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Finance (No. 2) BillPage 340

(2) The social enterprise must not at any time in the shorter applicable
period—

(a) be a 51% subsidiary of a company, or

(b) be under the control of a company, or under the control of a
5company and a person connected with that company,
without being a 51% subsidiary of the company.

(3) No arrangements must be in existence at any time in the shorter
applicable period by virtue of which the social enterprise could fail
to meet either or both of subsections (1) and (2) (whether during that
10period or otherwise).

257MF The qualifying subsidiaries requirement

Any subsidiary that the social enterprise has at any time in the shorter
applicable period must be a qualifying subsidiary of the social
enterprise.

257MG 15 The property-managing subsidiaries requirement

(1) Any property-managing subsidiary that the social enterprise has at
any time in the shorter applicable period must be a 90% social
subsidiary of the social enterprise.

(2) In subsection (1) “property-managing subsidiary” means a
20subsidiary of the social enterprise whose business consists wholly or
mainly in the holding or managing of land or any property deriving
its value (directly or indirectly) from land.

257MH The number of employees requirement

(1) If the social enterprise is a single company, the full-time equivalent
25employee number for it must be less than 500 when the investment
is made.

(2) If the social enterprise is a parent company, the sum of—

(a) the full-time equivalent employee number for it, and

(b) the full-time equivalent employee number for each of its
30qualifying subsidiaries,

must be less than 500 when the investment is made.

(3) The full-time equivalent employee number for a company is
calculated by taking the number of full-time employees of the
company and adding, for each employee of the company who is not
35a full-time employee, such fraction as is just and reasonable.

(4) In this section “employee”—

(a) includes a director, but

(b) does not include—

(i) an employee on maternity or paternity leave, or

(ii) 40a student on vocational training.

257MI The no partnership requirement

(1) The requirements in this section apply during the shorter applicable
period.

(2) The social enterprise must not be a member of any partnership.

Finance (No. 2) BillPage 341

(3) Each 90% social subsidiary of the social enterprise must not be a
member of a partnership.

257MJ The trading requirement

(1) The social enterprise must meet the trading requirement throughout
5the shorter applicable period.

(2) The trading requirement is that—

(a) the social enterprise is a charity,

(b) the social enterprise is a single company that is not a charity,
and its business does not, if things done for incidental
10purposes are ignored, consist to any extent in the carrying-on
of non-qualifying activities, or

(c) the social enterprise is a parent company that is not a charity,
and the business of the group does not consist wholly, or as
to a substantial part, in the carrying-on of non-qualifying
15activities.

(3) If the social enterprise intends that one or more companies should
become its qualifying subsidiaries with a view to their carrying on
one or more qualifying trades—

(a) the social enterprise is treated as a parent company for the
20purposes of subsection (2)(b) and (c), and

(b) the reference in subsection (2)(c) to the group includes the
social enterprise and any existing or future company that will
be its qualifying subsidiary after the intention in question is
carried out,

25but this subsection does not apply at any time after the abandonment
of that intention.

(4) For the purposes of subsection (2)(c) “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) 30For the purposes of determining the business of a group, activities of
a group company 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) 35the holding of shares in or securities of a qualifying
subsidiary of the parent company,

(b) the making of loans to another group company, or

(c) the holding and managing of property used by a group
company for the purpose of one or more qualifying trades
40carried on by a group company.

(7) In this section—

257MK Ceasing to meet trading requirement: administration or receivership

(1) The social enterprise is not regarded as ceasing to meet the trading
requirement merely because of anything done in consequence of the
10social enterprise or any of its subsidiaries being in administration or
receivership, but 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
15in administration or receivership,

is for genuine commercial reasons, and is not part of any
arrangements the main purpose or one of the main purposes of
which is the avoidance of tax.

(3) The social enterprise ceases to meet trading requirement if before the
20end of the shorter applicable period—

(a) a resolution is passed, or an order is made, for the winding-
up of the social enterprise 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
25(S.I. 1989/2405 (N.I. 19)), any other act is done for the like
purpose), or

(b) the company or any of its subsidiaries is dissolved without
winding-up,

but this is subject to subsection (4).

(4) 30Subsection (3) does not apply if the winding-up or dissolution is for
genuine commercial reasons, and is not part of any arrangements the
main purpose or one of the main purposes of which is the avoidance
of tax.

257ML The issue must be to raise money for chosen trade or preparing for it

(1) 35The social enterprise must be a party to the making of the investment
(so far as not in bonus shares) in order to raise money for the
carrying-on, by the social enterprise or a 90% social subsidiary of the
social enterprise, of—

(a) a qualifying trade which on the investment date is carried on
40by the social enterprise or a 90% social subsidiary of the social
enterprise, or

(b) the activity of preparing to carry on (or preparing to carry on
and then carrying on) a qualifying trade—

(i) which on the investment date is intended to be carried
45on by the social enterprise or a 90% social subsidiary
of the social enterprise, and

Finance (No. 2) BillPage 343

(ii) which is begun to be carried by the social enterprise
or such a subsidiary within 2 years after that date.

(2) In this Chapter—

(a) the purpose within subsection (1) for which money is raised
5is referred to as “the funded purpose”,

(b) the qualifying trade mentioned in subsection (1)(a) or (b) is
referred to as “the chosen trade”, and

(c) if the funded purpose is the carrying-on of the activity
mentioned in subsection (1)(b), “relevant preparation work”
10means preparations that form the whole or part of the
activity.

(3) In determining for the purposes of subsection (1)(b) when a
qualifying trade is begun to be carried on by a 90% social subsidiary
of the social enterprise, any carrying-on of the trade by it before it
15became such a subsidiary is ignored.

(4) The reference in subsection (1)(b)(i) to a 90% social subsidiary of the
social enterprise includes a reference to any existing or future body
which will be such a subsidiary at any future time.

257MM Requirement to use money raised and to trade for minimum period

(1) 20All of the money raised by the social enterprise from the making of
the investment must, no later than the end of 28 months beginning
with the investment date, be employed wholly for the funded
purpose.

(2) The chosen trade must have been carried on for a period of at least 4
25months ending at or after the time the investment is made and,
throughout that period, the trade—

(a) must have been carried on by the social enterprise or a 90%
social subsidiary of the social enterprise, and

(b) must not have been carried on by any other person.

(3) 30Employing money on the acquisition of shares or stock in a body
does not of itself amount to employing the money for the funded
purpose.

(4) Subsection (1) does not fail to be met merely because an amount of
money which is not significant is employed for other purposes.

(5) 35If—

(a) merely because of the social enterprise or any other company
being wound up, or dissolved without winding-up, the
qualifying trade is carried on as mentioned in subsection (2)
for a period shorter than 4 months, and

(b) 40the winding-up or dissolution—

(i) is for genuine commercial reasons, and

(ii) is not part of any arrangements the main purpose or
one of the main purposes of which is the avoidance of
tax,

45subsection (2) has effect as if it referred to that shorter period.

(6) If—

Finance (No. 2) BillPage 344

(a) merely because of anything done as a result of the social
enterprise or any other company being in administration or
receivership, the chosen trade is carried on as mentioned in
subsection (2) for a period shorter than 4 months, and

(b) 5the entry into administration or receivership, and everything
done as a result of the company concerned being in
administration or receivership—

(i) is for genuine commercial reasons, and

(ii) is not part of any arrangements the main purpose or
10one of the main purposes of which is the avoidance of
tax,

subsection (2) has effect as if it referred to that shorter period.

257MN The social enterprise must carry on the chosen trade

(1) There must not be a time in the shorter applicable period when—

(a) 15the chosen trade, or

(b) relevant preparation work,

is carried on by a person who is neither the social enterprise nor a
90% social subsidiary of the social enterprise.

(2) If relevant preparation work is carried out in the shorter applicable
20period by the social enterprise or a 90% social subsidiary of the social
enterprise then, for the purposes of determining whether the
requirement in subsection (1) is met, ignore any carrying-on of the
chosen trade that takes place in that period before the trade begins to
be carried on by a person who is the social enterprise or a 90% social
25subsidiary of the social enterprise.

(3) The requirement in subsection (1) is not regarded as failing to be met
if, merely because of any act or event within subsection (4), the
chosen trade—

(a) ceases to be carried on in the shorter applicable period by the
30social enterprise or any 90% social subsidiary of the social
enterprise, and

(b) it is subsequently carried on in that period by a person who
is not any time in the longer applicable period connected
with the social enterprise.

(4) 35The acts and events within this subsection are—

(a) anything done as a consequence of the social enterprise or
any other company being in administration or receivership,
and

(b) the social enterprise or any other company being wound up,
40or dissolved without being wound up.

(5) 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) 45the winding-up or dissolution,

is for genuine commercial reasons, and is not part of any
arrangements the main purpose or one of the main purposes of
which is the avoidance of tax.

Finance (No. 2) BillPage 345

Interpretation of conditions relating to the social enterprise
257MP Meaning of “qualifying trade”

(1) For the purposes of this Chapter, a trade is a qualifying trade if—

(a) it is conducted on a commercial basis and with a view to the
5realisation of profits, and

(b) it does not at any time in the shorter applicable period consist
wholly or as to a substantial part in the carrying-on of
excluded activities.

(2) References in this section and sections 257MQ to 257MT (excluded
10activities) to a trade are to be read without regard to the definition of
“trade” in section 989.

257MQ Meaning of “excluded activity”

(1) The following are excluded activities for the purposes of sections
257MJ and 257MP—

(a) 15dealing in land, in commodities or futures or in shares,
securities or other financial instruments,

(b) banking, insurance, money-lending, debt-factoring, hire-
purchase financing or other financial activities (but see
subsection (2)),

(c) 20property development (see section 257MR),

(d) activities in the fishery and aquaculture sector that is covered
by Council Regulation (EC) No. 104/2000 of 17 December
1999 on the common organisation of the markets in fishery
and aquaculture products,

(e) 25the primary production of products listed in Annex I to the
Treaty on the Functioning of the European Union
(agricultural etc products), with the exception of products
covered by Council Regulation (EC) No. 104/2000 (fishery
and aquaculture products),

(f) 30the subsidised generation or export of electricity (see section
257MS),

(g) road freight transport for hire or reward, and

(h) providing services or facilities for a business carried on by
another person (other than a company of which the provider
35of the services or facilities is a qualifying subsidiary) if—

(i) the business consists wholly or as to a substantial part
of activities falling within any of paragraphs (a) to (g),
and

(ii) a controlling interest (see section 257MT) in the
40business is held by a person who also has a
controlling interest in the business carried on by the
provider of the services or facilities.

(2) The activity of lending money to a social enterprise is not an
excluded activity for the purposes of sections 257MJ and 257MP.

257MR 45 Excluded activities: property development

(1) For the purposes of section 257MQ(1)(c) “property development”
means the development of land—

Finance (No. 2) BillPage 346

(a) by a company which has, or at any time has had, an interest
in the land, and

(b) with the sole or main object of realising a gain from the
disposal of an interest in the land when it is developed.

(2) 5For the purposes of subsection (1) “interest in land” means (subject
to subsection (3))—

(a) any estate, interest or right in or over land, including any
right affecting the use or disposition of land, or

(b) any right to obtain such an estate, interest or right from
10another which is conditional on the other’s ability to grant it.

(3) References in this section to an interest in land do not include—

(a) the interest of a creditor (other than a creditor in respect of a
rentcharge) whose debt is secured by way of mortgage, an
agreement for a mortgage or a charge of any kind over land,
15or

(b) in the case of land in Scotland, the interest of a creditor in a
charge or security of any kind over land.

257MS Excluded activity: subsidised generation or export of electricity

(1) This section supplements section 257MQ(1)(f).

(2) 20Electricity 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) 25The export of electricity is subsidised if a person receives a FIT
subsidy in respect of the electricity exported.

(5) In this section—

257MT 40 Excluded activity: providing services or facilities for another
business

(1) This section explains what is meant by a controlling interest in a
business for the purposes of section 257MQ(1)(h).

(2) In the case of a business carried on by a company, a person (“A”) has
45a controlling interest in the business if—

(a) A controls the company,

Finance (No. 2) BillPage 347

(b) the company is a close company and A, or an associate of A,
is a director of the company and either—

(i) is the beneficial owner of more than 30% of the
ordinary share capital of the company, or

(ii) 5is able, directly or through the medium of other
companies or by any other indirect means, to control
more than 30% of that share capital, or

(c) at least half of the business could, in accordance with section
942 of CTA 2010, be regarded as belonging to A for the
10purposes of section 941 of CTA 2010 (company
reconstructions without a change of ownership).

(3) In any other case, a person has a controlling interest in a business if
the person is entitled to at least half of the assets used for, or of the
income arising from, the business.

(4) 15For the purposes of this section—

(a) any rights or powers of a person who is an associate of
another are to be attributed to that other person, and

(b) “business” includes any trade, profession or vocation.

257MU Meaning of “qualifying subsidiary”

(1) 20For the purposes of this Part, a company (“the subsidiary”) is a
qualifying subsidiary of another company (“the parent”) if—

(a) the subsidiary is a 51% subsidiary of the parent,

(b) no person other than the parent, or another of its subsidiaries,
has control of the subsidiary, and

(c) 25no arrangements are in existence as a result of which either of
the conditions in paragraphs (a) and (b) would cease to be
met.

(2) The conditions in subsection (1)(a) to (c) do not cease to be met
merely because the subsidiary or any other company is wound up,
30or dissolved without winding up, if the winding-up or dissolution—

(a) is for genuine commercial reasons, and

(b) is not part of any arrangements the main purpose or one of
the main purposes of which is the avoidance of tax.

(3) The conditions in subsection (1)(a) to (c) do not cease to be met
35merely because of anything done as a consequence of the subsidiary
or another company being in administration, or receivership, if—

(a) the entry into administration or receivership, and

(b) everything done as a consequence of the company concerned
being in administration or receivership,

40is for genuine commercial reasons, and is not part of any
arrangements the main purpose or one of the main purposes of
which is the avoidance of tax.

(4) The conditions in subsection (1)(a) to (c) do not cease to be met
merely because arrangements are in existence for the disposal by the
45parent or (as the case may be) by another subsidiary of all its interest
in the subsidiary if the disposal—

(a) is to be for genuine commercial reasons, and

Finance (No. 2) BillPage 348

(b) is not to be part of any arrangements the main purpose or one
of the main purposes of which is the avoidance of tax.

257MV Meaning of “90% social subsidiary” of a social enterprise

(1) For the purposes of this Chapter, a company (“the subsidiary”) is a
590% social subsidiary of another company (“the parent”) if—

(a) the subsidiary is a social enterprise,

(b) the parent possesses at least 90% of the issued share capital
of, and at least 90% of the voting power in, the subsidiary,

(c) the parent would—

(i) 10in the event of a winding-up of the subsidiary, or

(ii) in any other circumstances,

be beneficially entitled to receive at least 90% of the assets of
the subsidiary which would then be available for distribution
to equity holders of the subsidiary,

(d) 15the parent is beneficially entitled to receive at least 90% of any
profits of the subsidiary which are available for distribution
to equity holders of the subsidiary,

(e) no person other than the parent has control of the subsidiary,
and

(f) 20no arrangements are in existence as a result of which any of
the conditions in paragraphs (a) to (e) would cease to be met.

(2) For the purposes of this Chapter, a company (“company A”) which
is a subsidiary of another company (“company B”) is a 90% social
subsidiary of a third company (“company C”) if—

(a) 25company A is a 90% social subsidiary of company B, and
company B is a 100% social subsidiary of company C, or

(b) company A is a 100% social subsidiary of company B, and
company B is a 90% social subsidiary of company C.

(3) For the purposes of subsection (2) no account is to be taken of any
30control company C may have of company A.

(4) For the purposes of subsection (2), a company (“company X”) is a
100% social subsidiary of another company (“company Y”) at any
time when the conditions in subsection (1)(a) to (f) would be met if—

(a) company X were the subsidiary,

(b) 35company Y were the parent, and

(c) in subsection (1) for “at least 90%” there were substituted
“100%”.

(5) The conditions in subsection (1)(a) to (f) do not cease to be met
merely because of anything done as a consequence of the subsidiary
40or any other company being wound up, or dissolved without being
wound up, if the winding-up or dissolution—

(a) is for genuine commercial reasons, and

(b) is not part of any arrangements the main purpose or one of
the main purposes of which is the avoidance of tax.

(6) 45The conditions in subsection (1)(a) to (f) do not cease to be met
merely because of anything done as a consequence of the subsidiary
or any other company being in administration, or receivership, if—

(a) the entry into administration or receivership, and

Finance (No. 2) BillPage 349

(b) everything done as a consequence of the company concerned
being in administration or receivership,

is for genuine commercial reasons, and is not part of any
arrangements the main purpose or one of the main purposes of
5which is the avoidance of tax.

(7) The conditions in subsection (1)(a) to (f) do not cease to be met
merely because any arrangements are in existence for the disposal by
the parent of all its interest in the subsidiary if the disposal—

(a) is to be for genuine commercial reasons, and

(b) 10is not to be part of any arrangements the main purpose or one
of the main purposes of which is the avoidance of tax.

(8) For the purposes of subsection (1)—

(a) the persons who are equity holders of the subsidiary, and

(b) the percentage of the assets of the subsidiary to which an
15equity holder would be entitled,

are to be determined in accordance with Chapter 6 of Part 5 of CTA
2010.

(9) In making that determination—

(a) references in section 166 of that Act to company A are to be
20read as references to an equity holder, and

(b) references in that section to winding up are to be read as
including references to any other circumstances in which
assets of the subsidiary are available for distribution to its
equity holders.

CHAPTER 5 25Attribution of relief
257N Attribution of SI relief to investments

(1) References in this Part, in relation to any individual, to the SI relief
attributable to any investment are to be read as references to any
reduction made in the individual’s liability to income tax that is
30attributed to that investment in accordance with this section.

This is subject to the provisions of this Part providing for the
withdrawal or reduction of SI relief.

This is subject to the provisions of this Part providing for the
withdrawal or reduction of SI relief.

(2) 35If an individual’s liability to income tax is reduced under this Part in
any tax year, then—

(a) if the reduction is obtained because of a single distinct
investment, the amount of the reduction is attributed to that
investment, and

(b) 40if the reduction is obtained because of two or more distinct
investments, the amount of the reduction—

(i) is apportioned between the distinct investments in
the same proportions as the amounts claimed by the
individual in respect of each of those investments,
45and

(ii) is attributed to those investments accordingly.

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