major interest in company B.

(9)In this section, the financial results of any two companies for any period meet “the consolidation condition” if—

(a)they are required to be fully comprised in group accounts,

(b)they would be required to be fully comprised in such accounts but for the application of an exemption, or

(c)they are in fact fully comprised in such accounts.

(10)In subsection (9) “group accounts” means accounts prepared under—

(a)section 399 of the Companies Act 2006, or

(b)any corresponding provision of the law of a country or territory outside the United Kingdom.

(11)The following provisions apply for the purposes of this section—

  • sections 466 to 471 of CTA 2009 (companies connected for accounting period), and

  • sections 473 and 474 of CTA 2009 (meaning of “major interest”).

357GEOther interpretation

(1)In this Part—

  • invention”, in relation to a right to which this Part applies, means the item or process in respect of which the right is granted,

  • item” includes any substance,

  • the OECD Model Tax Convention” means—

    (a)

    the version of the Model Tax Convention on Income and on Capital published in July 2010 by the Organisation for Economic Co-operation and Development (“the OECD”), or

    (b)

    such other document approved and published by the OECD in place of that (or a later) version or in place of that Convention as is designated for the time being by order made by the Treasury,

  • the OECD transfer pricing guidelines” means—

    (a)

    the version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations published in July 2010 by the OECD, or

    (b)

    such other document approved and published by the OECD in place of that (or a later) version or in place of those Guidelines as is designated for the time being by order made by the Treasury,

    including, in either case, such material published by the OECD as part of (or by way of update or supplement to) the version or other document concerned as may be so designated, and

  • “qualifying residual profit” of a trade, in relation to any accounting period, is the amount obtained by the application of Steps 1 to 4 in section 357C or (as the case may be) section 357DA in relation to the trade for the accounting period.

(2)Any reference in this Part to calculating the profits of a trade of a company for an accounting period is a reference to calculating those profits for corporation tax purposes (and any reference to the profits or losses of a trade of a company for an accounting period is to be read accordingly).

(2)In Schedule 4 to CTA 2010 (index of defined expressions), at the appropriate place insert—

exclusive licence (in Part 8A)section 357BA;
finance income (in Part 8A)section 357CB;
group (in Part 8A)section 357GD;
invention (in Part 8A)section 357GE;
item (in Part 8A)section 357GE;
the OECD Model Tax Convention (in Part 8A)section 357GE;
the OECD transfer pricing guidelines (in Part 8A)section 357GE;
qualifying company (in Part 8A)section 357B;
qualifying IP right (in Part 8A)section 357B(4);
qualifying residual profit of a trade (in Part 8A)section 357GE;
relevant IP income (in Part 8A)section 357CC;
total gross income of a trade (in Part 8A)section 357CA.

PART 2 E+W+S+N.I.Amendments of TIOPA 2010

2In Part 4 of TIOPA 2010 (transfer pricing), Chapter 3 (exemptions from basic rule) is amended as follows.

3In section 166 (exemption for small and medium-sized enterprises), in subsection (2)(a), for “section 167” substitute “ sections 167 and 167A ”.

4After section 167 insert—

167ASmall enterprises: exception from exemption: transfer pricing notice

(1)Section 166(1) does not apply in relation to any provision made or imposed if—

(a)the potentially advantaged person is a small enterprise for the chargeable period,

(b)the person meets the condition in subsection (2), and

(c)the Commissioners for Her Majesty's Revenue and Customs give that person a notice requiring the person to calculate the profits and losses of that chargeable period in accordance with section 147(3) or (5) in the case of that provision.

(2)A person meets the condition referred to in subsection (1)(b) if—

(a)provision has been made or imposed as between the person and any other person by means of a transaction or series of transactions,

(b)the basic pre-condition in section 147 is met in respect of the provision, and

(c)the transaction, or one or more of the series of transactions, is taken into account in calculating, for the purposes of Part 8A of CTA 2010 (profits arising from the exploitation of patents etc), the relevant IP profits of a trade of a person who is or was a party to the transaction or transactions.

(3)A notice under subsection (1) is referred to in this Chapter as a transfer pricing notice.

5In section 170 (appeals against transfer pricing notices), in subsection (1), for the words from “on the ground that” to the end substitute on one of the following grounds—

(a)that the condition in section 167A(1)(b) is not met, or

(b)that the condition in section 168(1)(a) is not met.

6In section 171 (tax returns where transfer pricing notice given), in subsection (3)(a), before “medium-sized” insert “ small or ”.

PART 3 E+W+S+N.I.Commencement and transitional provision

ApplicationE+W+S+N.I.

7(1)The amendments made by this Schedule have effect in relation to accounting periods beginning on or after 1 April 2013 for which an election under section 357A of CTA 2010 has effect.E+W+S+N.I.

(2)Sub-paragraph (3) applies where a company has an accounting period beginning before 1 April 2013 and ending on or after that date (“the straddling period”).

(3)For the purposes of Part 8A of CTA 2010—

(a)so much of the straddling period as falls before 1 April 2013, and so much of that period as falls on or after that date, are treated as separate accounting periods, and

(b)any amounts brought into account for the purposes of calculating for corporation tax purposes the profits of any trade of the company for the straddling period are apportioned to the two separate accounting periods on such basis as is just and reasonable.

Special treatment of profits from patents etc to be phased inE+W+S+N.I.

8(1)In each of the financial years in the Table below, the reference to RP in the formula in section 357A(3) of CTA 2010 is to be read as a reference to the percentage of RP given for that year—E+W+S+N.I.

Financial yearPercentage of RP
201360%
201470%
201580%
201690%

(2)Sub-paragraph (3) applies where there is a set-off amount in relation to any trade of a company for an accounting period falling wholly or partly within a financial year mentioned in the Table in sub-paragraph (1) (“the relevant year”) and—

(a)section 357EB of CTA 2010 (allocation of set-off amount within group) applies in relation to the set-off amount (or so much of it as remains after the operation of section 357EA(2) of that Act) for a relevant accounting period falling wholly or partly within the financial year following the relevant year, or

(b)section 357EC of that Act (carry-forward of set-off amount) applies in relation to the set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2) of that Act).

(3)For the purposes of section 357EB or (as the case may be) 357EC of CTA 2010 there is to be deducted from the relevant amount an amount equal to the appropriate fraction of that amount.

“The relevant amount” is the amount in relation to which that section applies as mentioned in sub-paragraph (2).

(4)The appropriate fraction is—

where P is—

a

the percentage given as the percentage of RP by that Table for the financial year following the relevant year, or

b

where the relevant year is the financial year 2016, 100%.

(5)If a company's accounting period falls within more than one financial year—

(a)the amount of any relevant IP profits of a trade of the company for the accounting period, and

(b)where sub-paragraph (3) applies, the relevant amount (within the meaning of that sub-paragraph),

must for the purposes of this paragraph be apportioned between the financial years in which the accounting period falls on such basis as is just and reasonable.

(6)In this paragraph—

  • relevant accounting period” has the meaning given by section 357EB(3) of CTA 2010,

  • relevant IP profits”, in relation to a trade of a company for an accounting period, has the same meaning in this paragraph as in Part 8A of that Act, and

  • set-off amount”, in relation to a trade of a company for an accounting period, is to be read in accordance with Chapter 5 of that Act.

Section 20

SCHEDULE 3E+W+S+N.I.Relief for expenditure on R&D

IntroductoryE+W+S+N.I.

1Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows.

Amount of relief for expenditure on R&D by small or medium-sized enterprises (“SMEs”)E+W+S+N.I.

2(1)Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows.E+W+S+N.I.

F1(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5)In section 1058 (amount of tax credit), in subsection (1)(a), for “12.5%” substitute “ 11% ”.

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Amendments (Textual)

F1Sch. 3 para. 2(2)-(4) omitted (with effect in accordance with s. 27(5) of the amending Act) by virtue of Finance Act 2015 (c. 11), s. 27(4)

Removal of R&D thresholdE+W+S+N.I.

3(1)Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows.E+W+S+N.I.

(2)In section 1043 (overview of Chapter), in subsection (3), omit paragraph (e) (but not the “and” after it).

(3)In section 1044 (additional deduction in calculating profits of trade), omit subsection (3).

(4)In section 1045 (alternative treatment for pre-trading expenditure: deemed trading loss)—

(a)in subsection (1), omit “, B”, and

(b)omit subsection (3).

(5)Omit section 1050 (R&D threshold).

4(1)Chapter 3 (relief for SMEs: R&D sub-contracted to SME) is amended as follows.E+W+S+N.I.

(2)In section 1063 (additional deduction in calculating profits of trade)—

(a)in subsection (1), omit “, B”, and

(b)omit subsection (3).

(3)Omit section 1064 (R&D threshold).

5(1)Chapter 4 (relief for SMEs: subsidised and capped expenditure on R&D) is amended as follows.E+W+S+N.I.

(2)In section 1068 (additional deduction in calculating profits of trade)—

(a)in subsection (1), omit “, B”, and

(b)omit subsection (3).

(3)Omit section 1069 (R&D threshold).

6(1)Chapter 5 (relief for large companies) is amended as follows.E+W+S+N.I.

(2)In section 1074 (additional deduction in calculating profits of trade)—

(a)in subsection (1), omit “, B”, and

(b)omit subsection (3).

(3)Omit section 1075 (R&D threshold).

F27. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F2Sch. 3 para. 7 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

8In consequence of the amendments made by paragraphs 3 to 7, in Schedule 4 to CTA 2009 omit each of the entries for “R&D threshold”.

Company not a going concern when in administration or liquidationE+W+S+N.I.

9Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows.

10(1)Section 1046 (relief only available where company is going concern) is amended as follows.E+W+S+N.I.

(2)At the end of subsection (2) insert—

This is subject to subsection (2A).

(3)After subsection (2) insert—

(2A)A company is not a going concern at any time if it is in administration or liquidation at that time.

(2B)For the purposes of this section a company is in administration if—

(a)it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b)a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(2C)For the purposes of this section a company is in liquidation if—

(a)it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b)a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

11(1)Section 1057 (tax credit only available where company is going concern) is amended as follows.E+W+S+N.I.

(2)At the end of subsection (4) insert—

This is subject to subsection (4A).

(3)After subsection (4) insert—

(4A)A company is not a going concern at any time if it is in administration or liquidation at that time.

(4B)For the purposes of this section a company is in administration if—

(a)it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b)a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(4C)For the purposes of this section a company is in liquidation if—

(a)it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b)a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

F312. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F3Sch. 3 paras. 12-14 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F313. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F3Sch. 3 paras. 12-14 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F314. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F3Sch. 3 paras. 12-14 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

Removal of limit on amount of tax credit based on PAYE and NIC liabilitiesE+W+S+N.I.

15(1)Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows.E+W+S+N.I.

(2)In section 1058 (amount of tax credit), in subsection (1), omit paragraph (b) (and the “or” before it).

(3)Omit section 1059 (total amount of company's PAYE and NIC liabilities).

Abolition of vaccine research relief for SMEsE+W+S+N.I.

16(1)Section 1039 (overview of Part 13) is amended as follows.E+W+S+N.I.

F4(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)In subsection (7)—

(a)for “Chapters 2 and 7 also provide” substitute “ Chapter 2 also provides ”, and

(b)in paragraph (a), omit “or 7”.

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Amendments (Textual)

F4Sch. 3 para. 16(2) omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F517. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F5Sch. 3 para. 17 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

18In section 1046 (relief only available where company is going concern), in subsection (2)(b), omit “or Chapter 7”.

19In section 1057 (tax credit only available where company is going concern), in subsection (4)(b), omit “or Chapter 7”.

F620. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F621. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F622. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F623. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F624. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F625. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F626. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F627. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F628. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F629. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

F630. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F6Sch. 3 paras. 20-30 omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

31(1)Chapter 8 (cap on aid for R&D) is amended as follows.E+W+S+N.I.

F7(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)In section 1115 (“the tax credits”), in subsection (1), omit “or 7”.

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Amendments (Textual)

F7Sch. 3 para. 31(2) omitted (with effect in accordance with s. 47(15) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 47(14)(a)

32In consequence of the amendments made by paragraphs 16 to 31—

(a)in Schedule 4 to CTA 2009 (index of defined expressions), omit the entry for “Chapter 7 surrenderable loss”,

(b)in Schedule 1 to CTA 2010, omit paragraphs 672 to 674, and

(c)in section 43 of FA 2011, omit subsections (7) to (11).

Qualifying expenditure on externally provided workersE+W+S+N.I.

33Chapter 9 (supplementary) is amended as follows.

34(1)Section 1128 (“externally provided worker”) is amended as follows.E+W+S+N.I.

(2)In subsection (7), for “the staff provider” substitute “ a person other than the company (the “staff controller”) ”.

(3)After subsection (8) insert—

(9)In sections 1129 to 1131 references to “staff controller” are to be read in accordance with subsection (7).

35(1)Section 1129 (connected persons) is amended as follows.E+W+S+N.I.

(2)In subsection (1), for paragraphs (b) and (c) substitute—

(b)the company, the staff provider and (if different) the staff controller (or staff controllers) are all connected, and

(c)in accordance with generally accepted accounting practice—

(i)the whole of the staff provision payment has been brought into account in determining the staff provider's profit or loss for a relevant period, and

(ii)all of the relevant expenditure of each staff controller has been brought into account in determining the staff controller's profit or loss for a relevant period.

(3)In subsection (2)(b), for “the staff provider's relevant expenditure” substitute “ the aggregate of the relevant expenditure of each staff controller ”.

(4)In subsection (3)—

(a)for “of the staff provider” substitute “ , in relation to a staff controller, ”, and

(b)in paragraph (a), for “staff provider” substitute “ staff controller ”.

(5)In subsection (4)—

(a)after “ “Relevant period”” insert “ , in relation to a person, ”, and

(b)in paragraph (a), for “staff provider” substitute “ person ”.

(6)In subsection (5)—

(a)for “the staff provider's expenditure” substitute “ the expenditure of a staff controller ”, and

(b)for “the staff provider” substitute “ a staff controller ”.

(7)In subsection (7), for “staff provider” substitute “ a staff controller ”.

36(1)Section 1130 (election for connected persons treatment) is amended as follows.E+W+S+N.I.

(2)For subsection (1) substitute—

(1)If—

(a)a company makes a staff provision payment, and

(b)the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected,

they may jointly elect that section 1129 is to apply to them as if they were all connected.

(3)In subsection (2), for “must be made” substitute “ has effect ”.

37In section 1131 (qualifying expenditure on externally provided workers: other cases), in subsection (1), for paragraph (b) (but not the “and” following it) substitute—

(b)the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected,.

ApplicationE+W+S+N.I.

38The amendments made by paragraphs 2 and 16 to 37 have effect in relation to expenditure incurred on or after 1 April 2012.

39The amendments made by paragraphs 3 to 8 and 15 have effect in relation to accounting periods ending on or after 1 April 2012.

40The amendments made by paragraphs 9 to 14 have effect in relation to claims or elections made on or after 1 April 2012.

Section 21

SCHEDULE 4E+W+S+N.I.Real estate investment trusts

IntroductionE+W+S+N.I.

1Part 12 of CTA 2010 (real estate investment trusts) is amended as follows.

Being a UK REIT: conditions for company - close companiesE+W+S+N.I.

2(1)Section 525 (becoming a UK REIT: supplementary provision) is amended as follows.E+W+S+N.I.

(2)In subsection (1)(c) for “the conditions” substitute “ conditions A, B, C, E and F ”.

(3)In subsection (4)(a) omit “D,”.

(4)Omit subsections (5) to (8).

3In section 527 (being a UK REIT in relation to an accounting period) after subsection (4) insert—

(5)Subsections (2)(a) and (3)(a) are also subject to subsections (6) to (8).

(6)If the accounting period ends during the first 3-year period, condition D in section 528 does not have to be met.

(7)If the accounting period begins, but does not end, during the first 3- year period, condition D in section 528 only has to be met throughout the part of the accounting period falling after the end of the first 3- year period.

(8)In subsections (6) and (7) “the first 3-year period” means the period of 3 years beginning with the date specified in the notice given under section 523 or 524.

4(1)Section 528 (conditions for company) is amended as follows.E+W+S+N.I.

(2)In subsection (4)(b) for the words from “a limited partnership” to the end substitute “ an institutional investor ”.

(3)After subsection (4) insert—

(4A)Institutional investor” means any of the following persons—

(a)the trustee or manager of—

(i)an authorised unit trust scheme (as defined in section 237(3) of FISMA 2000), or

(ii)a unit trust scheme (as defined in section 237(1) of FISMA 2000) which is authorised under the law of a territory outside the United Kingdom in a way which makes it, under that law, the equivalent of an authorised unit trust scheme (as defined in section 237(3) of that Act);

(b)a company—

(i)which is an open-ended investment company (as defined in section 236(1) of FISMA 2000) incorporated by virtue of regulations under section 262 of that Act, or

(ii)which is incorporated under the law of a territory outside the United Kingdom and is, under that law, the equivalent of an open-ended investment company (as defined in section 236(1) of FISMA 2000);

(c)a person acting on behalf of a limited partnership which is a collective investment scheme (as defined in section 235 of FISMA 2000);

(d)the trustee or manager of a pension scheme (as defined in section 150(1) of FA 2004);

(e)a person acting in the course of a long-term insurance business (that is, the activity of effecting or carrying out contracts of long-term insurance within the meaning of the Financial Services and Markets (Regulated Activities) Order 2001 (S.I. 2001/544)) who—

(i)is authorised under FISMA 2000 to carry on such business, or

(ii)has an equivalent authorisation under the law of a territory outside the United Kingdom to carry on such business;

(f)a charity;

(g)a person registered under any of the following provisions (which provide for registers of social landlords)—

(i)in England, section 111 of the Housing and Regeneration Act 2008;

(ii)in Scotland, section 20 of the Housing (Scotland) Act 2010 (asp 17);

(iii)in Wales, section 1 of the Housing Act 1996;

(iv)in Northern Ireland, Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15));

(h)a person who cannot be liable for corporation tax or income tax (as relevant) on the ground of sovereign immunity.

(4B)The Treasury may by regulations amend the definition of “institutional investor” by inserting, omitting or amending a description of person in subsection (4A).

5In section 558 (demergers: disposal of asset) in subsections (3) and (6) for “C to F” substitute “ C, E and F ”.

6In section 559 (demergers: company leaving group UK REIT) in subsections (6) and (9) for “C to F” substitute “ C, E and F ”.

7In section 561 (notice of breach of relevant Chapter 2 condition) after subsection (4) insert—

(5)The following subsections apply in relation to condition D in section 528.

(6)In accordance with section 527(6) and (7), a notification does not have to be given under subsection (1) or (2) if condition D ceases to be met during the first 3-year period.

(7)If condition D is not met at the start of the first day after the end of the first 3-year period, for the purposes of subsections (1) to (4) condition D is treated as having ceased to be met at the start of that day.

(8)In subsections (6) and (7) “the first 3-year period” has the meaning given by section 527(8).

8(1)Section 562 (breach of conditions C and D in section 528) is amended as follows.E+W+S+N.I.

(2)In the heading for “conditions C and D” substitute condition C.

(3)In subsection (1) for the words from “or D” to “conditions)” substitute “ in section 528 ”.

(4)In subsection (2)—

(a)for “both conditions C and D are” substitute “ condition C is ”, and

(b)for “breaches are” substitute “ breach is ”.

(5)Omit subsections (3) and (4).

(6)In subsection (5)—

(a)in paragraph (a) for “either condition C or D” substitute “ condition C ”, and

(b)in paragraph (b) omit “or (3)”.

9After section 562 insert—

562ABreach of condition D in section 528 (conditions for company)

(1)This section makes provision about cases relating to breaches of condition D in section 528 in relation to—

(a)the principal company of a group UK REIT, or

(b)a company UK REIT.

(2)In accordance with section 527(6) and (7), a breach of condition D during the first 3-year period is to be ignored.

(3)If condition D is not met at the start of the first day after the end of the first 3-year period, the group or company (as the case may be) is to be treated as having ceased to be a UK REIT at the end of the first 3-year period.

(4)If condition D is not met at any time after the start of the day mentioned in subsection (3), the group or company (as the case may be) is to be treated as having ceased to be a UK REIT at—

(a)the end of the accounting period preceding the accounting period in which the breach began, or

(b)if later, the end of the first 3-year period.

(5)Neither subsection (3) nor subsection (4) applies if condition D is not met as a result of—

(a)the principal company of a group UK REIT becoming a member of another group UK REIT, or

(b)a company UK REIT becoming a member of a group UK REIT,

and, accordingly, the breach is to be ignored.

(6)Subsection (4) does not apply if—

(a)condition D is not met as a result of anything done (or not done) by a person other than the company in question, and

(b)the company remedies the breach not later than the end of the accounting period after that in which the breach began,

and, accordingly, the breach is to be ignored.

(7)But if, in a case within subsection (6), the breach of condition D is not remedied by the time mentioned in that subsection, the group or company (as the case may be) is treated as having ceased to be a UK REIT at the end of the accounting period in which the breach began.

(8)In this section “the first 3-year period” has the meaning given by section 527(8).

10(1)Section 572 (termination by notice given by HMRC) is amended as follows.E+W+S+N.I.

(2)In subsection (2) after “573,” insert “ 573A, ”.

(3)After subsection (5) insert—

(5A)Subsection (4)(a) has effect subject to section 573A(8).

11After section 573 insert—

573ANotice under section 572: condition D in section 528 not met

(1)An officer of Revenue and Customs may give a notice under section 572(1) if—

(a)at any time during the first 3-year period, condition D in section 528 is not met, and

(b)as at that time, subsection (2) has applied to a member of the group or the company (as the case may be) for a period exceeding 3 years or for a number of periods which in total exceed 3 years.

(2)This subsection applies to a company at any time when—

(a)the company is, or is a member of, a UK REIT,

(b)condition D in section 528 is not met in relation to the UK REIT, and

(c)the first 3-year period in relation to the UK REIT has not ended.

(3)Neither subsection (1)(a) nor subsection (2)(b) covers cases in which condition D in section 528 is not met as a result of—

(a)the principal company of a group UK REIT becoming a member of another group UK REIT, or

(b)a company UK REIT becoming a member of a group UK REIT.

(4)Subsection (5) applies if—

(a)a company ceases to carry on a business (“the transferred business”) which it carried on at a time (“the relevant time”) when subsection (2) applied to the company, and

(b)another company (“company X”) begins to carry on the transferred business.

In paragraph (a) the reference to a business includes a part of a business.

(5)Subsection (2) is to be taken to have applied at the relevant time to the following companies—

(a)company X, and

(b)if company X subsequently ceases to carry on the transferred business (or any part of it), any other companies which from time to time carry on the transferred business (or any part of it).

(6)In this section “the first 3-year period” has the meaning given by section 527(8).

(7)If a notice is given under section 572(1) in a case within this section, subsection (8) applies instead of section 572(4)(a).

(8)The group or company (as the case may be) is to be taken to have ceased to be a UK REIT on—

(a)the first day of accounting period 1, or

(b)such later day as may be specified by the officer of Revenue and Customs in the notice.

12(1)Section 577 (multiple breaches of conditions in Chapter 2) is amended as follows.E+W+S+N.I.

(2)In subsection (5)(a) for “section 562(2) and (3)” substitute “ section 562A(6) ”.

(3)In subsection (7)—

(a)in paragraph (b) omit “or D” and “or (5) to (7)”, and

(b)in paragraph (c) for “C to F” substitute “ C, E and F ”.

(4)After subsection (7) insert—

(8)In accordance with section 527(6) and (7), a breach of condition D in section 528 during the first 3-year period (as defined in section 527(8)) is also to be ignored for the purposes of this section.

13(1)The amendments made by paragraph 2 have effect in relation to notices given under section 523 or 524 specifying a date which is on or after the day on which this Act is passed.E+W+S+N.I.

(2)The amendments made by paragraphs 3 to 12 have effect in relation to—

(a)groups of companies in respect of which notices are given under section 523 specifying a date which is on or after the day on which this Act is passed, and

(b)companies which give notices under section 524 specifying a date which is on or after the day on which this Act is passed.

(3)The amendments made by paragraph 4 also have effect in relation to—

(a)groups of companies in respect of which notices are given under section 523 specifying a date which is before the day on which this Act is passed, and

(b)companies which give notices under section 524 specifying a date which is before the day on which this Act is passed,

for accounting periods beginning on or after the day on which this Act is passed (including, in relation to a breach beginning in an accounting period beginning before that day, for the purpose of determining under section 562(3) whether the breach is remedied in an accounting period beginning on or after that day).

Being a UK REIT: conditions for company - trading of shares on recognised stock exchangeE+W+S+N.I.

14In section 527 (being a UK REIT in relation to an accounting period) in subsections (2) and (3) after paragraph (a) insert—

(aa)the condition in section 528A (further condition relating to shares) must be met in relation to the period,.

15In section 528 (conditions for company) in subsection (3) for “listed” substitute “ admitted to trading ”.

16After section 528 insert—

528AFurther condition relating to shares

(1)In the case of a group UK REIT, the condition in this section is met in relation to an accounting period if—

(a)throughout the accounting period, the shares forming the principal company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or

(b)during the accounting period, shares forming part of the principal company's ordinary share capital are traded on a recognised stock exchange.

(2)In the case of a company UK REIT, the condition in this section is met in relation to an accounting period if—

(a)throughout the accounting period, the shares forming the company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or

(b)during the accounting period, shares forming part of the company's ordinary share capital are traded on a recognised stock exchange.

(3)This section is subject to section 528B.

528BRelaxation of section 528A condition for accounting periods 1 to 3

(1)This section relaxes the requirements of section 528A in relation to accounting period 1, accounting period 2 and accounting period 3.

(2)In the case of a group UK REIT, the condition in section 528A is met in relation to accounting period 1, accounting period 2 and accounting period 3 if—

(a)at the end of the relevant period, the shares forming the principal company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or

(b)during the relevant period, shares forming part of the principal company's ordinary share capital are traded on a recognised stock exchange.

(3)In the case of a company UK REIT, the condition in section 528A is met in relation to accounting period 1, accounting period 2 and accounting period 3 if—

(a)at the end of the relevant period, the shares forming the company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or

(b)during the relevant period, shares forming part of the company's ordinary share capital are traded on a recognised stock exchange.

(4)In this section—

  • accounting period 2” means the accounting period following accounting period 1,

  • accounting period 3” means the accounting period following accounting period 2, and

  • the relevant period” means the period consisting of accounting period 1, accounting period 2 and accounting period 3.

17In section 561 (notice of breach of relevant Chapter 2 condition) in subsection (3) before “conditions A and B in section 529” insert—

the condition in section 528A (further condition relating to shares),.

18Before section 563 insert—

562BBreach of further condition relating to shares

(1)Subsection (2) applies if the condition in section 528A (further condition relating to shares) is not met in relation to an accounting period.

(2)The group or company (as the case may be) is to be treated as having ceased to be a UK REIT at the end of the previous accounting period.

(3)But subsection (2) does not apply if the condition is not met as a result of—

(a)the principal company of a group UK REIT becoming a member of another group UK REIT, or

(b)a company UK REIT becoming a member of a group UK REIT,

and, accordingly, the breach is to be ignored.

(4)This section is subject to section 562C.

562CBreach of further condition relating to shares in accounting periods 1, 2 and 3

(1)Subsection (2) applies if the condition in section 528A, as relaxed by section 528B, is not met in relation to accounting period 1, accounting period 2 and accounting period 3.

(2)The group or company (as the case may be) is to be treated as having ceased to be a UK REIT at the end of accounting period 2.

(3)But subsection (2) does not apply if the condition, as relaxed, is not met as a result of—

(a)the principal company of a group UK REIT becoming a member of another group UK REIT, or

(b)a company UK REIT becoming a member of a group UK REIT,

and, accordingly, the breach is to be ignored.

(4)In this section “accounting period 2” and “accounting period 3” have the same meaning as in section 528B.

19(1)Section 572 (termination by notice given by HMRC) is amended as follows.E+W+S+N.I.

(2)In subsection (2) before “574” insert “ 573B, ”.

(3)Before subsection (6) insert—

(5B)Subsection (4)(a) has effect subject to section 573B(9).

20Before section 574 insert—

573BNotice under section 572: further condition relating to shares not met

(1)In the case of a group UK REIT, an officer of Revenue and Customs may give a notice under section 572(1) if—

(a)the condition in section 528A (further condition relating to shares) would not be met in relation to an accounting period (“the relevant accounting period”) but for section 528B, and

(b)subsection (2) applies to a company which is a member of the group at any time during the relevant accounting period.

(2)This subsection applies to a company if it has benefited from the relaxation of the condition in section 528A in relation to 3 or more accounting periods (apart from the relevant accounting period).

(3)In the case of a company UK REIT, an officer of Revenue and Customs may give a notice under section 572(1) if—

(a)the condition in section 528A (further condition relating to shares) would not be met in relation to an accounting period (“the relevant accounting period”) but for section 528B, and

(b)the company has benefited from the relaxation of the condition in section 528A in relation to 3 or more accounting periods (apart from the relevant accounting period).

(4)For the purposes of this section a company benefits from the relaxation of the condition in section 528A if—

(a)it is a member of a group UK REIT at any time during an accounting period in relation to which the condition in section 528A would not be met but for section 528B, or

(b)at any time it is a company UK REIT and the condition in section 528A would not be met in relation to an accounting period but for section 528B,

and the accounting period “in relation to” which the company benefits from the relaxation of the condition in section 528A is the accounting period mentioned in paragraph (a) or (b) (as the case may be).

(5)None of subsections (1)(a), (3)(a), (4)(a) and (4)(b) covers cases in which the condition in section 528A would not be met as a result of—

(a)the principal company of a group UK REIT becoming a member of another group UK REIT, or

(b)a company UK REIT becoming a member of a group UK REIT.

(6)Subsection (7) applies if—

(a)a company ceases to carry on a business (“the transferred business”) which it carried on at any time during an accounting period in relation to which the company benefits from the relaxation of the condition in section 528A, and

(b)another company (“company X”) begins to carry on the transferred business.

In paragraph (a) the reference to a business includes a part of a business.

(7)The following companies are to be taken to benefit from the relaxation of the condition in section 528A in relation to the accounting period in question—

(a)company X, and

(b)if company X subsequently ceases to carry on the transferred business (or any part of it), any other companies which from time to time carry on the transferred business (or any part of it).

(8)If a notice is given under section 572(1) in a case within this section, subsection (9) applies instead of section 572(4)(a).

(9)The group or company (as the case may be) is to be taken to have ceased to be a UK REIT on—

(a)the first day of accounting period 1, or

(b)such later day as may be specified by the officer of Revenue and Customs in the notice.

21(1)Subject to what follows, the amendments made by paragraphs 14 to 20 have effect for accounting periods beginning on or after the day on which this Act is passed.E+W+S+N.I.

(2)Sections 528B, 562C and 573B have no effect in relation to—

(a)groups of companies in respect of which notices are given under section 523 specifying a date which is before the day on which this Act is passed, or

(b)companies which give notices under section 524 specifying a date which is before the day on which this Act is passed.

Being a UK REIT: condition as to distribution of profitsE+W+S+N.I.

22In section 530 (condition as to distribution of profits) in subsection (6D) for “three” substitute “ 6 ”.

23After section 530 insert—

530ACondition as to distribution of profits: increase in profits after delivery of tax return

(1)Section 530(1) applies subject to subsection (2) below in relation to an accounting period if—

(a)the principal company of the group delivered with its tax return for the period the financial statement under section 532(2)(b) showing the amount of the UK profits of the group arising in the period, and

(b)as at the relevant date, those profits have been increased from the amount originally shown in the statement.

(2)Any distribution of those profits made by the principal company before the end of the relevant period is to be treated as having been made within the deadline set by section 530(1)(c).

(3)But the total amount of profits that may be treated as having been distributed within that deadline by virtue of subsection (2) is limited to 90% of the amount of the increase in profits.

(4)In subsections (1) and (2) (and this subsection)—

  • the relevant date” means the date on which the principal company's tax return can no longer be amended,

  • the relevant period” means the period of 3 months beginning with the relevant date, and

  • UK profits” has the meaning given by section 530(2).

(5)Section 530(4) applies subject to subsection (6) below in relation to an accounting period if—

(a)the company delivered its tax return for the period showing the amount of the profits of its property rental business arising in the period as calculated in accordance with section 599, and

(b)as at the relevant date, those profits have been increased from the amount originally shown in the return.

(6)Any distribution of those profits made before the end of the relevant period is to be treated as having been made within the deadline set by section 530(4)(b).

(7)But the total amount of profits that may be treated as having been distributed within that deadline by virtue of subsection (6) is limited to 90% of the amount of the increase in profits.

(8)In subsections (5) and (6) (and this subsection)—

  • the relevant date” means the date on which the company's tax return can no longer be amended, and

  • the relevant period” means the period of 3 months beginning with the relevant date.

(9)In this section “distribution” is to be read in accordance with section 530(6A) and (6B).

24In section 564 (breach of condition as to distribution of profits) omit subsections (5) to (8).

25(1)Section 565 (which defines the amount to be charged to corporation tax where there is a breach of the condition in section 530) is amended as follows.E+W+S+N.I.

(2)In subsections (2) and (3), in the definition of “D”—

(a)for “on or before” substitute “ within ”,

(b)in paragraph (a) for “filing date referred to in” substitute “ deadline set by ”, and

(c)in paragraph (b) for “date specified” substitute “ deadline set ”.

(3)After subsection (3) insert—

(4)The definition of “D” in subsections (2) and (3) needs to be read with section 530A (so far as applicable).

26(1)The amendment made by paragraph 22 has effect in relation to distributions made on or after the day on which this Act is passed.E+W+S+N.I.

(2)The amendments made by paragraphs 23 to 25 have effect for accounting periods beginning on or after the day on which this Act is passed.

Being a UK REIT: conditions as to balance of businessE+W+S+N.I.

27(1)Section 531 (conditions as to balance of business) is amended as follows.E+W+S+N.I.

(2)For subsection (5) substitute—

(5)Condition B is that at the beginning of the accounting period the sum of—

(a)the value of the assets relating to property rental business, and

(b)the value of the assets relating to residual business so far as consisting of cash,

is at least 75% of the total value of assets held by the group or company (as the case may be).

(3)In subsection (6)(b) after “business” insert “ (and the amount of the group's cash is to be determined accordingly) ”.

(4)After subsection (7) insert—

(8)In this section “cash” means—

(a)money held on deposit (whether or not in sterling),

(b)stocks or bonds of any description included in Part 1 of Schedule 11 to FA 1942 (gilts), or

(c)money held in any other way, or any investment of any other form, specified in regulations made by the Commissioners for Her Majesty's Revenue and Customs.

28In section 547 (funds awaiting reinvestment) omit subsection (3).

29(1)Section 566 (breach of condition B in section 531 in accounting period 1) is amended as follows.E+W+S+N.I.

(2)In subsection (2) omit the words from “but an amount of income” to the end.

(3)Omit subsections (3) to (6).

30Omit section 567 (breach of condition B in section 531 in accounting period 1: meaning of “the notional amount”).

31In section 568 (breach of balance of business conditions after accounting period 1) in subsection (2)(b) for “value of the assets involved in property rental business of the UK REIT in question” substitute “ sum of the values mentioned in section 531(5)(a) and (b) ”.

32(1)The amendments made by paragraphs 27, 28 and 31 have effect for accounting periods beginning on or after the day on which this Act is passed.E+W+S+N.I.

(2)The amendments made by paragraphs 29 and 30 have effect in relation to a breach of condition B in section 531 if accounting period 1 begins on or after the day on which this Act is passed.

Abolition of entry chargeE+W+S+N.I.

33(1)Omit sections 538 to 540 (entry charge).E+W+S+N.I.

(2)Sub-paragraph (1) does not affect the application of section 540 in relation to a company if the date of entry is before the day on which this Act is passed.

34(1)In section 545 (cancellation of tax advantage) in subsection (5) omit the words from “(and includes,” to “538)”.E+W+S+N.I.

(2)Sub-paragraph (1) does not affect the powers of an officer of Revenue and Customs under section 545 in cases in which a company which is, or is a member of, a UK REIT tries before the day on which this Act is passed to obtain a tax advantage.

35(1)In section 556 (disposal of assets) omit subsection (4).E+W+S+N.I.

(2)Sub-paragraph (1) does not affect the application of subsection (4) in relation to a company if entry is before the day on which this Act is passed.

36(1)In section 558 (demergers: disposal of asset) in subsection (4) omit “and section 538 (entry charge)”.E+W+S+N.I.

(2)Sub-paragraph (1) has no effect in relation to cases in which the date specified in the notice under section 523(1) is before the day on which this Act is passed.

37In section 559 (demergers: company leaving group UK REIT) in subsection (8) omit “section 538 (entry charge),”.

38In section 583 (overview of Chapter 10 relating to joint ventures) omit subsection (4)(b).

39Omit sections 595 to 597 (additional entry charges in cases involving joint ventures) and the italic heading before section 595.

Financing cost ratioE+W+S+N.I.

40(1)Section 543 (financing cost ratio) is amended as follows.E+W+S+N.I.

(2)In subsection (1) after “period” insert “ (unless it is nil or a negative amount) ”.

(3)For subsection (3) substitute—

(3)The excess is charged to corporation tax in relation to the accounting period under the charge to corporation tax on income.

(3A)The excess” means—

(a)the amount equal to—

(i)PFC, minus

(ii)the property financing costs which would cause the calculation in subsection (2) to equal 1.25 for the accounting period, or

(b)if less, the amount equal to 20% of PP.

41(1)Section 544 (meaning of “property financing costs” etc) is amended as follows.E+W+S+N.I.

(2)In subsection (5) for “include” and paragraphs (a) to (e) substitute are—

(a)interest payable on borrowing,

(b)amortisation of discounts relating to borrowing,

(c)amortisation of premiums relating to borrowing,

(d)the financing expense implicit in payments made under finance leases, and

(e)alternative finance return (as defined in sections 511 to 513 of CTA 2009).

(3)After subsection (5) insert—

(6)The Treasury may by regulations amend the list of matters in subsection (5) by inserting, omitting or amending a description of a matter.

42The amendments made by paragraphs 40 and 41 have effect for accounting periods beginning on or after the day on which this Act is passed.

Disposal of assetsE+W+S+N.I.

43(1)Section 556 (disposal of assets) is amended as follows.E+W+S+N.I.

(2)In subsection (1)—

(a)omit the “and” after paragraph (a), and

(b)after paragraph (b) insert , and

(c)if the company is a member of a UK REIT, the disposal is not to another member of the UK REIT.

(3)In subsection (3)—

(a)omit the “and” after paragraph (b), and

(b)after paragraph (c) insert , and

(d)if the company is a member of a UK REIT, the disposal is not to another member of the UK REIT.

44The amendments made by paragraph 43 have effect in relation to disposals occurring on or after the day on which this Act is passed.

Section 31

F8SCHEDULE 5E+W+S+N.I.Tax treatment of financing costs and income

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F8Sch. 5 repealed (with effect in accordance with Sch. 5 para. 26(1) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 11(2)(c)(i)

Section 38

SCHEDULE 6E+W+S+N.I.Seed enterprise investment scheme

PART 1 E+W+S+N.I.The scheme

1In ITA 2007, after Part 5 (enterprise investment scheme) insert—

PART 5A E+W+S+N.I.Seed enterprise investment scheme

CHAPTER 1E+W+S+N.I.Introduction
SEIS reliefE+W+S+N.I.
257AMeaning of “SEIS relief” and commencement

(1)This Part provides for SEIS income tax relief (“SEIS relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares in companies carrying on new businesses.

(2)In this Part “SEIS” stands for the seed enterprise investment scheme.

(3)This Part has effect only in relation to shares issued—

(a)on or after 6 April 2012, but

(b)before 6 April 2017.

(4)The Treasury may by order substitute a later date for the date for the time being specified in subsection (3)(b).

257AAEligibility for SEIS relief

An individual (“the investor”) is eligible for SEIS relief in respect of an amount subscribed by the investor on the investor's own behalf for an issue of shares in a company (“the issuing company”) if—

(a)the shares (“the relevant shares”) are issued to the investor,

(b)the investor is a qualifying investor in relation to the relevant shares (see Chapter 2),

(c)the general requirements (including requirements as to the purpose of the issue of shares and the use of money raised) are met in respect of the relevant shares (see Chapter 3), and

(d)the issuing company is a qualifying company in relation to the relevant shares (see Chapter 4).

257ABForm and amount of SEIS relief

(1)If an individual—

(a)is eligible for SEIS relief in respect of any amount subscribed for shares, and

(b)makes a claim in respect of all or some of the shares included in the issue,

the individual is entitled to a tax reduction for the tax year in which the shares were issued (“the current tax year”).

This is subject to the provisions of this Part.

(2)The amount of the tax reduction to which the individual is entitled is the amount equal to tax at the SEIS rate for the current tax year on—

(a)the amount or, as the case may be, the sum of the amounts subscribed for shares issued in that year in respect of which the individual is eligible for and claims SEIS relief, or

(b)if less, £100,000.

(3)In this Part “the SEIS rate” means 50%.

(4)The tax reduction is given effect at Step 6 of the calculation in section 23.

(5)If in the case of any issue of shares—

(a)which are issued in the current tax year, and

(b)in respect of the amount subscribed for which the individual is eligible for SEIS relief,

the individual so claims, subsections (1) and (2) apply as if, in respect of such part of that issue as may be specified in the claim, the shares had been issued in the preceding tax year, and the individual's liability to tax for both tax years is determined accordingly.

MiscellaneousE+W+S+N.I.
257ACMeaning of “period A” and “period B”

(1)This section applies for the purposes of this Part in relation to any shares issued by a company.

(2)Period A” means the period—

(a)beginning with the incorporation of the company, and

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

(3)Period B” means the period—

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

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

(4)In this section “the termination date”, in relation to the shares, means the third anniversary of the date on which the shares are issued.

257ADOverview of other Chapters of Part

In this Part—

(a)Chapter 5 provides for the attribution of SEIS relief to shares and the making of claims for such relief,

(b)Chapter 6 provides for SEIS relief to be withdrawn or reduced in the circumstances mentioned in that Chapter,

(c)Chapter 7 makes provision with respect to the procedure for the withdrawal or reduction of SEIS relief, and

(d)Chapter 8 contains supplementary and general provisions.

257AECGT reliefs relating to SEIS

(1)Section 150E of TCGA 1992 makes provision about gains or losses on the disposal of shares to which SEIS relief is attributable.

(2)Schedule 5BB to that Act provides relief in respect of the re-investment under SEIS of the proceeds of assets disposed of in circumstances where there would otherwise be a chargeable gain.

CHAPTER 2E+W+S+N.I.The investor
IntroductionE+W+S+N.I.
257BOverview of Chapter

The investor is a qualifying investor in relation to the relevant shares if the requirements of this Chapter are met as to—

(a)no employee investors (see section 257BA),

(b)no substantial interest in the issuing company (see section 257BB),

(c)no related investment arrangements (see section 257BC),

(d)no linked loans (see section 257BD), and

(e)no tax avoidance (see section 257BE).

The requirementsE+W+S+N.I.
257BAThe no employee investors requirement

(1)Neither the investor nor an associate of the investor may, at any time during period B, be an employee of the issuing company or of any qualifying subsidiary of that company.

(2)For this purpose a person is not to be treated as an employee of the issuing company, or of any qualifying subsidiary of that company, at any time when the person is a director of that company.

257BBThe no substantial interest in the issuing company requirement

The investor must not have a substantial interest in the issuing company at any time during period A.

257BCThe no related investment arrangements requirement

The investor (“P”) must not subscribe for the relevant shares as part of an arrangement which provides for another person to subscribe for shares in another company in which P, or any other individual who is party to the arrangement, has a substantial interest.

257BDThe no linked loan requirement

(1)No linked loan is to be made by any person, at any time in period A, to the investor or an associate of the investor.

(2)In this section “linked loan” means any loan which—

(a)would not have been made, or

(b)would not have been made on the same terms,

if the investor had not subscribed for the relevant shares, or had not been proposing to do so.

(3)References in this section to the making by any person of a loan to the investor or an associate of the investor include a reference—

(a)to the giving by that person of any credit to the investor or any associate of the investor, and

(b)to the assignment to that person of a debt due from the investor or any associate of the investor.

257BEThe no tax avoidance requirement

The relevant shares must be subscribed for by the investor for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

Meaning of substantial interest in a companyE+W+S+N.I.
257BFPersons with a substantial interest in a company

(1)An individual has a substantial interest in a company if the individual directly or indirectly possesses or is entitled to acquire more than 30% of—

(a)the ordinary share capital of the company or any subsidiary of the company,

(b)the issued share capital of the company or any such subsidiary, or

(c)the voting power in the company or any such subsidiary.

(2)An individual has a substantial interest in a company if the individual directly or indirectly possesses or is entitled to acquire such rights as would—

(a)in the event of the winding up of the company or any subsidiary of the company, or

(b)in any other circumstances,

entitle the individual to receive more than 30% of the assets of the company or subsidiary (“the company in question”) which would then be available for distribution to equity holders of the company in question.

(3)For the purposes of subsection (2)—

(a)the persons who are equity holders of the company in question, and

(b)the percentage of the assets of the company in question to which the individual would be entitled,

are determined in accordance with Chapter 6 of Part 5 of CTA 2010.

(4)In making that determination—

(a)references in section 166 of that Act to company A are to be read as references to an equity holder, and

(b)references in that section to a winding up are to be read as including a reference to any other circumstances in which assets of the company in question are available for distribution to its equity holders.

(5)An individual does not have a substantial interest in a company merely because one or more shares in the company are held by the individual or by an associate of the individual, at a time when the company—

(a)has not issued any shares other than subscriber shares, and

(b)has not begun to carry on, or make preparations for carrying on, any trade or business.

(6)An individual has a substantial interest in a company if the individual has control of the company or any subsidiary of that company.

(7)For the purposes of this section—

(a)an individual is treated as entitled to acquire anything which the individual is entitled to acquire at a future date or will at a future date be entitled to acquire, and

(b)there is attributed to any individual any rights or powers of any other person who is an associate of the individual.

(8)In this section “subsidiary”, in relation to a company, means a company which at any time in period A is a 51% subsidiary of the company, whether or not it is such a subsidiary while the individual concerned has, or is entitled to acquire, such capital, voting power, rights or control as are mentioned in this section.

CHAPTER 3E+W+S+N.I.General requirements
IntroductionE+W+S+N.I.
257COverview of Chapter

The general requirements are met in respect of the relevant shares if the requirements of this Chapter are met as to—

(a)the shares (see section 257CA),

(b)the purpose of the issue (see section 257CB),

(c)the spending of the money raised (see section 257CC),

(d)no pre-arranged exits (see section 257CD),

(e)no tax avoidance (see section 257CE), and

(f)no disqualifying arrangements (see section 257CF).

The requirementsE+W+S+N.I.
257CAThe shares requirement

(1)The relevant shares must meet—

(a)the requirements of subsection (2), and

(b)unless they are bonus shares, the requirements of subsection (4).

(2)Shares meet the requirements of this subsection if they are ordinary shares which do not, at any time during period B, carry—

(a)any present or future preferential right to dividends that is within subsection (3),

(b)any present or future preferential right to a company's assets on its winding up, or

(c)any present or future right to be redeemed.

(3)A preferential right to dividends carried by a share in a company is within this subsection if—

(a)the amount of any dividends payable pursuant to the right, or the date or dates on which they are payable, depend to any extent on a decision of the company, the holder of the share or any other person, or

(b)the amount of any dividends that become payable at any time pursuant to the right includes any amount that became payable at any earlier time pursuant to the right but has not been paid.

(4)Shares meet the requirements of this subsection if they—

(a)are subscribed for wholly in cash, and

(b)are fully paid up at the time they are issued.

(5)Shares are not fully paid up for the purposes of subsection (4)(b) if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares.

257CBThe purpose of the issue requirement

(1)The relevant shares (other than any of them which are bonus shares) must be issued in order to raise money for the purposes of a qualifying business activity carried on, or to be carried on, by the issuing company or a qualifying 90% subsidiary of that company.

(2)For the meaning of “qualifying business activity” see section 257HG.

257CCThe spending of the money raised requirement

(1)The requirement of this section is that before the end of period B all of the money raised by the issue of the relevant shares (other than any of them which are bonus shares) is spent for the purposes of the qualifying business activity for which it was raised.

(2)Spending money on the acquisition of shares or stock in a company does not of itself amount to spending the money for the purposes of a qualifying business activity.

(3)This requirement does not fail to be met merely because an amount of money which is not significant is spent for another purpose or remains unspent at the end of period B.

257CDThe no pre-arranged exits requirement

(1)The issuing arrangements for the relevant shares must not include—

(a)arrangements with a view to the subsequent repurchase, exchange or other disposal of those shares or of other shares in or securities of the issuing company,

(b)arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the issuing company or a person connected with that company,

(c)arrangements for the disposal of, or of a substantial amount (in terms of value) of, the assets of the issuing company or of a person connected with that company, or

(d)arrangements the main purpose of which, or one of the main purposes of which, is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for persons investing in shares in the issuing company against what would otherwise be the risks attached to making the investment.

(2)The arrangements referred to in subsection (1)(a) do not include any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in section 257HB(1).

(3)The arrangements referred to in subsection (1)(b) and (c) do not include any arrangements applicable only on the winding up of a company except in a case where—

(a)the issuing arrangements include arrangements for the company to be wound up, or

(b)the arrangements are applicable to the winding up of the company otherwise than for genuine commercial reasons.

(4)The arrangements referred to in subsection (1)(d) do not include any arrangements which are confined to the provision—

(a)for the issuing company itself, or

(b)if the issuing company is a parent company that meets the trading requirement in section 257DA(2)(b), for the issuing company itself, for the issuing company itself and one or more of its subsidiaries or for one or more of its subsidiaries,

of any such protection against risks arising in the course of carrying on its business as might reasonably be expected to be provided in normal commercial circumstances.

(5)In this section “the issuing arrangements” means—

(a)the arrangements under which the shares are issued to the individual,

(b)any arrangements made, before the shares were issued, in relation to or in connection with the issue, and

(c)if before the shares were issued information on pre-arranged exits was made available to any prospective subscribers for shares in the issuing company, any arrangements made during period B.

(6)For the purposes of subsection (5)(c) “information on pre-arranged exits” means any information indicating the possibility of making, during period B, arrangements of the kind described in paragraph (a), (b), (c) or (d) of subsection (1).

257CEThe no tax avoidance requirement

The relevant shares must be issued for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

257CFThe no disqualifying arrangements requirement

(1)The relevant shares must not be issued, nor any money raised by the issue spent, in consequence or anticipation of, or otherwise in connection with, disqualifying arrangements.

(2)Arrangements are “disqualifying arrangements” if—

(a)the main purpose, or one of the main purposes, of the arrangements is to secure—

(i)that a qualifying business activity is or will be carried on by the issuing company or a qualifying 90% subsidiary of that company, and

(ii)that one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of shares issued by the issuing company which raise money for the purposes of that activity or that such shares may comprise part of the qualifying holdings of a VCT,

(b)that activity is the relevant qualifying business activity, and

(c)one or both of conditions A and B are met.

(3)Condition A is that, as a (direct or indirect) result of the money raised by the issue of the relevant shares being spent as required by section 257CC, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.

(4)Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying business activity would have been carried on as part of another business by a relevant person or relevant persons.

(5)For the purposes of this section it is immaterial whether the issuing company is a party to the arrangements.

(6)In this section—

  • component activities” means—

    (a)

    if the relevant qualifying business activity is activity A (see section 257HG(2)), the carrying on of a qualifying trade, or preparing to carry on such a trade, which constitutes that activity, and

    (b)

    if the relevant qualifying business activity is activity B (see section 257HG(4)), the carrying on of research and development which constitutes that activity;

  • qualifying holdings”, in relation to the issuing company, is to be construed in accordance with section 286 (VCTs: qualifying holdings);

  • relevant person” means a person who is a party to the arrangements or a person connected with such a party;

  • relevant qualifying business activity” means the activity for the purposes of which the issue of the relevant shares raised money;

  • “relevant tax relief”, in respect of shares, means one or more of the following—

    (a)

    SEIS relief in respect of the shares;

    (b)

    EIS relief in respect of the shares;

    (c)

    relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;

    (d)

    relief under section 150A or 150E of TCGA 1992 (enterprise investment scheme) in respect of the shares;

    (e)

    relief under Schedule 5B to that Act (enterprise investment scheme: re-investment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule);

    (f)

    relief under Schedule 5BB to that Act (seed enterprise investment scheme: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).

CHAPTER 4E+W+S+N.I.The issuing company
IntroductionE+W+S+N.I.
257DOverview of Chapter

The issuing company is a qualifying company in relation to the relevant shares if the requirements of this Chapter are met as to—

(a)trading (see section 257DA),

(b)the issuing company's carrying on of the qualifying business activity (see section 257DC),

(c)UK permanent establishment (see section 257DD),

(d)financial health (see section 257DE),

(e)unquoted status (see section 257DF),

(f)control and independence (see 257DG),

(g)no partnerships (see section 257DH),

(h)gross assets (see section 257DI),

(i)number of employees (see section 257DJ),

(j)no previous other risk capital scheme investments (see section 257DK),

(k)the amount raised through the SEIS (see section 257DL),

(l)qualifying subsidiaries (see section 257DM), and

(m)property managing subsidiaries (see section 257DN).

The requirementsE+W+S+N.I.
257DAThe trading requirement

(1)The issuing company must meet the trading requirement throughout period B.

(2)The trading requirement is that—

(a)the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more new qualifying trades (see section 257HF), or

(b)the 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.

(3)If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more new qualifying trades—

(a)the company is treated as a parent company for the purposes of subsection (2)(b), and

(b)the reference in subsection (2)(b) to the group includes the 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.

(4)For the purpose of subsection (2)(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.

(5)For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.

(6)For the purposes 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,

(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.

(7)Any reference in subsection (6)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time.

(8)Where period B begins after the incorporation of the company, the requirement of subsection (2) must have been complied with since its incorporation; but for the purposes of that subsection any interval between the incorporation of the company and the time when it commenced business is to be ignored.

(9)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 (within the meaning of sections 192 to 199), and

    (b)

    activities (other than research and development) carried on otherwise than in the course of a trade;

  • qualifying trade” has the same meaning as in Part 5 (see sections 189 and 192 to 200).

257DBCeasing to meet trading requirement: administration etc

(1)A company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries being in administration or receivership.

This is subject to subsections (2) and (3).

(2)Subsection (1) applies only if—

(a)the entry into administration or receivership, and

(b)everything done as a result of the company concerned 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.

(3)A company ceases to meet the trading requirement if before the end of period B—

(a)a resolution is passed, or an order is made, for the winding up of the company or any of its subsidiaries (or, in the case of a winding up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, any other act is done for the like purpose), or

(b)the company or any of its subsidiaries is dissolved without winding up.

This is subject to subsection (4).

(4)Subsection (3) does not apply if the winding up or dissolution 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.

257DCThe issuing company to carry on the qualifying business activity

(1)The requirement of this section is met in relation to the issuing company if, at no time in period B, is any of the following—

(a)the relevant new qualifying trade,

(b)relevant preparation work (if any), and

(c)relevant research and development (if any),

carried on by a person other than the issuing company or a qualifying 90% subsidiary of that company.

(2)Subsection (3) has effect for the purpose of determining whether the requirement of this section is met in relation to the issuing company in a case where relevant preparation work is carried out by that company or a qualifying 90% subsidiary of that company.

(3)The carrying on of the relevant new qualifying trade by a company other than the issuing company or a subsidiary of that company is to be ignored if it takes place at any time in period B before the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.

(4)The requirement of this section is not regarded as failing to be met in relation to the issuing company if, merely because of any act or event within subsection (5), the relevant new qualifying trade—

(a)ceases to be carried on in period B by the issuing company or any qualifying 90% subsidiary of that company, and

(b)is subsequently carried on in that period by a person who is not at any time in period A connected with the issuing company.

(5)The following are acts and events within this subsection—

(a)anything done as a consequence of the issuing company or any other company being in administration or receivership, and

(b)the issuing company or any other company being wound up, or dissolved without being wound up.

(6)Subsection (4) applies only if—

(a)the entry into administration or receivership, and everything done as a consequence of the company concerned being in administration or receivership, or

(b)the winding up or dissolution,

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.

(7)In this section—

  • the relevant new qualifying trade” means the new qualifying trade which is the subject of that qualifying business activity;

  • relevant preparation work” means preparations within section 257HG(2)(b) which are the subject of the qualifying business activity mentioned in section 257CB;

  • relevant research and development” means—

    (a)

    research and development within section 257HG(3) which is the subject of that qualifying business activity, and

    (b)

    any other preparations for the carrying on of the new qualifying trade which is the subject of that activity.

257DDThe UK permanent establishment requirement

(1)The issuing company must meet the UK permanent establishment requirement throughout period B.

(2)The UK permanent establishment requirement is that the issuing company has a permanent establishment in the United Kingdom.

257DEThe financial health requirement

(1)The issuing company must meet the financial health requirement at the beginning of period B.

(2)The financial health requirement is that the issuing company is not in difficulty.

(3)The issuing company is “in difficulty” if it is reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02).

257DFThe unquoted status requirement

(1)At the beginning of period B—

(a)the issuing company must be an unquoted company,

(b)there must be no arrangements in existence for the issuing company to cease to be an unquoted company, and

(c)there must be no arrangements in existence for the issuing company to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, if—

(i)section 257HB applies in relation to the exchange, and

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

(2)In this section “unquoted company” means a company none of whose shares, stocks, debentures or other securities are marketed to the general public.

(3)For the purposes of subsection (2), shares, stock, debentures or other securities are marketed to the general public if they are—

(a)listed on a recognised stock exchange,

(b)listed on a designated exchange in a country outside the United Kingdom, or

(c)dealt in outside the United Kingdom by such means as may be designated.

(4)In subsection (3)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty's Revenue and Customs for the purposes of that provision.

(5)An order made for the purposes of subsection (3)(b) may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.

(6)The arrangements referred to in subsection (1)(b) and (c)(ii) do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the company are at any subsequent time—

(a)listed on a stock exchange that is a recognised stock exchange by virtue of an order made under section 1005(1)(b), or

(b)listed on an exchange, or dealt in by any means, designated by an order made for the purposes of subsection (3)(b) or (c),

if the order was made after the beginning of period B.

257DGThe control and independence requirement

(1)The control element of the requirement is that—

(a)the issuing company must not at any time in period A control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the issuing company, and

(b)no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise).

(2)The independence element of the requirement is that—

(a)the issuing company must not at any time in period A be under the control of any other company (whether on its own or together with any person connected with it), and

(b)no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise).

(3)This section is subject to section 257HB(4) (exchange of shares).

257DHThe no partnerships requirement

(1)Neither the issuing company nor any qualifying 90% subsidiary of that company may, at any time during period A, be a member of a partnership.

(2)Partnership” includes—

(a)a limited liability partnership, and

(b)an entity established under the law of a territory outside the United Kingdom of a similar character to a partnership,

and “member”, in relation to a partnership, is to be read accordingly.

257DIThe gross assets requirement

(1)In the case of relevant shares issued by a single company, the value of the company's assets must not exceed £200,000 immediately before the relevant shares are issued.

(2)In the case of relevant shares issued by a parent company, the value of the group assets must not exceed £200,000 immediately before the relevant shares are issued.

(3)For the purposes of this section the value of the group assets is the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.

257DJThe number of employees requirement

(1)If the issuing company is a single company, the full-time equivalent employee number for it must be less than 25 when the relevant shares are issued.

(2)If the issuing company is a parent company, the sum of—

(a)the full-time equivalent employee number for it, and

(b)the full-time equivalent employee numbers for each of its qualifying subsidiaries,

must be less than 25 when the relevant shares are issued.

(3)The full-time equivalent employee number for a company is calculated as follows—

  • Step 1 Find the number of full-time employees of the company.

  • Step 2 Add, for each employee of the company who is not a full-time employee, such fraction as is just and reasonable. The result is the full-time equivalent employee number.

(4)In this section references to an employee—

(a)include a director, but

(b)do not include—

(i)an employee on maternity or paternity leave, or

(ii)a student on vocational training.

257DKNo previous other risk capital scheme investments

(1)The requirement of this section is that—

(a)no EIS investment or VCT investment is or has been made in the issuing company on or before the day on which the relevant shares are issued, and

(b)no EIS investment or VCT investment has been made on or before that day in a company which at the time the relevant shares are issued is a qualifying subsidiary of the issuing company.

(2)An “EIS investment” is made in the company if the company—

(a)issues shares (money having been subscribed for them), and

(b)(at any time) provides a compliance statement under section 205 in respect of the shares;

and the EIS investment is regarded as made when the shares are issued.

(3)A “VCT investment” is made in the company if an investment (of any kind) in the company is made by a VCT.

257DLThe amount raised through the SEIS

(1)The sum of the following amounts must not exceed £150,000—

(a)the amount of the SEIS investment made in the issuing company which includes the relevant shares (“the current investment”),

(b)the amount of other SEIS investments made in the issuing company on the same day as the current investment,

(c)the amount of any SEIS investments made in the issuing company during the period of 3 years ending immediately before that day, and

(d)the total of any other aid which—

(i)is granted to the issuing company on the day the current investment is made or during that period, and

(ii)disregarding any SEIS investment within paragraph (a) or (b), would be de minimis aid.

(2)An “SEIS investment” is made in a company if—

(a)the company issues shares (money having been subscribed for them), and

(b)(at any time) the company provides a compliance statement under section 257ED in respect of the shares;

and an SEIS investment is made on the day when the shares are issued, and the amount of the investment is the amount subscribed for the shares.

(3)De minimis aid” means de minimis aid within the meaning of Article 2 of Commission Regulation (EC) No 1998/2006 (de minimis aid).

The amount of the aid is the amount of the grant, or if the aid is not in the form of a grant, the gross grant equivalent amount (within the meaning of that Regulation).

(4)Subsection (5) applies where, in relation to the current investment—

(a)the sum of the amounts mentioned in subsection (1) exceeds £150,000, but

(b)the sum of the amounts in paragraphs (c) and (d) of that subsection does not exceed £150,000.

(5)In the case of the current investment and each other SEIS investment made in the issuing company on the same day (if any)—

(a)the appropriate proportion of the shares in the issue constituting the investment and the remainder are to be treated as two separate issues for the purposes of this Part, and

(b)the requirement in subsection (1) is to be treated as met in respect of the issue comprised of the appropriate proportion of the shares in the issue, but not in respect of the issue comprised of the remaining shares.

(6)“The appropriate proportion” of the shares is—

where—

A is £150,000,

B is the sum of the amounts in paragraphs (c) and (d) of subsection (1), and

C is the sum of the amounts in paragraphs (a) and (b) of that subsection.

257DMThe qualifying subsidiaries requirement

Any subsidiary that the issuing company has at any time in period B must be a qualifying subsidiary of the company.

257DNThe property managing subsidiaries requirement

(1)Any property managing subsidiary that the issuing company has at any time in period B must be a qualifying 90% subsidiary of the company.

(2)Property managing subsidiary” means a subsidiary of the company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

(3)In subsection (2) references to property deriving its value from land include—

(a)any shareholding in a company deriving its value directly or indirectly from land,

(b)any interest in settled property deriving its value directly or indirectly from land, and

(c)any option, consent or embargo affecting the disposition of land.

CHAPTER 5E+W+S+N.I.Attribution and claims for SEIS relief
AttributionE+W+S+N.I.
257EAttribution of SEIS relief to shares

(1)References in this Part, in relation to any individual, to the SEIS relief attributable to any shares or issue of shares are to be read as references to any reduction made in the individual's liability to income tax that is attributed to those shares or that issue in accordance with this section.

This is subject to the provisions of Chapters 6 and 7 providing for the withdrawal or reduction of SEIS relief.

(2)If an individual's liability to income tax is reduced in any tax year, then—

(a)if the reduction is obtained because of one issue of shares, the amount of the tax reduction is attributed to that issue, and

(b)if the reduction is obtained because of two or more issues of shares, the amount of the reduction—

(i)is apportioned between those issues in the same proportions as the amounts claimed by the individual in respect of each issue, and

(ii)is attributed to those issues accordingly.

(3)If under this section an amount of any reduction of income tax is attributed to an issue of shares (“the original issue”), a proportionate part of that amount is attributed to each share in respect of which the claim is made.

(4)If corresponding bonus shares are issued to the individual in respect of any shares (“the original shares”) to which SEIS relief is attributed—

(a)a proportionate part of the total amount attributed to the original shares immediately before the bonus shares are issued is attributed to each of the shares in the holding comprising the original shares and the bonus shares, and

(b)after the issue of the bonus shares, this Part applies as if the original issue had included those shares.

(5)In subsection (4) “corresponding bonus shares” means bonus shares which are in the same company, of the same class, and carry the same rights as the original shares.

(6)If section 257AB(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, this section has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).

(7)If, at a time when SEIS relief is attributable to, or to any part of, any issue of shares, the relief falls to be withdrawn or reduced under Chapters 6 and 7—

(a)if it falls to be withdrawn, the relief attributable to each of the shares in question is reduced to nil, and

(b)if it falls to be reduced by any amount, the relief attributable to each of the shares in question is reduced by a proportionate part of that amount.

Claims: generalE+W+S+N.I.
257EATime for making claims for SEIS relief

(1)A claim for SEIS relief in respect of shares issued by a company in any tax year may not be made later than the fifth anniversary of the normal self-assessment filing date for the tax year.

(2)If section 257AB(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, this section has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).

257EBEntitlement to claim

(1)The investor is entitled to make a claim for SEIS relief in respect of the amount subscribed by the investor for the relevant shares if the investor has received from the issuing company a compliance certificate in respect of those shares.

(2)For the purposes of PAYE regulations no regard is to be had to SEIS relief unless a claim for it has been duly made.

(3)No application may be made under section 55(3) or (4) of TMA 1970 (application for postponement of payment of tax pending appeal) on the ground that the investor is eligible for SEIS relief unless a claim for the relief has been duly made by the investor.

Claims: supporting documentsE+W+S+N.I.
257ECCompliance certificates

(1)A “compliance certificate” is a certificate which—

(a)is issued by the issuing company in respect of the relevant shares,

(b)states that, except so far as they fall to be met by or in relation to the investor, the requirements for SEIS relief (see section 257AA) are for the time being met in relation to those shares, and

(c)is in such form as the Commissioners for Her Majesty's Revenue and Customs may direct.

(2)Before issuing a compliance certificate in respect of the relevant shares, the issuing company must provide an officer of Revenue and Customs with a compliance statement in respect of the issue of shares which includes the relevant shares.

(3)The issuing company must not issue a compliance certificate without the authority of an officer of Revenue and Customs.

(4)If the issuing company, or a person connected with the issuing company, has given notice to an officer of Revenue and Customs under section 257GF, a compliance certificate must not be issued unless the authority is given or renewed after the receipt of the notice.

(5)If an officer of Revenue and Customs—

(a)has been requested to give or renew an authority to issue a compliance certificate, and

(b)has decided whether or not to do so,

the officer must give notice of the officer's decision to the issuing company.

257EDCompliance statements

(1)A “compliance statement” is a statement, in respect of an issue of shares, to the effect that, except so far as they fall to be met by or in relation to the individuals to whom shares included in that issue have been issued, the requirements for SEIS relief (see section 257AA)—

(a)are for the time being met in relation to the shares to which the statement relates, and

(b)have been so met at all times since the shares were issued.

(2)In determining for the purposes of subsection (1) whether the requirements for SEIS relief are met at any time in relation to the issue of shares, references in this Part to the relevant shares are read as references to the shares included in the issue.

(3)A compliance statement must not be made in respect of an issue of shares before at least one of the following conditions is met—

(a)at least 70% of the money raised by the issue has been spent for the purposes of the qualifying business activity for which it was raised;

(b)the new qualifying trade which constitutes the qualifying business activity or to which that activity relates has been carried on by the issuing company or a qualifying 90% subsidiary of that company for at least 4 months.

(4)A compliance statement must be in such form as the Commissioners for Her Majesty's Revenue and Customs direct and must—

(a)state which of the conditions in subsection (3) is met at the time the statement is made,

(b)contain such additional information as the Commissioners reasonably require, including in particular information relating to the persons who have requested the issue of compliance certificates,

(c)contain a declaration that the statement is correct to the best of the issuing company's knowledge and belief, and

(d)contain such other declarations as the Commissioners may reasonably require.

257EEAppeal against refusal to authorise compliance certificate

For the purposes of the provisions of TMA 1970 relating to appeals, the refusal of an officer of Revenue and Customs to authorise the issue of a compliance certificate is taken to be a decision disallowing a claim by the issuing company.

257EFPenalties for fraudulent certificate or statement etc

The issuing company is liable to a penalty not exceeding £3,000 if—

(a)it issues a compliance certificate, or provides a compliance statement, which is made fraudulently or negligently, or

(b)it issues a compliance certificate in contravention of section 257EC(3) or (4).

257EGPower to amend sections 257EC and 257ED

(1)The Treasury may by order make such amendments of sections 257EC and 257ED as they consider appropriate.

(2)An order under this section may include incidental, supplemental, consequential and transitional provision and savings.

CHAPTER 6E+W+S+N.I.Withdrawal or reduction of SEIS relief
IntroductionE+W+S+N.I.
257FOverview of Chapter

This Chapter provides for SEIS relief to be withdrawn or reduced under—

(a)section 257FA (disposal of shares),

(b)section 257FC (call options),

(c)section 257FD (put options),

(d)section 257FE (value received by the investor),

(e)section 257FP (acquisition of a trade or trading asset),

(f)section 257FQ (acquisition of share capital), and

(g)section 257FR (relief subsequently found not to have been due).

257FADisposal of shares

(1)This section applies if—

(a)the investor disposes of any of the relevant shares,

(b)the disposal takes place before period B ends, and

(c)SEIS relief is attributable to the shares.

(2)If the disposal is not made by way of a bargain made at arm's length, the SEIS relief attributable to the shares must be withdrawn.

(3)If the disposal is made by way of a bargain made at arm's length, the SEIS relief attributable to the shares must—

(a)if it is greater than the amount given by the formula set out below, be reduced by that amount, and

(b)in any other case, be withdrawn.

The formula is—

where—

R is the amount or value of the consideration received by the investor for the shares, and

SEISR is the SEIS rate.

(4)This section does not apply to a disposal of shares to which an amount of SEIS relief is attributable if—

(a)the disposal was made by an individual (“A”) to another individual (“B”), and

(b)A and B were married to, or were civil partners of, each other and living together at the time of the disposal.

(5)Section 257HA contains rules for determining which shares of any class are treated as disposed of for the purposes of this section if the investor disposes of some but not all of the shares of that class which are held by the investor.

(6)Nothing in this section applies to a disposal of shares occurring as a result of the investor's death.

257FBCases where maximum SEIS relief not obtained

(1)If the investor's liability to income tax is reduced for any tax year in respect of any issue of shares and—

(a)the amount of the reduction (“A”), is less than

(b)the amount (“B”) which is equal to tax at the SEIS rate on the amount on which the investor claims SEIS relief in respect of the shares,

section 257FA(3) has effect in relation to a disposal of any of the shares as if the amount or value referred to as “R” were reduced by multiplying it by the fraction—

(2)If section 257AB(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, subsection (1) has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).

(3)If the amount of SEIS relief attributable to any of the relevant shares has been reduced before the SEIS relief was obtained, the amount referred to in subsection (1) as A is to be treated for the purposes of that subsection as the amount that it would have been without that reduction.

(4)Subsection (3) does not apply to a reduction of SEIS relief by virtue of section 257E(4) (attribution of SEIS relief if there is a corresponding issue of bonus shares).

257FCCall options

(1)This section applies if the investor grants an option which, if exercised, would bind the investor to sell any of the relevant shares.

(2)The grant of the option is treated for the purposes of section 257FA as a disposal of the shares to which the option relates.

(3)Nothing in this section prejudices section 257CD (no pre-arranged exits).

257FDPut options

(1)This section applies if, at any time in period A, a person grants the investor an option which, if exercised, would bind the grantor to purchase any of the relevant shares.

(2)Any SEIS relief attributable to the shares to which the option relates must be withdrawn.

(3)For the purposes of subsection (2) the shares to which an option relates are those which, if—

(a)the option were exercised immediately after the grant, and

(b)any shares in the issuing company acquired by the investor after the grant were disposed of immediately after being acquired,

would be treated for the purposes of section 257FA as disposed of in pursuance of the option.

Value received by investorE+W+S+N.I.
257FEValue received by the investor

(1)This section applies if the investor receives any value from the issuing company at any time in period A relating to the relevant shares.

(2)Any SEIS relief attributable to the shares must—

(a)if it is greater than the amount given by the formula set out below, be reduced by that amount, and

(b)in any other case, be withdrawn.

The formula is—

where—

R is the amount of the value received by the investor, and

SEISR is the SEIS rate.

(3)This section is subject to the following sections—

(a)section 257FF (value received: receipts of insignificant value),

(b)section 257FJ (value received where there is more than one issue of shares),

(c)section 257FK (value received where part of share issue treated as made in previous tax year),

(d)section 257FL (cases where maximum SEIS relief not obtained),

(e)section 257FM (receipts of value by and from connected persons etc), and

(f)section 257FN (receipt of replacement value).

Sections 257FJ to 257FL are to be applied in the order in which they appear in this Part.

(4)Value received is to be ignored, for the purposes of this section, to the extent to which SEIS relief attributable to the shares has already been withdrawn or reduced on its account.

(5)For the purposes of this section and sections 257FF to 257FO, an individual who acquires any relevant shares on such a transfer as is mentioned in section 257H (spouses or civil partners) is treated as the investor.

257FFValue received: receipts of insignificant value

(1)Section 257FE(2) does not apply if the receipt of value is a receipt of insignificant value.

This is subject to subsection (2).

(2)If—

(a)value is received (“the relevant receipt”) by the investor from the issuing company at any time in period A relating to the relevant shares,

(b)the investor has received from the issuing company one or more receipts of insignificant value at a time or times—

(i)during that period, but

(ii)not later than the time of the relevant receipt, and

(c)the total value of the receipts within paragraphs (a) and (b) is not an amount of insignificant value,

the investor is treated for the purposes of this Chapter as if the relevant receipt had been a receipt of an amount of value equal to that total amount.

(3)A receipt does not fall within subsection (2)(b) if it has previously formed part of a total amount falling within subsection (2)(c).

257FGMeaning of “a receipt of insignificant value”

(1)This section applies for the purposes of section 257FF.

(2)A receipt of insignificant value” means a receipt of an amount of insignificant value, that is, an amount of value which—

(a)is not more than £1,000, or

(b)if it is more than £1,000, is insignificant in relation to the amount subscribed by the investor for the relevant shares.

This is subject to subsection (3).

(3)If at any time in the period—

(a)beginning 12 months before the issue of the relevant shares, and

(b)ending at the end of the issue date,

repayment arrangements are in existence, no amount of value received by the investor is treated as a receipt of insignificant value.

(4)For this purpose “repayment arrangements” means arrangements which provide for the investor to receive, or to be entitled to receive, any value from the issuing company at any time in period A relating to the relevant shares.

(5)For the purposes of this section—

(a)the references in this section to the investor include a reference to any person who at any time in period A relating to the relevant shares is an associate of the investor (whether or not that person is such an associate at the material time), and

(b)the reference in subsection (4) to the issuing company includes a reference to a person who at any time in period A relating to the relevant shares is connected with that company (whether or not that person is so connected at the material time).

257FHWhen value is received

(1)This section applies for the purposes of sections 257FE (value received by the investor) and 257FJ (value received where there is more than one issue).

(2)The investor receives value from the issuing company at any time when the issuing company—

(a)repays, redeems or repurchases any of its share capital or securities which belong to the investor or makes any payment to the investor for giving up the investor's right to any of the issuing company's share capital or any security on its cancellation or extinguishment,

(b)repays, in pursuance of any arrangements for or in connection with the acquisition of the shares in respect of which SEIS relief is claimed, any debt owed to the investor other than a debt which was incurred by the company—

(i)on or after the date of issue of those shares, and

(ii)otherwise than in consideration of the extinguishment of a debt incurred before that date,

(c)makes to the investor any payment for giving up on its extinguishment the investor's right to any debt, other than a debt in respect of a payment of the kind mentioned in subsection (3)(a) or (f) or an ordinary trade debt,

(d)releases or waives any liability of the investor to the issuing company or discharges or undertakes to discharge any liability of the investor to a third person,

(e)makes a loan or advance to the investor which has not been repaid in full before the issue of the shares in respect of which SEIS relief is claimed,

(f)provides a benefit or facility for the investor,

(g)transfers an asset to the investor for no consideration or for consideration less than its market value or acquires an asset from the investor for consideration greater than its market value, or

(h)makes to the investor any other payment except—

(i)an excluded payment, or

(ii)a payment in discharge of an ordinary trade debt.

(3)Excluded payment” means—

(a)any payment or reimbursement of travelling or other expenses, exclusively and necessarily incurred by the investor or an associate of the investor in the performance of the investor's or associate's duties as a director,

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

(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 person connected with that company which does not exceed a reasonable and commercial rent for the property, and

(f)any necessary and reasonable remuneration which meets the conditions in subsection (4).

(4)The conditions are that the remuneration—

(a)is paid for services rendered to the issuing company or a person connected with that company 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

(b)is taken into account in calculating for tax purposes the profits of that trade or profession.

(5)For the purposes of subsection (2)(d) the issuing company is to be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.

(6)For the purposes of subsection (2)(e) the following is to be treated as if it were a loan made by the issuing company to the investor—

(a)the amount of any debt (other than an ordinary trade debt) incurred by the investor to the issuing company, and

(b)the amount of any debt due from the investor to a third party which has been assigned to the issuing company.

(7)The investor also receives value from the issuing company if—

(a)in respect of ordinary shares held by the investor any payment or asset is received in a winding up or in connection with a dissolution of the company, and

(b)the winding up or dissolution falls within section 257DB(4) (no tax avoidance).

(8)The investor also receives value from the issuing company if a person within subsection (9)—

(a)purchases any of its share capital or securities which belong to the investor, or

(b)makes any payment to the investor for giving up any right in relation to any of the company's share capital or securities.

(9)Those persons are—

(a)any person who has a substantial interest in the company within the meaning of section 257BB;

(b)any employee of the issuing company;

(c)any director of the issuing company.

(10)If because of the investor's disposal of shares in a company any SEIS relief attributable to those shares is withdrawn or reduced under section 257FA, the investor is not to be treated as receiving value from the company in respect of the disposal.

(11)The investor is not to be treated as receiving value from the issuing company merely because of the payment to the investor, or any associate of the investor, of any remuneration for services rendered to that company as a director if the remuneration is reasonable remuneration.

(12)For the purposes of subsection (11)—

(a)the reference in that subsection to the payment of remuneration includes a reference to the provision of any benefit or facility, and

(b)in the case of an individual who is both a director and an employee of a company, the reference in that subsection to services rendered to that company as a director includes a reference to services rendered to that company as an employee.

(13)In this section—

(a)ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business if any credit given—

(i)is for not more than 6 months, and

(ii)is not longer than that normally given to customers of the person carrying on the trade or business, and

(b)any reference to a payment to an individual includes a payment made to the individual indirectly or to the individual's order or for the individual's benefit.

257FIThe amount of value received

In a case falling within a provision listed in column 1 of the following table, the amount of value received for the purposes of sections 257FE and 257FJ is given by the corresponding entry in column 2 of the table.

ProvisionThe amount of value received
Section 257FH(2)(a), (b) or (c)The amount received by the investor or, if greater, the market value of the shares, securities or debt
Section 257FH(2)(d)The amount of the liability
Section 257FH(2)(e)The amount of the loan or advance, less the amount of any repayment made before the issue of the relevant shares
Section 257FH(2)(f)The cost to the issuing company of providing the benefit or facility, less any consideration given for it by the investor
Section 257FH(2)(g)The difference between the market value of the asset and the consideration (if any) given for it
Section 257FH(2)(h)The amount of the payment
Section 257FH(7)The amount of the payment or the market value of the asset
Section 257FH(8)The amount received by the investor or, if greater, the market value of the shares or securities
257FJValue received where there is more than one issue

(1)This section applies if—

(a)two or more issues of shares in the issuing company have been made to the investor which include shares in respect of which the investor obtains SEIS relief, and

(b)value is received by the investor at any time in the applicable periods for two or more of those issues.

(2)Section 257FE(2) has effect in relation to the shares included in each of the issues referred to in subsection (1)(b) as if the amount of value referred to as “R” were reduced by multiplying it by the fraction—

where—

A is the amount on which the investor obtains SEIS relief in respect of the shares included in the issue in question, and

B is the sum of that amount and the corresponding amount or amounts in respect of the other issue or issues.

(3)For the purposes of subsection (1) “the applicable period” for an issue of shares is period A in relation to those shares.

257FKValue received where part of issue treated as made in previous tax year

(1)This section applies if—

(a)section 257FE(2) applies to an issue of shares, and

(b)section 257AB(1) and (2) (form and amount of SEIS relief) applies in the case of that issue as if part of the issue had been issued in a previous tax year.

(2)This subsection explains how the calculation under section 257FE(2) is to be made.

  • Step 1 Apportion the amount referred to as “R” between the tax year in which the shares were issued and the previous tax year by multiplying that amount by the fraction—

    where—

    A is the amount on which the investor obtains SEIS relief in respect of the shares treated as issued in the tax year in question, and

    B is the sum of that amount and the corresponding amount in respect of the shares treated as issued in the other tax year.

  • Step 2 In relation to each of the amounts (“R1” and “R2”) so apportioned to the two tax years, calculate the amounts (“X1” and “X2”) that would be given by the formula if there were separate issues of shares in those tax years. In calculating amounts X1 and X2, apply section 257FL if appropriate but do not apply section 257FJ.

  • Step 3 Add amounts X1 and X2 together. The result is the required amount.

257FLCases where maximum SEIS relief not obtained

(1)If the investor's liability to income tax is reduced for any tax year in respect of any issue of shares and—

(a)the amount of the reduction (“A”), is less than

(b)the amount (“B”) which is equal to income tax at the SEIS rate on the amount on which the investor claims SEIS relief in respect of the shares,

section 257FE(2) has effect in relation to any value received as if the amount referred to as “R” were reduced by multiplying it by the fraction—

(2)If the amount of SEIS relief attributable to any of the relevant shares has been reduced before the SEIS relief was obtained, the amount referred to in subsection (1) as A is to be treated for the purposes of that subsection as the amount that it would have been without that reduction.

(3)Subsection (2) does not apply to a reduction of SEIS relief by virtue of section 257E(4) (attribution of SEIS relief where there is a corresponding issue of bonus shares).

257FMReceipts of value by and from connected persons etc

In sections 257FE, 257FF and 257FH to 257FJ—

(a)any reference to a payment or transfer to the investor includes a reference to a payment or transfer made to the investor indirectly or to the investor's order or for the investor's benefit,

(b)any reference to the investor includes a reference to an associate of the investor, and

(c)any reference to the issuing company includes a reference to a person who at any time in period A relating to the relevant shares is connected with that company (whether or not that person is so connected at the material time).

257FNReceipt of replacement value

(1)If—

(a)any SEIS relief attributable to the relevant shares would, in the absence of this section, be reduced or withdrawn under section 257FE because of a receipt of value within section 257FH(2), (7) or (8) (“the original value”),

(b)the original supplier receives value (“replacement value”) from the original recipient and the receipt is a qualifying receipt, and

(c)the amount of the replacement value is at least the amount of the original value,

section 257FE does not, because of the receipt of value, have effect to reduce or withdraw the SEIS relief.

This is subject to section 257FO(1) and (2).

(2)For the purposes of this section—

  • the original recipient” means the person who receives the original value;

  • the original supplier” means the person from whom that value was received.

(3)If the amount of the original value is, by virtue of section 257FJ, treated as reduced for the purposes of section 257FE(2) as it applies in relation to the relevant shares in question, the reference in subsection (1)(c) to the amount of the original value is to be read as a reference to the amount of that value ignoring the reduction.

(4)A receipt of the replacement value is a qualifying receipt for the purposes of subsection (1) if it arises—

(a)because of the original recipient doing one or more of the following—

(i)making a payment to the original supplier, other than a payment within paragraph (c) or a payment to which subsection (5) applies,

(ii)acquiring any asset from the original supplier for a consideration the amount or value of which is more than the market value of the asset,

(iii)disposing of any asset to the original supplier for no consideration or for a consideration the amount or value of which is less than the market value of the asset,

(b)if the receipt of the original value was within section 257FH(2)(d), because of an event the effect of which is to reverse the event which constituted the receipt of the original value, or

(c)if the receipt of the original value was within section 257FH(8), because of the original recipient repurchasing the share capital or securities in question, or (as the case may be) re-acquiring the right in question, for a consideration the amount or value of which is at least the amount of the original value.

(5)This subsection applies to—

(a)any payment for any goods, services or facilities, provided (whether in the course of trade or otherwise) by—

(i)the original supplier, or

(ii)any other person who, at any time in period A relating to the relevant shares, is an associate of, or is connected with, that supplier (whether or not the other person is such an associate, or is so connected, at the material time),

which is reasonable in relation to the market value of those goods, services or facilities,

(b)any payment of any interest which represents no more than a reasonable commercial return on any money lent to—

(i)the original recipient, or

(ii)any person who, at any time in period A relating to the relevant shares, is an associate of that recipient (whether or not the person is such an associate at the material time),

(c)any payment for the acquisition of an asset which does not exceed its market value,

(d)any payment, as rent for any property occupied by—

(i)the original recipient, or

(ii)any person who, at any time in period A relating to the relevant shares, is an associate of that recipient (whether or not the person is such an associate at the material time),

of an amount not exceeding a reasonable and commercial rent for the property,

(e)any payment in discharge of an ordinary trade debt, and

(f)any payment for shares in or securities of any company in circumstances that do not fall within subsection (4)(a)(ii).

(6)For the purposes of this section, the amount of the replacement value is—

(a)in a case within paragraph (a) of subsection (4), the sum of—

(i)the amount of any payment within sub-paragraph (i) of that paragraph, and

(ii)the difference between the market value of any asset to which sub-paragraph (ii) or (iii) of that paragraph applies and the amount or value of the consideration (if any) received for it,

(b)in a case within subsection (4)(b), the same as the amount of the original value, and

(c)in a case within subsection (4)(c), the amount or value of the consideration received by the original supplier.

Section 257FI applies for the purpose of determining the original value.

(7)In this section—

(a)any reference to a payment to a person (however expressed) includes a reference to a payment made to the person indirectly or to the person's order or for the person's benefit, and

(b)ordinary trade debt” has the meaning given by section 257FH(13).

257FOSection 257FN: supplementary

(1)The receipt of the replacement value by the original supplier is ignored for the purposes of section 257FN(1) to the extent to which it has previously been set (under that section) against a receipt of value to prevent any reduction or withdrawal of SEIS relief under section 257FE.

(2)The receipt of the replacement value by the original supplier (“the event”) is ignored for the purposes of section 257FN if—

(a)the event occurs before period A relating to the relevant shares,

(b)if the event occurs after the time the original recipient receives the original value, it does not occur as soon after that time as is reasonably practicable in the circumstances, or

(c)if an appeal has been brought by the investor against an assessment to withdraw or reduce any SEIS relief attributable to the relevant shares because of the receipt of the original value, the event occurs more than 60 days after the day on which the amount of relief which falls to be withdrawn has been finally determined.

But nothing in section 257FN or this section requires the replacement value to be received after the original value.

(3)This subsection applies if—

(a)the receipt of the replacement value by the original supplier is a qualifying receipt for the purposes of section 257FN(1),

(b)in consequence of the receipt, any receipts of value are ignored for the purposes of section 257FE as that section applies in relation to the shares in question or any other shares subscribed for by the investor, and

(c)the event which gives rise to the receipt is (or includes) a subscription for shares by—

(i)the investor, or

(ii)any person who at any time in period A relating to the relevant shares is an associate of the investor (whether or not the person is such an associate at the material time).

(4)If subsection (3) applies, the person who subscribes for the shares is not to be eligible for any SEIS relief in relation to those shares or any other shares in the same issue.

(5)In this section “the original recipient”, “the original supplier” and “replacement value” have the same meaning as in section 257FN.

MiscellaneousE+W+S+N.I.
257FPAcquisition of trade or trading assets

(1)Any SEIS relief attributable to any shares in a company held by an individual is withdrawn if—

(a)at any time in period A, the company or any qualifying subsidiary—

(i)begins to carry on as its trade, or as part of its trade, a trade which was previously carried on at any time in that period otherwise than by the company or any qualifying subsidiary, or

(ii)acquires the whole, or the greater part, of the assets used for the purposes of a trade previously so carried on, and

(b)the individual is a person, or one of a group of persons, to whom subsection (2) or (3) applies.

(2)This subsection applies to any person or group of persons—

(a)to whom an interest amounting in total to more than a half share in the trade (as previously carried on) belonged at any time in period A, and

(b)who is a person or group of persons to whom such an interest in the trade carried on by the company belongs or has, at any such time, belonged.

(3)This subsection applies to any person or group of persons who—

(a)controls or, at any time in period A, has controlled the company, and

(b)at any such time, controlled another company which previously carried on the trade.

(4)For the purposes of subsection (2)—

(a)for the purposes of determining the person to whom a trade belongs and, if a trade belongs to two or more persons, their respective shares in that trade—

(i)apply section 941(6) of CTA 2010, and

(ii)an interest in a trade belonging to a company may be treated in accordance with any of the options set out in section 942 of that Act, and

(b)any interest, rights or powers of a person who is an associate of another person are treated as those of that other person.

(5)In this section “trade” includes any business or profession, and references to a trade previously carried on include references to part of such a trade.

257FQAcquisition of share capital

(1)Any SEIS relief attributable to any shares in a company held by an individual is withdrawn if—

(a)the company comes to acquire all of the issued share capital of another company at any time in period A, and

(b)the individual is a person, or one of a group of persons, to whom subsection (2) applies.

(2)This subsection applies to any person or group of persons who—

(a)controls or, at any time in period A, has controlled the company, and

(b)at any such time, controlled the other company.

257FRRelief subsequently found not to have been due

(1)Any SEIS relief obtained by the investor which is subsequently found not to have been due must be withdrawn.

(2)SEIS relief obtained by the investor in respect of the relevant shares may not be withdrawn on the ground—

(a)that the requirements of sections 257CB and 257CC (the purpose of the issue and use of money raised requirements) are not met in respect of the shares, or

(b)that the issuing company is not a qualifying company in relation to the shares (see Chapter 4),

unless the requirements of subsection (3) are met.

(3)The requirements of this subsection are met if either—

(a)the issuing company has given notice under section 257GF (information to be provided by issuing company etc) in relation to the relevant issue of shares, or

(b)an officer of Revenue and Customs has given notice to that company stating the officer's opinion that, because of the ground in question, the whole or any part of the SEIS relief obtained by any individual in respect of shares included in the relevant issue of shares was not due.

(4)In this section “the relevant issue of shares” means the issue of shares in the issuing company which includes the relevant shares.

CHAPTER 7E+W+S+N.I.Withdrawal or reduction of SEIS relief: procedure
Assessments and appealsE+W+S+N.I.
257GAssessments for the withdrawal or reduction of SEIS relief

If any SEIS relief which has been obtained falls to be withdrawn or reduced under Chapter 6, it must be withdrawn or reduced by the making of an assessment to income tax for the tax year for which the relief was obtained.

257GAAppeals against section 257FR(3)(b) notices

For the purposes of the provisions of TMA 1970 relating to appeals, the giving of notice by an officer of Revenue and Customs under section 257FR(3)(b) is taken to be a decision disallowing a claim by the issuing company.

257GBTime limits for assessments

(1)An officer of Revenue and Customs may—

(a)make an assessment for withdrawing or reducing the SEIS relief attributable to any of the relevant shares, or

(b)give a notice under section 257FR(3),

at any time not more than 6 years after the end of the relevant tax year.

(2)In subsection (1) “the relevant tax year” means—

(a)the tax year in which period B ends, or

(b)the tax year in which the event which causes the SEIS relief to be withdrawn or reduced occurs,

whichever is the later.

(3)Subsection (1) is without prejudice to section 36(1A) of TMA 1970 (loss of tax brought about deliberately etc).

257GCCases where assessments not to be made

(1)No assessment for withdrawing or reducing SEIS relief in respect of shares issued to an individual may be made because of an event occurring after the individual's death.

(2)Subsection (3) applies if an individual has, by a disposal or disposals to which section 257FA(3) applies, disposed of all shares which—

(a)have been issued to the individual by the issuing company, and

(b)are shares—

(i)to which SEIS relief is attributable, or

(ii)in relation to which period A has not come to an end.

(3)No assessment for withdrawing or reducing SEIS relief in respect of those shares may be made because of any subsequent event unless the event occurs at a time when the individual—

(a)has a substantial interest in the company within the meaning of section 257BB,

(b)is an employee of the issuing company, or

(c)is a director of the issuing company.

InterestE+W+S+N.I.
257GDDate from which interest is chargeable

(1)In its application to an assessment made by virtue of section 257G in the case of relief withdrawn or reduced by virtue of a provision listed in subsection (2), section 86 of TMA 1970 (interest on overdue income tax) has effect as if the relevant date were 31 January next following the tax year in which the assessment is made.

(2)The provisions are—

(a)section 257BB (no substantial interest in the issuing company),

(b)section 257BD (no linked loan requirement),

(c)sections 257DA to 257DN (Chapter 4 requirements),

(d)section 257FA (disposal of shares),

(e)section 257FD (put options),

(f)section 257FE (receipt of value by the investor),

(g)section 257FP (acquisition of a trade or trading asset),

(h)section 257FQ (acquisition of share capital).

InformationE+W+S+N.I.
257GEInformation to be provided by the investor

(1)This section applies if the investor has obtained SEIS relief in respect of the relevant shares, and an event occurs as a result of which—

(a)the investor is not a qualifying investor in relation to the shares,

(b)the SEIS relief falls to be withdrawn or reduced by virtue of section 257BD (no linked loans requirement),

(c)the SEIS relief falls to be withdrawn or reduced under—

(i)section 257FA (disposal of shares),

(ii)section 257FC (call options), or

(iii)section 257FD (put options), or

(d)the SEIS relief falls to be withdrawn or reduced under section 257FE (receipt of value by the investor), or would fall to be so withdrawn or reduced but for section 257FN (receipt of replacement value).

(2)The investor must within 60 days of coming to know of the event give a notice to an officer of Revenue and Customs containing particulars of the event.

(3)If the investor—

(a)is required under this section to give notice of a receipt of value which is within section 257FE, or would be within that section but for section 257FN, and

(b)has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,

the notice must include particulars of that receipt of replacement value (or expected receipt).

(4)In subsection (3) “qualifying receipt” and “replacement value” are to be read in accordance with section 257FN.

257GFInformation to be provided by the issuing company etc

(1)This section applies if the issuing company has provided an officer of Revenue and Customs with a compliance statement in respect of an issue of shares and an event occurs as a result of which—

(a)the requirement of section 257CC (spending of the money raised) is not met in respect of any of the shares included in the issue, or would not be met if SEIS relief had been obtained in respect of the shares in question,

(b)any provision of Chapter 4 has effect to prevent the issuing company being a qualifying company in relation to any of the shares included in the issue, or would have such an effect if SEIS relief had been obtained in respect of the shares in question, or

(c)any of the provisions of Chapter 6 mentioned in subsection (2) has effect to cause any SEIS relief attributable to any of the shares included in the issue to be withdrawn or reduced, or—

(i)would have such an effect if SEIS relief had been obtained in respect of the shares in question, or

(ii)in the case of section 257FE, would have such an effect but for section 257FN (receipt of replacement value).

(2)The provision are—

(a)section 257FE (value received by the investor),

(b)section 257FP (acquisition of a trade or trading asset), and

(c)section 257FQ (acquisition of share capital).

(3)If this section applies—

(a)the issuing company, and

(b)any person connected with the issuing company who has knowledge of the matters mentioned in subsection (1),

must give a notice to an officer of Revenue and Customs containing particulars of the event.

(4)Any notice required to be given by the issuing company under subsection (3)(a) must be given—

(a)within 60 days of the event, or

(b)if the event is a receipt of value within section 257FH(2) from a person connected with the company (see section 257FM), within 60 days of the company coming to know of the event.

(5)Any notice required to be given by a person under subsection (3)(b) must be given within 60 days of the person coming to know of the event.

(6)If a person—

(a)is required under this section to give notice of a receipt of value which is within section 257FE, or would be within that section but for section 257FN, and

(b)has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,

the notice must include particulars of that receipt of replacement value (or expected receipt).

(7)In subsection (6) “qualifying receipt” and “replacement value” are to be read in accordance with section 257FN.

257GGPower to require information where section 257GE or 257GF applies or could have applied

(1)This section applies if an officer of Revenue and Customs has reason to believe that a person—

(a)has not given a notice which the person is required to give under section 257GE or 257GF in respect of any event, or

(b)has given or received value within the meaning of section 257FH(2) or (8) which, but for the fact that the amount given or received was an amount of insignificant value, would have triggered a requirement to give such a notice.

(2)The officer may by notice require the person concerned to supply the officer, within such time as the officer may specify in the notice, with such information relating to the event as the officer may reasonably require for the purposes of this Part.

(3)The period specified in a notice under subsection (2) must be at least 60 days.

(4)In subsection (1)(b), the reference to an amount of insignificant value is construed in accordance with section 257FG(2).

257GHPower to require information in other cases

(1)Subsection (2) applies if SEIS relief is claimed in respect of shares in a company, and an officer of Revenue and Customs has reason to believe that it may not be due because of any such arrangements or scheme as is mentioned in—

(a)section 257BC (no related investment arrangements),

(b)section 257BE or 257DB(2) or (4) (no tax avoidance),

(c)section 257CD(1) (no pre-arranged exits),

(d)section 257CF (no disqualifying arrangements),

(e)section 257DB(4) (winding up, administration etc), or

(f)section 257DG(1) or (2) (conditions ceasing to be met).

(2)The officer may by notice require any person concerned to supply the officer within such time as may be specified in the notice with—

(a)a declaration in writing stating whether or not, according to the information which that person has or can reasonably obtain, any such arrangement or scheme exists or has existed, and

(b)such other information as the officer may reasonably require for the purposes of the provision in question and as that person has or can reasonably obtain.

(3)The period specified in a notice under subsection (2) must be at least 60 days.

(4)For the purposes of subsection (2), in a case falling within a provision listed in column 1 of the following table, the person concerned is given by the corresponding entry in column 2 of the table.

ProvisionThe person concerned
Subsection (1)(a)The claimant, the company and any person controlling the company
Subsection (1)(b)The claimant
Subsection (1)(c)The claimant, the company and any person connected with the company
Subsection (1)(d)The claimant, the company, any person controlling the company and any person who an officer of Revenue and Customs has reason to believe may be a party to the arrangements in question
Subsection (1)(e)The claimant, the company, any other company in question and any person controlling the company or any other company in question
Subsection (1)(f)The company and any person controlling the company

References in this subsection to the claimant include references to any person to whom the claimant appears to have made such a transfer as is mentioned in section 257H (spouses or civil partners) of any of the shares in question.

(5)If SEIS relief has been obtained in respect of shares in a company—

(a)any person who receives from the company any payment or asset which may constitute value received (by the person or another) for the purposes of section 257FE, and

(b)any person on whose behalf such a payment or asset is received,

must, if so required by an officer of Revenue and Customs, state whether the payment or asset so received is received on behalf of any other person and, if so, the name and address of that other person.

(6)If SEIS relief has been claimed in respect of shares in a company—

(a)any person who holds or has held shares in the company, and

(b)any person on whose behalf any such shares are or were held,

must, if so required by an officer of Revenue and Customs, state whether the shares so held are or were held on behalf of any other person and, if so, the name and address of that other person.

257GIObligations of secrecy

No obligation of secrecy imposed by statute or otherwise prevents an officer of Revenue and Customs from disclosing to a company that SEIS relief has been obtained or claimed in respect of a particular number or proportion of its shares.

CHAPTER 8E+W+S+N.I.Supplementary and general
Disposals of sharesE+W+S+N.I.
257HTransfers between spouses or civil partners

(1)This section applies if—

(a)shares to which an amount of SEIS relief is attributable were issued to an individual (“A”),

(b)A transferred the shares to another individual (“B”) during their lives,

(c)A was married to, or was the civil partner of, B at the time of the transfer, and

(d)section 257FA (disposal of shares) does not apply to the transfer.

(2)This Part has effect, in relation to any subsequent disposal or other event, as if—

(a)B were the individual who had subscribed for the shares,

(b)the amount that B had subscribed for the shares were the amount that A had subscribed for them,

(c)B's liability to income tax had been reduced in respect of the shares for the same tax year as that for which A's was so reduced,

(d)the amount by which B's liability to income tax had been reduced in respect of the shares were the same as that by which A's liability to income tax had been so reduced, and

(e)that amount of SEIS relief had continued to be attributable to the shares despite the transfer.

(3)If the amount of SEIS relief attributable to the shares had been reduced before the relief was obtained by A—

(a)this Part has effect, in relation to any subsequent disposal or other event, as if the amount of SEIS relief attributable to the shares transferred to B had been correspondingly reduced before the relief was obtained by B, and

(b)sections 257FB(3) and 257FL(2) apply in relation to B as they would have applied in relation to A.

(4)If, because of any such disposal or other event, an assessment for reducing or withdrawing SEIS relief is to be made, the assessment is to be made on B.

257HAIdentification of shares on a disposal

(1)The rules in subsections (2) and (3) are for determining which shares of any class are treated as disposed of for the purposes of—

(a)section 257FA (disposal of shares), or

(b)section 257H (spouses or civil partners),

if the investor disposes of some but not all of the shares of that class which the investor holds in a company.

(2)Shares acquired on an earlier day are treated as disposed of before shares acquired on a later day.

(3)Shares acquired on the same day are treated as disposed of in the following order—

(a)first any to which no SEIS relief is attributable,

(b)next any to which SEIS relief (but not SEIS re-investment relief) is attributable, and

(c)next any to which SEIS relief and SEIS re-investment relief are attributable.

(4)Any shares to which SEIS relief is attributable and which were transferred to an individual as mentioned in section 257H are treated for the purposes of subsections (2) and (3) as acquired by the individual on the day on which they were issued.

(5)In a case to which section 127 of TCGA 1992 applies (including the case where that section applies by virtue of an enactment relating to chargeable gains), shares included in the new holding are treated for the purposes of subsections (2) and (3) as acquired when the original shares were acquired.

(6)In this section—

  • new holding” and “original shares” have the same meaning as in section 127 of TCGA 1992 (or, as the case may be, that section as applied by the enactment concerned);

  • SEIS re-investment relief” means relief under Schedule 5BB to TCGA 1992.

Acquisition of issuing companyE+W+S+N.I.
257HBContinuity of SEIS relief where issuing company is acquired by new company

(1)This section applies if—

(a)a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares”) in another company (“the old company”),

(b)the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,

(c)the consideration for the new shares of each description consists wholly of old shares of the corresponding description,

(d)new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings,

(e)at some time before the issue of the new shares—

(i)the old company issued shares which meet the requirements of section 257CA(2), and

(ii)a compliance certificate in respect of those shares was issued by that company for the purposes of subsection (1) of section 257EB and in accordance with section 257EC, and

(f)before the issue of the new shares the Commissioners for Her Majesty's Revenue and Customs have, on the application of the new company or the old company, notified that company that they are satisfied that the exchange of shares—

(i)will be effected for genuine commercial reasons, and

(ii)will not form part of any such scheme or arrangements as are mentioned in section 137(1) of TCGA 1992 (schemes with avoidance purposes).

In this subsection references to shares, except in the expressions “subscriber shares” and “shares which meet the requirements of section 257CA(2)“, include securities.

(2)Subsection (2) of section 138 of TCGA 1992 (procedure for advance clearance) applies for the purposes of subsection (1)(f) as it applies for the purposes of subsection (1) of that section.

(3)For the purposes of this Part—

(a)the exchange of shares is not regarded as involving any disposal of the old shares or any acquisition of the new shares, and

(b)any SEIS relief which is attributable to any old shares is attributable instead to the new shares for which they are exchanged.

(4)Nothing in section 257DG (the control and independence requirement) applies in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1), or arrangements with a view to such an exchange.

(5)For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.

(6)References in sections 257HC and 257HD to “old shares”, “new shares”, “the old company” and “the new company” are to be read in accordance with this section.

257HCCarry over of obligations etc where SEIS relief attributed to new shares

(1)This section applies if, under section 257HB, any SEIS relief which is attributable to any old shares becomes attributable instead to any new shares.

(2)This Part has effect as if anything which under—

(a)section 257EB(1) (entitlement to claim),

(b)section 257FR(3) (relief subsequently found not to be due), or

(c)sections 257GF to 257GH (information to be provided),

has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company.

(3)Any appeal brought by the old company against a notice under section 257FR(3)(b) may be prosecuted by the new company as if it had been brought by that company.

257HDSubstitution of new shares for old shares

(1)Subsection (2) applies if, in the case of any new shares held by an individual to which SEIS relief becomes attributable under section 257HB, the old shares for which they were exchanged were subscribed for by and issued to the individual.

(2)This Part has effect as if—

(a)the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for by the individual,

(b)the new shares had been issued to the individual by the new company at the time when the old shares were issued to the individual by the old company,

(c)the claim for SEIS relief made in respect of the old shares had been made in respect of the new shares, and

(d)the individual's liability to income tax had been reduced in respect of the new shares for the same tax year as that for which the individual's liability was so reduced in respect of the old shares.

(3)Subsection (4) applies if, in the case of any new shares held by an individual to which SEIS relief becomes so attributable under section 257HB, the old shares for which they were exchanged were transferred to the individual as mentioned in section 257H.

(4)This Part has effect in relation to any subsequent disposal or other event as if—

(a)the new shares had been subscribed for by the individual at the time when, and for the amount for which, the old shares were subscribed for,

(b)the new shares had been issued by the new company at the time when the old shares were issued by the old company,

(c)the claim for SEIS relief made in respect of the old shares had been made in respect of the new shares, and

(d)the individual's liability to income tax had been reduced in respect of the new shares for the same tax year as that for which the liability of the individual who subscribed for the old shares was so reduced in respect of those shares.

Nominees etcE+W+S+N.I.
257HENominees and bare trustees

(1)Shares subscribed for, issued to, held by or disposed of for an individual by a nominee are treated for the purposes of this Part as subscribed for, issued to, held by or disposed of by the individual.

(2)If shares have been issued to a bare trust for two or more beneficiaries, this Part has effect (with the necessary modifications) as if—

(a)each beneficiary had subscribed as an individual for all of those shares, and

(b)the amount subscribed by each beneficiary was equal to the total amount subscribed on the issue of those shares divided by the number of beneficiaries.

(3)In subsection (2) “shares” means shares which meet the requirements of section 257CA(2).

InterpretationE+W+S+N.I.
257HFMeaning of “new qualifying trade”

(1)For the purposes of this Part a qualifying trade carried on by the issuing company or a qualifying 90% subsidiary of that company (“the relevant company”) is a “new qualifying trade” if (and only if)—

(a)the trade does not begin to be carried on (whether by the relevant company or any other person) before the two year pre-investment period, and

(b)at no time before the relevant company begins to carry on the trade was any other trade being carried on by the issuing company or by any company that was a 51% subsidiary of the issuing company at the time in question.

(2)In this section—

  • qualifying trade” has the same meaning as in Part 5 (see sections 189 and 192 to 200);

  • two year pre-investment period” means the period of 2 years ending immediately before the day on which the relevant shares are issued.

257HGMeaning of “qualifying business activity”

(1)In this Part “qualifying business activity”, in relation to the issuing company, means—

(a)activity A, or

(b)activity B,

if it is carried on by the company or a qualifying 90% subsidiary of the company.

This is subject to subsection (3).

(2)Activity A is—

(a)the carrying on of a new qualifying trade which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or

(b)the activity of preparing to carry on (or preparing to carry on and then carrying on) a new qualifying trade—

(i)which, on that date, is intended to be carried on by the company or such a subsidiary, and

(ii)which is begun to be carried on by the company or such a subsidiary.

(3)Activity B is the carrying on of research and development—

(a)which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or which the company or such a subsidiary begins to carry on immediately afterwards, and

(b)from which, on that date, it is intended—

(i)that a new qualifying trade which the company or such a subsidiary will carry on will be derived, or

(ii)that a new qualifying trade which the company or such a subsidiary is carrying on, or will carry on, will benefit.

(4)For the purposes of subsection (3)(a), when research and development is begun to be carried on by a qualifying 90% subsidiary of the issuing company, any carrying on of the research and development by it before it became such a subsidiary is ignored.

(5)References in subsection (2)(b)(i) or (3)(b) to a qualifying 90% subsidiary of the issuing company include references to any existing or future company which will be such a subsidiary at any future time.

257HHMeaning of “disposal of shares”

(1)In this Part references to a disposal of shares include a reference to a disposal of an interest or right in or over shares.

(2)An individual is to be treated, for the purposes of this Part, as disposing of any shares which the individual is treated by virtue of section 136 of TCGA 1992 as exchanging for other shares.

257HIMeaning of “issue of shares”

(1)In this Part—

(a)references (however expressed) to an issue of shares in any company are to such of the shares in the company as are of the same class and issued on the same day, and

(b)references (however expressed) to an issue of shares in any company to an individual are to such of the shares in the company as are of the same class and are issued to the individual in one capacity on the same day.

(2)Subsection (1)(b) has effect subject to sections 257E(6), 257EA(2), 257FB(2) and 257FK(1).

257HJMinor definitions

(1)In this Part—

  • arrangements” includes any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable);

  • associate” has the same meaning as in Part 5 (see section 253);

  • bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise);

  • “director” is read in accordance with section 452 of CTA 2010;

  • EIS relief” means relief under Part 5;

  • group” means a parent company and its qualifying subsidiaries;

  • group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries;

  • ordinary shares” means shares forming part of a company's ordinary share capital;

  • parent company” means a company that has one or more qualifying subsidiaries, and “single company” means a company that does not;

  • permanent establishment” has the same meaning as in Part 5 (see section 191A);

  • qualifying subsidiary” has the same meaning as in Part 5 (see section 191);

  • qualifying 90% subsidiary” has the same meaning as in Part 5 (see section 190);

  • research and development” has the meaning given by section 1006.

(2)Section 252 (meaning of a company being “in administration” or “in receivership”) applies for the purposes of this Part.

(3)Section 995 (control) does not apply for the purposes of the following provisions—

(a)section 257DG(1)(a),

(b)section 257FP,

(c)section 257FQ,

(d)section 257GH(4);

and in those provisions “control” is to be read in accordance with sections 450 and 451 of CTA 2010.

(4)In this Part—

(a)references in any provision to the reduction of any SEIS relief attributable to any shares include a reference—

(i)to the reduction of the relief to nil, and

(ii)if no relief has yet been obtained, to the reduction of the amount which apart from that provision would be the SEIS relief, and

(b)references to the withdrawal of SEIS relief in respect of any shares are—

(i)to the withdrawal of the SEIS relief attributable to those shares, or

(ii)if no relief has yet been obtained, to ceasing to be eligible for SEIS relief in respect of those shares.

(5)For the purposes of this Part shares in a company are not treated as being of the same class unless they would be so treated if dealt in on a recognised stock exchange.

(6)For the purposes of this Part the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.

(7)In this Part—

(a)references to SEIS relief obtained by an individual in respect of any shares include a reference to SEIS relief obtained by the individual in respect of those shares at any time after the individual has disposed of them, and

(b)references to the withdrawal or reduction of SEIS relief obtained by an individual in respect of any shares include a reference to the withdrawal or reduction of SEIS relief obtained by the individual in respect of those shares at any time.

(8)In the case of requirements that cannot be met until a future date, references in this Part to requirements being met for the time being are to nothing having occurred to prevent their being met.

PART 2 E+W+S+N.I.Relief for capital gains

IntroductoryE+W+S+N.I.

2TCGA 1992 is amended as follows.

Disposal of shares to which SEIS relief is attributableE+W+S+N.I.

3Before section 151 insert—

150ESeed enterprise investment scheme

(1)For the purpose of determining the gain or loss on any disposal of shares by an individual where—

(a)an amount of SEIS relief is attributable to the shares, and

(b)apart from this subsection there would be a loss,

the consideration given by the individual for the shares is to be treated as reduced by the amount of the relief.

(2)Where—

(a)shares are disposed of by an individual after the end of the period referred to in section 257AC(2) of ITA 2007,

(b)an amount of SEIS relief is attributable to the shares, and

(c)(apart from this subsection) there would be a gain,

the gain is not a chargeable gain.

(3)Despite section 16(2), subsection (2) does not apply to a disposal on which a loss accrues.

(4)Subsection (5) applies where—

(a)an individual's liability to income tax has been reduced (or treated by virtue of section 257H of ITA 2007 (spouses and civil partners) as reduced) for any tax year under section 257AB of that Act in respect of an issue of shares,

(b)the amount of the reduction (“R”) is less than the amount (“T”) which is equal to tax at the SEIS rate on the amount subscribed for the issue, and

(c)R is not within paragraph (b) solely by virtue of section 29(2) and (3) of ITA 2007.

(5)If there is a disposal of the shares on which there is a gain, subsection (2) applies only to so much of the gain as is found by multiplying it by the fraction—

(6)Any question as to—

(a)which of any shares that—

(i)are acquired by an individual at different times, and

(ii)are shares to which SEIS relief is attributable,

a disposal relates to, or

(b)whether a disposal relates to shares to which SEIS relief is attributable,

is to be determined for the purposes of capital gains tax as for the purposes of section 257HA of ITA 2007.

Chapter 1 of this Part has effect subject to this subsection.

(7)Sections 104, 105 and 106A do not apply to shares to which SEIS relief is attributable.

(8)Where—

(a)an individual holds shares (“the existing holding”) which form part of the ordinary share capital of a company,

(b)there is, by virtue of any such allotment for payment as is mentioned in section 126(2)(a), a reorganisation affecting the existing holding, and

(c)immediately following the reorganisation, SEIS relief is attributable to the existing holding or the allotted shares,

sections 127 to 130 do not apply in relation to the existing holding.

(9)Sections 135 and 136 do not apply in respect of shares to which SEIS relief is attributable.

(10)Subsection (9) does not have effect to disapply section 135 or 136 where—

(a)the new holding consists of new ordinary shares carrying no present or future preferential right to dividends or to a company's assets on its winding up and no present or future right to be redeemed,

(b)the new shares are issued after the end of the relevant period, and

(c)the condition in subsection (11) is satisfied.

(11)The condition is that at some time before the issue of the new shares—

(a)the company issuing them issued eligible shares, and

(b)a certificate in relation to those eligible shares was issued by the company for the purposes of section 257EB(1) of ITA 2007 and in accordance with sections 257EC and 257ED of that Act.

(12)All such adjustments of capital gains tax are to be made, whether by way of assessment or by way of discharge or repayment of tax, as may be required in consequence of the SEIS relief being given or withdrawn.

(13)Where shares to which SEIS relief is attributable are exchanged for other shares in circumstances such that section 257HB of ITA 2007 (acquisition of share capital by new company) applies—

(a)subsection (9) above does not have effect to disapply section 135, and

(b)sections 257HB(3)(b), 257HC(2)(a) and 257HD of ITA 2007 apply for the purposes of this section as they apply for the purposes of Part 5A of that Act.

(14)For the purposes of this section—

  • eligible shares” means shares that meet the requirements of section 257CA(2);

  • new holding” is to be construed in accordance with sections 126, 127, 135 and 136;

  • ordinary share capital” has the meaning given in section 989 of ITA 2007;

  • ordinary shares”, in relation to a company, means shares forming part of its ordinary share capital;

  • relevant period” means the period found by applying section 257AC(2) of ITA 2007 by reference to the company issuing the shares referred to in subsection (9) and by reference to those shares;

  • the SEIS rate” has the meaning given by section 257AB(3) of ITA 2007;

  • SEIS relief” means relief under Part 5A of ITA 2007 (seed enterprise investment scheme);

and that Part applies to determine whether SEIS relief is attributable to any shares and, if so, the amount of SEIS relief so attributable.

150FSeed enterprise investment scheme: reduction of relief

(1)This section has effect where—

(a)section 150E(2) applies on a disposal of shares, and

(b)before the disposal, value is received in circumstances where SEIS relief attributable to the shares is reduced by an amount under section 257FE(2)(a) of ITA 2007.

(2)If section 150E(2) applies on the disposal but section 150E(5) does not, section 150E(2) applies only to so much of the gain as remains after deducting so much of it as is found by multiplying it by the fraction—

where—

A is the amount by which the SEIS relief attributable to the shares is reduced as mentioned in subsection (1), and

B is the amount of the relief attributable to the shares.

(3)If section 150E(2) and (5) apply on the disposal, section 150E(2) applies only to so much of the gain as is found by—

(a)taking the part of the gain found under section 150E(5), and

(b)deducting from that part so much of it as is found by multiplying it by the fraction mentioned in subsection (2) above.

(4)Where the SEIS relief attributable to the shares is reduced as mentioned in subsection (1) by more than one amount, “A” in subsection (2) is to be taken to be equal to the aggregate of the amounts.

(5)The amount which is “B” in subsection (2) is to be found without regard to any reduction mentioned in subsection (1).

(6)For the purposes of this section, Part 5A of ITA 2007 (seed enterprise investment scheme) applies to determine whether SEIS relief is attributable to any shares and, if so, the amount of SEIS relief so attributable.

Seed enterprise investment scheme: re-investment reliefE+W+S+N.I.

4After section 150F (inserted by paragraph 3 of this Schedule) insert—

150GSeed enterprise investment scheme: re-investment

Schedule 5BB to this Act (which provides relief in respect of re-investment under the seed enterprise investment scheme in the tax year 2012-13) has effect.

5After Schedule 5B insert—

SCHEDULE 5BBE+W+S+N.I.Seed enterprise investment scheme: re-investment
SEIS re-investment reliefE+W+S+N.I.

1(1)Sub-paragraph (5) applies where conditions A to C are met in relation to an individual (“the investor”).

(2)Condition A is that—

(a)there would (ignoring sub-paragraphs (5) and (6)) be a chargeable gain (“the original gain”) accruing to the investor at any time in the tax year 2012-13, and

(b)the original gain is one accruing on the disposal of an asset by the investor at any time (“the disposal time”) in that year.

(3)Condition B is that—

(a)the investor is eligible for SEIS relief for the tax year 2012-13 in respect of an amount subscribed for an issue of shares in a company made to the investor in that year,

(b)the investor makes a claim for and obtains SEIS relief for that year in respect of all or some of those shares (“the relevant SEIS shares”), and

(c)if the relevant SEIS shares, or any corresponding bonus shares in relation to those shares, were issued before the disposal time, they are still held by the investor at the disposal time.

(4)Condition C is that—

(a)the investor has made a claim under this paragraph for relief in relation to the original gain, and

(b)the claim is in respect of the amount on which SEIS relief is claimed by the investor in respect of the relevant SEIS shares (“the SEIS expenditure”) or part of that amount.

(5)So much of the SEIS expenditure as—

(a)is specified in the claim,

(b)is unused, and

(c)does not exceed so much of the original gain as is unmatched,

is to be set against a corresponding amount of the original gain.

(6)Where an amount of the SEIS expenditure is set against the whole or part of the original gain under sub-paragraph (5), so much of that gain as is equal to that amount is to be treated as not being a chargeable gain.

(7)For the purposes of this paragraph—

(a)the SEIS expenditure is unused to the extent that it has not already been set under sub-paragraph (5) or paragraph 2(1) of Schedule 5B against the whole or any part of a chargeable gain, and

(b)the original gain is unmatched, in relation to the SEIS expenditure, to the extent that it has not had any other expenditure set against it under sub-paragraph (5) or paragraph 2(1) of Schedule 5B.

Restrictions on relief under paragraph 1E+W+S+N.I.

2(1)Sub-paragraph (2) applies if the investor's tax reduction under section 257AB of ITA 2007 for the tax year 2012-13 is limited by subsection (2)(b) of that section (calculation of tax reduction where claim made for amounts subscribed for shares which exceed £100,000).

(2)Paragraph 1(5) to (7) has effect as if references to the SEIS expenditure were references to so much of that expenditure as is given by the formula—

where—

SA means the SEIS expenditure (ignoring this paragraph);

TSA means the total of the amounts subscribed for shares issued in the tax year 2012-13 in respect of which the investor is eligible for and claims SEIS relief for that tax year.

(3)Sub-paragraph (4) applies if the amount of SEIS relief attributable to any of the relevant SEIS shares has been reduced under Chapter 6 of Part 5A of ITA 2007 before the SEIS relief was obtained (otherwise than by virtue of corresponding bonus shares being issued in respect of those shares).

(4)Paragraph 1(5) to (7) has effect as if the SEIS expenditure were the amount found by multiplying that expenditure by the fraction—

where—

R1” means the amount of SEIS relief attributable to the relevant SEIS shares when the relief is obtained;

R2” means the amount of SEIS relief which would have been so attributable in the absence of the reduction.

(5)In a case where sub-paragraphs (2) and (4) both apply, sub-paragraph (2) is to be applied before sub-paragraph (4).

ClaimsE+W+S+N.I.

3(1)Section 257EA of ITA 2007 (time for making claims for SEIS relief) applies in relation to a claim made by the investor for the purposes of paragraph 1 in relation to the SEIS expenditure as it applies in relation to a claim for SEIS relief in respect of that expenditure.

(2)Nothing in paragraph 1(3) prevents a claim being made by the investor under paragraph 1 before SEIS relief has actually been obtained by the investor in relation to the SEIS relief.

Attribution of SEIS re-investment relief to relevant SEIS sharesE+W+S+N.I.

4(1)References in this Schedule to the SEIS re-investment relief attributable to any shares are to be read as references to the total amount attributed to those shares in accordance with this paragraph.

(2)Sub-paragraph (3) applies where the whole or part of the SEIS expenditure is set off against a chargeable gain under paragraph 1(5).

(3)A proportionate part of the expenditure which is so set off is attributed to each of the relevant SEIS shares.

(4)Sub-paragraph (5) applies if corresponding bonus shares are issued in respect of all or some of the relevant SEIS shares (“the original shares”) to which relief is attributed under this paragraph.

(5)A proportionate part of the total amount attributed to the original shares immediately before those bonus shares are issued is attributed to each of the shares in the holding comprising the original shares and those bonus shares.

Removal or reduction of the reliefE+W+S+N.I.

5(1)This paragraph applies where in respect of shares issued to an individual—

(a)SEIS relief is attributable to the shares,

(b)SEIS re-investment relief is also attributable to the shares, and

(c)the SEIS relief which is attributable to the shares is withdrawn or reduced under Chapters 6 and 7 of Part 5A of ITA 2007.

(2)A chargeable gain accrues to the individual in the tax year 2012-13 on a disposal made in that tax year.

(3)The amount of that gain is—

(a)in a case where the SEIS relief is withdrawn, the amount of SEIS re-investment relief which is attributable to the shares immediately before the withdrawal, and

(b)in a case where the SEIS relief is reduced, the appropriate fraction of that amount.

(4)In a case where the SEIS re-investment relief is withdrawn, the SEIS re-investment relief ceases to be attributable to the shares.

(5)In a case where the SEIS relief is reduced, the appropriate fraction of the SEIS re-investment relief ceases to be attributable to the shares.

(6)“The appropriate fraction” is—

where—

“R1” is the total amount of the SEIS relief attributable to those shares immediately before the reduction, and

“R2” is the total amount of the SEIS relief attributable to those shares immediately after the reduction.

Transfers of shares to spouses and civil partnersE+W+S+N.I.

6(1)This paragraph applies if—

(a)shares to which an amount of SEIS relief is attributable were issued to an individual (“A”),

(b)A transferred the shares to another individual (“B”) during their lives,

(c)A was married to, or was the civil partner of, B at the time of the transfer, and

(d)subsection (4) of section 257FA of ITA 2007 (provision about disposals of shares disapplied where disposal between spouses or civil partners) prevented that section applying to the transfer.

(2)Any chargeable gain which accrues by virtue of paragraph 5(2), as a result of SEIS relief attributable to the shares being withdrawn or reduced after the shares are transferred, is to accrue to B (instead of to A).

Adjustment of capital gains tax liabilityE+W+S+N.I.

7(1)All such adjustments of capital gains tax are to be made, whether by way of assessment or by way of discharge or repayment of tax, as may be required in consequence of relief being obtained, or a gain accruing, under this Schedule.

(2)In its application to an assessment made by virtue of this paragraph, section 86 of TMA 1970 (interest on overdue capital gains tax) has effect as if the relevant date were 31 January next following the tax year in which the assessment is made.

Interpretation etcE+W+S+N.I.

8(1)In this Schedule—

  • bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise);

  • corresponding bonus shares”, in relation to any shares (“the original shares”), means bonus shares which are in the same company, of the same class, and carry the same rights as the original shares;

  • SEIS relief” has the same meaning as in Part 5A of ITA 2007.

(2)In this Schedule, references (however expressed) to an issue of shares in any company to an individual are to such of the shares in the company as are of the same class and are issued to the individual in one capacity and on the same day.

This is subject to sub-paragraph (3).

(3)If section 257AB(1) and (2) of ITA 2007 applies, in the case of any issue of shares made to an individual, as if part of the issue had been issued in a previous tax year, this Schedule has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year).

(4)Part 5A of ITA 2007 applies, for the purposes of this Schedule, to determine whether SEIS relief is attributable to any shares and, if so, the amount of relief so attributable.

PART 3 E+W+S+N.I.Consequential amendments

ITA 2007E+W+S+N.I.

6ITA 2007 is amended as follows.

7In section 2 (overview of Act), after subsection (5) insert—

(5A)Part 5A is about relief under the seed enterprise investment scheme.

8In section 26 (tax reductions), in subsection (1)(a), after the entry for Chapter 1 of Part 5, insert— “ Chapter 1 of Part 5A (SEIS relief), ”.

9In section 27 (order of deducting tax reductions: individual), in subsection (5), after the entry for “Chapter 1 of Part 5 (EIS relief)” insert— “ Chapter 1 of Part 5A (SEIS relief), ”.

10In section 169 (directors qualifying for relief despite connection), in subsection (4), for the words after “before” substitute

(a)the termination date relating to the latest issue of shares which met that condition, or

(b)if that issue is an issue in respect of which the investor is eligible for SEIS relief (within the meaning of Part 5A), before the date specified in section 257AC(4) in relation to the shares.

F911. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Amendments (Textual)

F9Sch. 6 para. 11 omitted (with effect in accordance with Sch. 5 para. 21 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 5 para. 20(1)

12In section 173A (enterprise investment scheme: maximum amount raised annually through risk capital schemes requirement), in subsection (3)(b), after sub-paragraph (i) (and the “or” at the end of it) insert—

(ia)a compliance statement under section 257ED (seed enterprise investment scheme).

F1013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F10Sch. 6 para. 13 omitted (with effect in accordance with Sch. 5 para. 21 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 5 para. 20(1)

14(1)Section 246 (identification of shares on a disposal) is amended as follows.E+W+S+N.I.

(2)In subsection (3)—

(a)in paragraph (a) for “neither EIS relief nor deferral relief” substitute “ no EIS relief, deferral relief or SEIS relief ”, and

(b)after that paragraph insert—

(aa)next any to which SEIS relief is attributable,.

(3)In subsection (7), at the end insert—

SEIS relief” means relief under Part 5A (seed enterprise investment scheme).

F1115. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations: Help about Annotation
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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F11Sch. 6 para. 15 omitted (with effect in accordance with Sch. 6 para. 23(2) of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 6 para. 22(1)

16In section 292A (venture capital trusts: maximum amount raised annually through risk capital schemes requirement), in subsection (3)(b), after sub-paragraph (i) (and the “or” at the end of it) insert—

(ia)a compliance statement under section 257ED (seed enterprise investment scheme).

F1217. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annotations: Help about Annotation
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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F12Sch. 6 para. 17 omitted (with effect in accordance with Sch. 6 para. 23(2) of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 6 para. 22(1)

18(1)Schedule 4 (index of defined expressions) is amended as follows.E+W+S+N.I.

(2)Insert the following entries at the appropriate places—

arrangements (in Part 5A)section 257HJ(1)
associate (in Part 5A)section 257HJ(1)
bonus shares (in Part 5A)section 257HJ(1)
compliance certificate (in Part 5A)section 257EC(1)
compliance statement (in Part 5A)section 257ED(1)
director (in Part 5A)section 257HJ(1)
disposal of shares (in Part 5A)section 257HH
EIS relief (in Part 5A)section 257HJ(1)
group (in Part 5A)section 257HJ(1)
group company (in Part 5A)section 257HJ(1)
issue of shares (in Part 5A)section 257HI
market value (in Part 5A)section 257HJ(6)
new qualifying trade (in Part 5A)section 257HF
ordinary shares (in Part 5A)section 257HJ(1)
parent company (in Part 5A)section 257HJ(1)
period A, period B (in Part 5A)section 257AC
permanent establishment (in Part 5A)section 257HJ(1)
qualifying business activity (in Part 5A)section 257HG
qualifying subsidiary (in Part 5A)section 257HJ(1)
qualifying 90% subsidiary (in Part 5A)section 257HJ(1)
research and development (in Part 5A)section 257HJ(1)
SEIS (in Part 5A)section 257A(2)
single company (in Part 5A)section 257HJ(1)

(3)In the entry for “control”, in the second column, after “257(3),” insert “ 257HJ(3), ”.

TCGA 1992E+W+S+N.I.

19TCGA 1992 is amended as follows.

20(1)Section 150A (enterprise investment scheme) is amended as follows.E+W+S+N.I.

(2)For “relief”, in each place it occurs (except subsections (6)(c) and (10)), substitute “ EIS relief ”.

(3)In subsection (6)—

(a)omit the “and” at the end of paragraph (b) and after that paragraph insert—

(ba)shares to which SEIS relief is attributable; and,

(b)in paragraph (c), for “relief is not” substitute “ neither EIS nor SEIS relief is ”, and

(c)after “paragraph (a), (b)” insert “ , (ba) ”.

(4)In subsection (10), for “the relief” substitute “ EIS relief ”.

(5)In subsection (10A), at the appropriate place, insert—

EIS relief” means relief under Chapter 3 of Part 7 of the Taxes Act or Part 5 of ITA 2007;, and

SEIS relief” means relief under Part 5A of ITA 2007.

21(1)Section 150B (enterprise investment scheme: reduction of relief) is amended as follows.E+W+S+N.I.

(2)For “relief”, in each place it occurs, substitute “ EIS relief ”.

(3)After subsection (5) insert—

(5A)In this section “EIS relief” means relief under Chapter 3 of Part 7 of the Taxes Act or Part 5 of ITA 2007.

22In Schedule 5B (enterprise investment scheme: re-investment), in paragraph 2 (postponement of original gain)—

(a)in sub-paragraph (3)(b), after “Schedule” insert “ or paragraph 1(5) of Schedule 5BB ”, and

(b)in sub-paragraph (4), after “this Schedule” insert “ or paragraph 1(5) of Schedule 5BB ”.

TMA 1970E+W+S+N.I.

23In section 98 of TMA 1970 (special returns, etc)—

(a)in the first column of the Table, after the entry for “sections 242 and 243(1) and (2) of ITA 2007” insert—

sections 257GG and 257GH(1) and (2) of ITA 2007;, and

(b)in the second column of that Table, after the entry for “sections 240 and 241 of ITA 2007” insert—

sections 257GE and 257GF of ITA 2007;.

PART 4 E+W+S+N.I.Commencement

24(1)Subject to sub-paragraphs (2) and (3), the amendments made by this Schedule have effect in relation to shares issued on or after 6 April 2012.E+W+S+N.I.

(2)The amendments made by paragraphs 15 to 17 have effect for the purpose of determining whether shares or securities issued on or after 6 April 2012 are to be regarded as comprised in a company's qualifying holdings.

(3)Sub-paragraph (1) does not apply to the amendments made by paragraphs 4, 5 and 22.

Section 39

SCHEDULE 7E+W+S+N.I.Enterprise investment scheme

PART 1 E+W+S+N.I.Enterprise investment scheme

IntroductionE+W+S+N.I.

1Part 5 of ITA 2007 (enterprise investment scheme) is amended as follows.

Minimum subscriptionE+W+S+N.I.

2In section 157 (eligibility for EIS relief), omit subsections (2) and (3).

Increase in amount of reliefE+W+S+N.I.

3(1)In section 158 (form and amount of EIS relief), in subsection (2)(b) for “£500,000” substitute “ £1 million ”.E+W+S+N.I.

(2)Accordingly, section 31 of FA 2008 is repealed.

Loan capitalE+W+S+N.I.

4In section 170 (person interested in capital etc of company)—

(a)in subsection (1)(b), omit “loan capital and”, and

(b)omit subsections (8) and (10).

Overview of Chapter 3E+W+S+N.I.

5In section 172 (overview of Chapter 3), omit the “and” at the end of paragraph (e) and after paragraph (f) insert , and

(g)no disqualifying arrangements (see section 178A).

Relaxation of the shares requirementE+W+S+N.I.

6(1)Section 173 (the shares requirement) is amended as follows.E+W+S+N.I.

(2)In subsection (2), for paragraph (a) (but not the “or” after it) substitute—

(a)any present or future preferential right to dividends that is within subsection (2A),

(aa)any present or future preferential right to a company's assets on its winding up,

(3)After that subsection insert—

(2A)A preferential right to dividends carried by a share in a company is within this subsection if—

(a)the amount of any dividends payable pursuant to the right, or the date or dates on which they are payable, depend to any extent on a decision of the company, the holder of the share or any other person, or

(b)the amount of any dividends that become payable at any time pursuant to the right includes any amount that became payable at any earlier time pursuant to the right, but has not been paid.

Increase in the maximum amount permitted to be raised annuallyE+W+S+N.I.

7(1)Section 173A (the maximum amount raised annually through risk capital schemes requirement) is amended as follows.E+W+S+N.I.

(2)In subsection (1) for “£2 million” substitute “ £5 million ”.

(3)In subsection (3)—

(a)in paragraph (b), omit sub-paragraph (ii), and

(b)after that paragraph insert , or

(c)any other investment is made in the company which is aid received by it pursuant to a measure approved by the European Commission as compatible with Article 107 of the Treaty on the Functioning of the European Union in accordance with the principles laid down in the Community Guidelines on Risk Capital Investments in Small and Medium-sized Enterprises (as those guidelines may be amended or replaced from time to time).

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Commencement Information

I1Sch. 7 para. 7(2) in force at 19.7.2012 for the purposes of the amendment made by that sub-paragraph by S.I. 2012/1896, art. 2(a)

Acquisition of shares or stockE+W+S+N.I.

8In section 175 (the use of the money raised requirement), after subsection (1) insert—

(1A)Employing money on the acquisition of shares or stock in a company does not of itself amount to employing the money for the purposes of a qualifying business activity.

No disqualifying arrangements requirementE+W+S+N.I.

9After section 178 insert—

178AThe no disqualifying arrangements requirement

(1)The relevant shares must not be issued, nor any money raised by the issue employed, in consequence or anticipation of, or otherwise in connection with, disqualifying arrangements.

(2)Arrangements are “disqualifying arrangements” if—

(a)the main purpose, or one of the main purposes, of the arrangements is to secure—

(i)that a qualifying business activity is or will be carried on by the issuing company or a qualifying 90% subsidiary of that company, and

(ii)that one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of shares issued by the issuing company which raise money for the purposes of that activity or that such shares may comprise part of the qualifying holdings of a VCT,

(b)that activity is the relevant qualifying business activity, and

(c)one or both of conditions A and B are met.

(3)Condition A is that, as a (direct or indirect) result of the money raised by the issue of the relevant shares being employed as required by section 175, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.

(4)Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying business activity would have been carried on as part of another business by a relevant person or relevant persons.

(5)For the purposes of this section it is immaterial whether the issuing company is a party to the arrangements.

(6)In this section—

  • component activities” means—

    (a)

    if the relevant qualifying business activity is activity A (see section 179(2)), the carrying on of a qualifying trade or preparing to carry on such a trade, which constitutes that activity, and

    (b)

    if the relevant qualifying business activity is activity B (see section 179(4)), the carrying on of research and development which constitutes that activity;

  • qualifying holdings”, in relation to the issuing company, is to be construed in accordance with section 286 (VCTs: qualifying holdings);

  • relevant person” means a person who is a party to the arrangements or a person connected with such a party;

  • relevant qualifying business activity” means the activity for the purposes of which the issue of the relevant shares raised money;

  • “relevant tax relief”, in respect of shares, means one or more of the following—

    (a)

    EIS relief in respect of the shares;

    (b)

    SEIS relief under Part 5A in respect of the shares;

    (c)

    relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;

    (d)

    relief under section 150A or 150E of TCGA 1992 (enterprise investment scheme) in respect of the shares;

    (e)

    relief under Schedule 5B to that Act (enterprise investment scheme: reinvestment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule);

    (f)

    relief under Schedule 5BB to that Act (seed enterprise investment scheme: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).

Meaning of “qualifying business activity”E+W+S+N.I.

10In section 179 (meaning of “qualifying business activity”), in subsection (1) omit “This is subject to subsections (3) and (5).”

Increase in the gross assets limitsE+W+S+N.I.

11In section 186 (the gross assets requirement)—

(a)in subsections (1)(a) and (2)(a), for “£7 million” substitute “ £15 million ”, and

(b)in subsections (1)(b) and (2)(b), for “£8 million” substitute “ £16 million ”.

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Commencement Information

I2Sch. 7 para. 11 in force at 19.7.2012 for the purposes of the amendments made by that paragraph by S.I. 2012/1896, art. 2(b)

Relaxation of restriction on number of employeesE+W+S+N.I.

F1312. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Annotations are used to give authority for changes and other effects on the legislation you are viewing and to convey editorial information. They appear at the foot of the relevant provision or under the associated heading. Annotations are categorised by annotation type, such as F-notes for textual amendments and I-notes for commencement information (a full list can be found in the Editorial Practice Guide). Each annotation is identified by a sequential reference number. For F-notes, M-notes and X-notes, the number also appears in bold superscript at the relevant location in the text. All annotations contain links to the affecting legislation.

Amendments (Textual)

F13Sch. 7 para. 12 omitted (with effect in accordance with Sch. 5 para. 23 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 5 para. 20(2)

Subsidised generation or export of electricityE+W+S+N.I.

13(1)Section 192 (meaning of “excluded activities”) is amended as follows.E+W+S+N.I.

(2)In subsection (1), omit “and” at the end of paragraph (k) and after that paragraph insert—