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
213

(l)
qualifying subsidiaries (see section 257DM), and
(m)
property managing subsidiaries (see section 257DN).
The requirements
257DA
The trading requirement
(1)
The issuing company must meet the trading requirement
5
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
10
(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
15
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
20
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
25
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.
30
(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,
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(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
40
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.
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Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
214

(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
5
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
10
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
15
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
20
(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).
257DB
Ceasing to meet trading requirement: administration etc
25
(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).
30
(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
35
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
40
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
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winding up.

This is subject to subsection (4).

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
215

(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.
257DC
The issuing company to carry on the qualifying business activity
5
(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),
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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
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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
20
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
25
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—
30
(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.
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(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,
40

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
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trade which is the subject of that qualifying business activity;

Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
216

“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)
5
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.
257DD
  The UK permanent establishment requirement
10
(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.
257DE
The financial health requirement
15
(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
20
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).
257DF
The unquoted status requirement
(1)
At the beginning of period B—
25
(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
30
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.
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(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—
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(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.
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Finance (No. 4) Bill
Schedule 6 — Seed enterprise investment scheme
Part 1 — The scheme
217

(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
5
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,
10
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
15
by an order made for the purposes of subsection (3)(b) or (c),

if the order was made after the beginning of period B.
257DG
The 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
20
(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
25
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
30
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).
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(3)
This section is subject to section 257HB(4) (exchange of shares).
257DH
  The 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.
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(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.
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