Finance (No. 4) Bill

Session 2010 - 12
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Other Bills before Parliament

Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
206

257AD
  Overview 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Chapter 6 provides for SEIS relief to be withdrawn or
5
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.
257AE
CGT reliefs relating to SEIS
10
(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.
15
Chapter 2
The investor
Introduction
257B
Overview of Chapter

The investor is a qualifying investor in relation to the relevant shares
20
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),
25
(d)
no linked loans (see section 257BD), and
(e)
no tax avoidance (see section 257BE).
The requirements
257BA
The no employee investors requirement
(1)
Neither the investor nor an associate of the investor may, at any time
30
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.
35
257BB
The 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.

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
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257BC
The 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.
5
257BD
The 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
10
(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—
15
(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.
257BE
The no tax avoidance requirement
20

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 company
25
257BF
Persons 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
30
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
35
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,
40

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.

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
208

(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,
5

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
10
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
15
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.
20
(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
25
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
30
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 3
35
General requirements
Introduction
257C
Overview of Chapter

The general requirements are met in respect of the relevant shares if
the requirements of this Chapter are met as to—
40
(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),

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
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(e)
no tax avoidance (see section 257CE), and
(f)
no disqualifying arrangements (see section 257CF).
The requirements
257CA
The shares requirement
(1)
The relevant shares must meet—
5
(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—
10
(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.
15
(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
20
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.
25
(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
30
respect of the acquisition of the shares.
257CB
The 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
35
issuing company or a qualifying 90% subsidiary of that company.
(2)
For the meaning of “qualifying business activity” see section 257HG.
257CC
The 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
40
any of them which are bonus shares) is spent for the purposes of the
qualifying business activity for which it was raised.

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Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
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(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
5
remains unspent at the end of period B.
257CD
The 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
10
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
15
(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
20
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
25
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
30
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—
35
(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,
40

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
45
individual,
(b)
any arrangements made, before the shares were issued, in
relation to or in connection with the issue, and

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Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
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(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
5
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).
257CE
The no tax avoidance requirement

The relevant shares must be issued for genuine commercial reasons,
10
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.
257CF
The no disqualifying arrangements requirement
(1)
The relevant shares must not be issued in consequence of, or
otherwise in connection with, disqualifying arrangements.
15
(2)
Arrangements are “disqualifying arrangements” if—
(a)
the main purpose, or one of the main purposes, of any person
(“P”) in being a party to them is to secure—
(i)
that the issuing company, or a qualifying 90%
subsidiary of that company, carries on a business
20
which consists of or includes the relevant qualifying
business activity, and
(ii)
that one or more persons (whether or not including P)
may obtain relevant tax relief in respect of shares
issued by the issuing company which raise money for
25
the purposes of that activity or that such shares may
comprise part of the qualifying holdings of a VCT,
and
(b)
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
30
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 paid to or for the benefit of a party to the
arrangements or a person connected with such a party.
(4)
Condition B is that, in the absence of the arrangements, it would have
35
been reasonable to expect that the component activities of the
relevant qualifying business activity would have been carried on as
part of another business by a person who is a party to the
arrangements or a person connected with such a party.
(5)
For the purposes of this section it is immaterial whether the issuing
40
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
45
qualifying trade, or preparing to carry on such a
trade, which constitutes that activity, and

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Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
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(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:
5
qualifying holdings);
“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
10
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;
15
(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
20
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
25
shares (see paragraph 4 of that Schedule).
Chapter 4
The issuing company
Introduction
257D
Overview of Chapter
30

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
35
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),
40
(g)
no partnerships (see section 257DI),
(h)
gross assets (see section 257DI),
(i)
number of employees (see section 257DJ),
(j)
no previous other risk capital scheme investments (see
section 257DK),
45
(k)
the amount raised through the SEIS (see section 257DL),