Overview of Chapter 3

5 In 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).”

5Relaxation of the shares requirement

6 (1) Section 173 (the shares requirement) is amended as follows.

(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) 10any 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) 15the 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
20pursuant 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 annually

7 (1) Section 173A (the maximum amount raised annually through risk capital
25schemes requirement) is amended as follows.

(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) 30any 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
35laid 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).”

Acquisition of shares or stock

8 40In 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 requirement

9 5After section 178 insert—

“178A The 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) 10Arrangements 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%
15subsidiary 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
20activity 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
25by 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
30been 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
35company 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
  40trade 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;

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• “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
  5arrangements 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
  10the 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)

  15relief 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
  20which 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
  25shares (see paragraph 4 of that Schedule).”

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 30In 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”.

35Relaxation of restriction on number of employees

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.

(2) 40In 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

“(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) 5Electricity is exported if it is exported onto a distribution system or
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) 10The export of electricity is “subsidised” if a person receives a FIT
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) 15a community interest company,

(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
20relies wholly or mainly on anaerobic digestion.

(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
  25anaerobic digestion of sewage or material in a landfill);

• “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)

  30a pre-2010 Act society (as defined at section 4A(1) of
  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
  35Community Benefit Societies and Credit Unions Act
  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;

• 40“FIT subsidy” means—

  (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

  Finance BillPage 264

  encourage small-scale low-carbon generation of
  electricity, or

  (b)

  a financial incentive under a similar scheme
  established in a territory outside the United Kingdom
  to encourage small-scale low-carbon generation of
  5electricity;

• “NI industrial and provident society” means a society
  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
  10section 41(4) of the Energy Act 2008.”

15 In section 199 (excluded activities: provision of services or facilities for
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
15becomes subsection (1) and after that subsection insert—

“(2) An order under this section may—

(a) make different provision for different cases or purposes, or

(b) include such transitional provision as the Treasury consider
appropriate.”

20Disposal of shares

17 In section 209 (disposal of shares), after subsection (5) insert—

“(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 25In section 239 (date from which interest is chargeable), in subsection (2) for
“sections 181 to 188” substitute “sections 180A to 188”.

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
30that paragraph insert—

“(da) section 178A (no disqualifying arrangements), or”,
and”

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

Approved investment fund as nominee

20 15In section 251 (approved investment fund as nominee), omit subsection (3).

Interpretation

21 In section 257 (minor definitions etc), in subsection (1), for the definition of
“arrangements” substitute—

• ““arrangements” includes any scheme, agreement,
  20understanding, transaction or series of transactions (whether
  or not legally enforceable);”.

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) 25But—

(a) for the purposes of paragraphs 5, 9 and 19 it does not matter whether
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
30constituting a “relevant investment” (by virtue of the amendment
made by paragraph 7(3)(b) of this Schedule) for the purposes of
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
35such day as the Treasury may by order appoint.

(2) Those amendments have effect in relation to shares issued on or after 6 April
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) 40Those 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
company, first began to carry on activities of the kind mentioned in section
192(1)(ka) of ITA 2007 before that day.

(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) 5a society registered under the Industrial and Provident
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 10Enterprise investment scheme: chargeable gains

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) 15in subsection (3), in paragraph (b) for “basic rate” substitute “EIS
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
20mentioned in subsection (3)(b) is the tax year 2007-08 or an
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:
25application of Schedule), in sub-paragraph (2)(da), for “£2 million”
substitute “£5 million”.

No disqualifying arrangements

30 After paragraph 11 insert—

“Disqualifying arrangements

11A (1) 30Where an individual subscribes for eligible shares (“the shares”) in
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, nor any money raised by the issue employed, in
consequence or anticipation of, or otherwise in connection with,
35disqualifying 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 company or a qualifying 90%
subsidiary of the company, and

(ii) that one or more persons (whether or not including
5any party to the arrangements) may obtain relevant
tax relief in respect of shares issued by the
company which raise money for the purposes of
that activity or that such shares may comprise part
of the qualifying holdings of a venture capital trust,

(aa) 10that activity is the relevant qualifying business activity,
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 by the issue of the shares being employed as required by
15paragraph 1(2)(g), 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
20the 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 paragraph, it is immaterial whether the
company is a party to the arrangements.

(6) 25In 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
  qualifying trade, or preparing to carry on such a
  30trade, 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
  activity;

• 35“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
  section 190 of ITA 2007;

• 40“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 shares raised money;

• “relevant tax relief”, in respect of shares, means one or more
  45of the following—

  (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
  50scheme) in respect of the shares;

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  (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);

  (d)

  5relief 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)
  10in 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
15after 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
20arrangements 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—

• 25““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
30Treasury 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.

(2) 35For 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.

Section 40

SCHEDULE 8 Venture capital schemes

Introduction

1 Part 6 of ITA 2007 (venture capital trusts) is amended in accordance with
5paragraphs 2 to 13.

VCT approvals

2 (1) Section 274 (requirements for the giving of approval) is amended as follows.

(2) In subsection (2), in the list of conditions, at the end insert—

(3) 15In subsection (3), omit the “and” at the end of paragraph (d), and after
paragraph (e) insert “, and

“(f) the investment limits condition by section 280B.”

3 After section 280A insert—

“280B The investment limits condition

(1) 20This section applies for the purposes of the investment limits
condition.

(2) Where a company (“the investor”) makes an investment (“the current
investment”) in another company (“the relevant company”), that
investment breaches the permitted investment limits if the total
25annual investment in the relevant company exceeds the amount for
the time being specified in section 292A(1).

(3) The total annual investment in the relevant company is the sum of—

(a) the amount of the current investment, and

(b) the total amount of other relevant investments made in the
30relevant company (whether or not by the investor) in the year
ending with the day on which the current investment is
made.

(4) A “relevant investment” is made in a company if—

(a) an investment (of any kind) in the company is made by a
35VCT,

(b) the company issues shares (money having been subscribed
for them), and (at any time) the company provides—

(i) a compliance statement under section 205 (enterprise
investment scheme), or

(ii) 40a compliance statement under section 257ED (seed
enterprise investment scheme),

in respect of the shares, or