Finance (No. 4) Bill

Session 2010 - 12
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Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 7 — Enterprise investment scheme
Part 1 — Enterprise investment scheme
262

(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
5
(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);
10
“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—
15
(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
20
(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
25
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).”
30
Meaning of “qualifying business activity”
10
In section 179 (meaning of “qualifying business activity”), in subsection (1)
omit “This is subject to subsections (3) and (5).”
Increase in the gross assets limits
11
In section 186 (the gross assets requirement)—
35
(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”.
Relaxation of restriction on number of employees
40
12
In section 186A (the number of employees requirement), in subsections (1)
and (2), for “50” substitute “250”.
Subsidised generation or export of electricity
13    (1)
Section 192 (meaning of “excluded activities”) is amended as follows.

Finance (No. 4) Bill
Schedule 7 — Enterprise investment scheme
Part 1 — Enterprise investment scheme
263

      (2)
In subsection (1), omit “and” at the end of paragraph (k) and after that
paragraph insert—
“(ka)
the subsidised generation or export of electricity, and”.
      (3)
In subsection (2), omit the “and” at the end of paragraph (e) and after
paragraph (f) insert “, and
5
(g)
section 198A (subsidised generation or export of electricity).”
14
After section 198 insert—
“198A
Excluded activities: subsidised generation or export of electricity
(1)
This section supplements section 192(1)(ka).
(2)
Electricity is exported if it is exported onto a distribution system or
10
transmission system (within the meaning of section 4 of the
Electricity Act 1989).
(3)
The generation of electricity is “subsidised” if a person receives a FIT
subsidy in respect of the electricity generated.
(4)
The export of electricity is “subsidised” if a person receives a FIT
15
subsidy in respect of the electricity exported.
(5)
But the generation or export of electricity is not to be taken to fall
within section 192(1)(ka) if Condition A, B or C is met.
(6)
Condition A is that the generation or export is carried on by—
(a)
a community interest company,
20
(b)
a co-operative society,
(c)
a community benefit society, or
(d)
a NI industrial and provident society.
(7)
Condition B is that the plant used for the generation of the electricity
relies wholly or mainly on anaerobic digestion.
25
(8)
Condition C is that the electricity is hydroelectric power.
(9)
For the purposes of this section—
“anaerobic digestion” means the bacterial fermentation of
organic material in the absence of free oxygen (excluding
anaerobic digestion of sewage or material in a landfill);
30
“community benefit society” means—
(a)
a society registered under the Co-operative and
Community Benefit Societies and Credit Unions Act
1965 as a community benefit society, or
(b)
a pre-2010 Act society (as defined at section 4A(1) of
35
that Act) which meets the condition in section 1(3) of
that Act;
“co-operative society” means—
(a)
a society registered under the Co-operative and
Community Benefit Societies and Credit Unions Act
40
1965 as a co-operative society, or
(b)
a pre-2010 Act society (as defined at section 4A(1) of
that Act) which meets the condition in section 1(2) of
that Act;
“FIT subsidy” means—
45

Finance (No. 4) Bill
Schedule 7 — Enterprise investment scheme
Part 1 — Enterprise investment scheme
264

(a)
a financial incentive under a scheme established by
virtue of section 41 of the Energy Act 2008 (powers to
amend licence conditions etc: feed-in tariffs) to
encourage small-scale low-carbon generation of
electricity, or
5
(b)
a financial incentive under a similar scheme
established in a territory outside the United Kingdom
to encourage small-scale low-carbon generation of
electricity;
“NI industrial and provident society” means a society
10
registered under the Industrial and Provident Societies Act
(Northern Ireland) 1969 (c. 24 (N.I.));
“small-scale low-carbon generation” has the meaning given by
section 41(4) of the Energy Act 2008.”
15
In section 199 (excluded activities: provision of services or facilities for
15
another business), in subsection (1)(a), for “(k)” substitute “(ka)”.
Powers to amend
16
In section 200 (power to amend by Treasury order), the existing provision
becomes subsection (1) and after that subsection insert—
“(2)
An order under this section may—
20
(a)
make different provision for different cases or purposes, or
(b)
include such transitional provision as the Treasury consider
appropriate.”
Disposal of shares
17
In section 209 (disposal of shares), after subsection (5) insert—
25
“(6)
Nothing in this section applies to a disposal of shares occurring as a
result of the investor’s death.”
Date from which interest is chargeable
18
In section 239 (date from which interest is chargeable), in subsection (2) for
“sections 181 to 188” substitute “sections 180A to 188”.
30
Information
19
In section 243 (power to require information in other cases)—
(a)
in subsection (1), omit the “or” at the end of paragraph (d) and after
that paragraph insert—
“(da)
section 178A (no disqualifying arrangements), or”,
35
and

Finance (No. 4) Bill
Schedule 7 — Enterprise investment scheme
Part 1 — Enterprise investment scheme
265

(b)
in subsection (4), at the appropriate place in the table, insert—

“Subsection (1)(da)
The claimant, the

company, any

person controlling

the company and

5

any person whom an

officer of Revenue

and Customs has

reason to believe

may be a party to the

10

arrangements in

question”

Approved investment fund as nominee
20
In section 251 (approved investment fund as nominee), omit subsection (3).
Interpretation
15
21
In section 257 (minor definitions etc), in subsection (1), for the definition of
“arrangements” substitute—
““arrangements” includes any scheme, agreement,
understanding, transaction or series of transactions (whether
or not legally enforceable);”.
20
Commencement and transitional provision
22    (1)
The amendments made by paragraphs 2 to 6, 7(1) and (3), 8, 9, 10 and 19 have
effect in relation to shares issued on or after 6 April 2012.
      (2)
But—
(a)
for the purposes of paragraphs 5, 9 and 19 it does not matter whether
25
the disqualifying arrangements were entered into before or on or
after 6 April 2012, and
(b)
nothing in sub-paragraph (1) prevents shares issued before that date
constituting a “relevant investment” (by virtue of the amendment
made by paragraph 7(3)(b) of this Schedule) for the purposes of
30
determining whether the requirement of section 173A(1) of ITA 2007
is met in relation to shares issued on or after that date.
23    (1)
The amendments made by paragraphs 7(2), 11 and 12 come into force on
such day as the Treasury may by order appoint.
      (2)
Those amendments have effect in relation to shares issued on or after 6 April
35
2012.
24    (1)
Subject to sub-paragraph (2), the amendments made by paragraphs 13 to 15
have effect in relation to shares issued on or after 23 March 2011.
      (2)
Those amendments do not have effect in relation to shares issued before 6
April 2012 if the issuing company, or a qualifying 90% subsidiary of that
40
company, first began to carry on activities of the kind mentioned in section
192(1)(ka) of ITA 2007 before that day.

Finance (No. 4) Bill
Schedule 7 — Enterprise investment scheme
Part 2 — Enterprise investment scheme: chargeable gains
266

      (3)
Until such time as section 1 of the Co-operative and Community Benefit
Societies and Credit Unions Act 2010 comes into force, section 198A(6) of
ITA 2007 (inserted by paragraph 12 of this Schedule) has effect as if for
paragraphs (b) and (c) there were substituted—
“(b)
a society registered under the Industrial and Provident
5
Societies Act 1965,”.
25    (1)
The amendment made by paragraphs 18 and 21 are to be treated as having
come into force on 6 April 2012.
Part 2
Enterprise investment scheme: chargeable gains
10
Introduction
26
TCGA 1992 is amended as follows.
Disposal of shares to which EIS relief is attributable
27
In section 150A (disposal of shares to which EIS relief is attributable)—
(a)
in subsection (3), in paragraph (b) for “basic rate” substitute “EIS
15
original rate”, and
(b)
after that subsection insert—
“(3A)
In subsection (3) “EIS original rate” has the meaning given by
section 256A of ITA 2007, except that where the year
mentioned in subsection (3)(b) is the tax year 2007-08 or an
20
earlier year, it means 20%.”
28
Accordingly, in Schedule 1 to FA 2008, paragraph 48 is repealed.
Maximum annual investment
29
In paragraph 1 of Schedule 5B to the TCGA 1992 (EIS re-investment relief:
application of Schedule), in sub-paragraph (2)(da), for “£2 million”
25
substitute “£5 million”.
No disqualifying arrangements
30
After paragraph 11 insert—
“Disqualifying arrangements
11A   (1)
Where an individual subscribes for eligible shares (“the shares”) in
30
a company (“the company”), the shares are to be treated as not
being eligible shares for the purposes of this Schedule if the shares
are issued in consequence of, or otherwise in connection with,
disqualifying arrangements.
      (2)
Arrangements are “disqualifying arrangements” if—
35
(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 company, or a qualifying 90% subsidiary of
the company, carries on a business which consists

Finance (No. 4) Bill
Schedule 7 — Enterprise investment scheme
Part 2 — Enterprise investment scheme: chargeable gains
267

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 company which raise money for the
5
purposes of that activity or that such shares may
comprise part of the qualifying holdings of a
venture capital trust, 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
10
raised by the issue of the shares being employed as required by
paragraph 1(2)(g), 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
15
have 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 paragraph, it is immaterial whether the
20
company is a party to the arrangements.
      (6)
In this paragraph—
“component activities” means—
(a)
if the relevant qualifying business activity is activity
A (see section 179(2) of ITA 2007), the carrying on of a
25
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) of that Act), the carrying on of
research and development which constitutes that
30
activity;
“qualifying holdings”, in relation to the issuing company, is
to be construed in accordance with section 286 of ITA 2007
(VCTs: qualifying holdings);
“qualifying 90% subsidiary” has the meaning given by
35
section 190 of ITA 2007;
“relevant qualifying business activity” means the activity for
the purposes of which the issue of the shares raised money;
“relevant tax relief”, in respect of shares, means one or more
of the following—
40
(a)
relief under this Schedule in consequence of which
deferral relief is attributable to the shares;
(b)
relief under section 150A or 150E (enterprise
investment scheme or seed enterprise investment
scheme) in respect of the shares;
45
(c)
relief under Schedule 5BB (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);

Finance (No. 4) Bill
Schedule 8 — Venture capital schemes
268

(d)
relief under Chapter 6 of Part 4 of ITA 2007 (losses on
disposal of shares) in respect of the shares;
(e)
EIS relief (within the meaning of Part 5 of that Act) in
respect of the shares;
(f)
SEIS relief (within the meaning of Part 5A of that Act)
5
in respect of the shares.”
Information
31
In paragraph 16 (information)—
(a)
in sub-paragraph (6), for “or 11(1)” substitute “, 11(1) or 11A”,
(b)
in sub-paragraph (7), omit the “and” at the end of paragraph (b) and
10
after that paragraph insert—
“(ba)
in relation to paragraph 11A, the claimant, the
company, any person controlling the company and
any person whom an officer of Revenue and
Customs has reason to believe may be a party to the
15
arrangements in question; and”, and
(c)
in that sub-paragraph, for “and (b)” substitute “, (b) and (ba)”.
Meaning of “arrangements”
32
In paragraph 19 (interpretation), in sub-paragraph (1) for the definition of
“arrangements” substitute—
20
““arrangements” includes any scheme, agreement,
understanding, transaction or series of transactions (whether
or not legally enforceable);”.
Commencement
33    (1)
The amendment made by paragraph 29 comes into force on such day as the
25
Treasury may by order appoint.
      (2)
That amendment has effect in relation to shares issued on or after 6 April
2012.
34    (1)
The amendments made by paragraphs 27, 28, 30 and 31 have effect in
relation to shares issued on or after 6 April 2012.
30
      (2)
For the purposes of those paragraphs it does not matter whether the
disqualifying arrangements were entered into before or on or after that date.
35
The amendment made by paragraph 32 is treated as having come into force
on 6 April 2012.
Schedule 8
35
Section 40

Venture capital schemes
Introduction
1
Part 6 of ITA 2007 (venture capital trusts) is amended in accordance with
paragraphs 2 to 13.