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Finance (No. 2) BillPage 350

(3) In this section “distinct investment” means an investment, made on
a single day, in—

(a) a single share or single qualifying debt investment, or

(b) two or more shares, or two or more qualifying debt
5investments, where the shares or qualifying debt investments
are in the same social enterprise and of the same class.

(4) If under this section an amount of any reduction in income tax is
attributed to a distinct investment—

(a) in the case of a distinct investment of the kind mentioned in
10subsection (3)(a), that amount is attributed to the share, or
qualifying debt investment, concerned, and

(b) in the case of a distinct investment of the kind mentioned in
subsection (3)(b), a proportionate part of that amount is
attributed to each of the shares, or qualifying debt
15investments, concerned.

(5) If corresponding bonus shares are issued to an individual in respect
of any shares (“the original shares”) to which SI relief is attributed—

(a) a proportionate part of the total amount attributed to the
original shares immediately before the bonus shares are
20issued is attributed to each of the shares in the holding
comprising the original shares and the bonus shares, and

(b) after the issue of the bonus shares, this Part applies as if those
shares had been issued to the individual on the same day as
the original shares.

(6) 25In subsection (5) “corresponding bonus shares” means bonus shares
which are in the same company, of the same class, and carry the same
rights, as the original shares.

(7) If section 257JA(1) and (2) apply in the case of any investment as if
part of the amount invested had been invested in a previous tax year,
30this section has effect as if that part and the remainder had been
invested by separate investments (and that part had been invested
by an investment made on a day in the previous tax year).

(8) For the purposes of this section, shares or other investments in a
company are not treated as being of the same class unless they would
35be so treated if dealt in on a recognised stock exchange.

CHAPTER 6 Claims for relief
257P Time for making claims for SI relief

(1) A claim for SI relief in respect of the amount invested may be made—

(a) not earlier than the time the requirement in section 257MM(2)
40(chosen trade must have been carried on for 4 months) is first
met, and

(b) not later than the fifth anniversary of the normal self-
assessment filing date for the tax year in which the
investment is made.

Finance (No. 2) BillPage 351

(2) If section 257JA(1) and (2) apply as if part of the amount invested had
been invested in a previous tax year, subsection (1) has effect as if
that part and the remainder had been invested by separate
investments (and that part had been invested by an investment made
5on a day in the previous tax year).

257PA Entitlement to claim

(1) The investor is entitled to make a claim for SI relief in respect of the
amount invested if the investor has received from the social
enterprise a compliance certificate in respect of that amount.

(2) 10For the purposes of PAYE regulations, no regard is to be had to SI
relief unless a claim for it has been duly made.

(3) No application may be under section 55(3) or (4) of TMA 1970
(application for postponement of payment of tax pending appeal) on
the ground that the investor is entitled to SI relief unless a claim for
15the relief has been duly made by the investor.

257PB Compliance statements

(1) For the purposes of this Part, a “compliance statement” in respect of
the investment is a statement by the social enterprise to the effect
that, except so far as they fall to be met by or in relation to the
20individual, the requirements for SI relief—

(a) are for the time being met in relation to the investment (or in
relation to investments that include the investment), and

(b) have been so met at all times since the investment was made.

(2) A compliance statement must be in such form as the Commissioners
25for Her Majesty’s Revenue and Customs may direct and must
contain—

(a) such additional information as the Commissioners may
reasonably require, including in particular information
relating to the persons who have requested the issue of
30compliance certificates,

(b) a declaration that the statement is correct to the best of the
social enterprise’s knowledge and belief, and

(c) such other declarations as the Commissioners may
reasonably require.

(3) 35The social enterprise may not provide an officer of Revenue and
Customs with a compliance statement in respect of the investment—

(a) before the requirement in section 257MM(2) (trade must have
been carried for 4 months) is met, or

(b) later than 2 years after the end of the tax year in which the
40investment is made or, if that requirement is first met after
the end of that tax year, later than 2 years after the
requirement is first met.

257PC Compliance certificates

(1) For the purposes of this Chapter, a “compliance certificate” is a
45certificate which—

(a) is issued by the social enterprise in respect of the investment,

Finance (No. 2) BillPage 352

(b) states that, except so far as they fall to be met by or in relation
to the individual, the requirements for SI relief are for the
time being met in relation to the investment, and

(c) is in such form as the Commissioners for Her Majesty’s
5Revenue and Customs may direct.

(2) Before issuing a compliance certificate, the social enterprise must
provide an officer of Revenue and Customs with a compliance
statement in respect of the investment.

(3) The social enterprise must not issue a compliance certificate without
10the authority of an officer of Revenue and Customs.

(4) If the social enterprise, or a person connected with the social
enterprise, has under section 257SF given a notice to an officer of
Revenue and Customs that relates (whether or not exclusively) to the
investment, a compliance certificate must not be issued unless the
15authority mentioned in subsection (3) of this section is given or
renewed after receipt of the notice.

(5) If—

(a) an officer of Revenue and Customs has been requested to
give or renew an authority to issue a compliance certificate,
20and

(b) an officer of Revenue and Customs has decided whether or
not to do so,

an officer of Revenue and Customs must give notice of the decision
to the social enterprise.

(6) 25For the purposes of the provisions of TMA 1970 relating to appeals,
the refusal of an officer of Revenue and Customs to authorise the
issue of a compliance certificate is taken to be a decision disallowing
a claim by the social enterprise.

(7) In the case of requirements that cannot be met until a future time,
30references in this section to requirements being met for the time
being are to nothing having occurred to prevent their being met.

257PD Penalties for fraudulent certificate or statement etc

The social enterprise is liable to a penalty not exceeding £3,000 if—

(a) it issues a compliance certificate, or provides a compliance
35statement, which is made fraudulently or negligently, or

(b) it issues a compliance certificate in contravention of section
257PC(3) or (4).

257PE Power to amend Chapter

(1) The Treasury may by order amend this Chapter.

(2) 40An order under this section may include consequential, incidental or
transitional provision or savings, including consequential
amendments, repeals or revocations of provision made by or under
an enactment (including this Act) whenever passed or made.

(3) An order under this section may, in particular, make provision for
45persons to be liable to penalties whose amount, or maximum
amount, does not exceed £3,000.

Finance (No. 2) BillPage 353

CHAPTER 7 Withdrawal or reduction of SI relief
Value received by the investor
257Q Effect of the investor receiving value from the social enterprise

(1) If the investor receives any value from the social enterprise at any
5time in the longer applicable period, any SI relief given in respect of
the investment must—

(a) if it is greater than the amount given by the formula set out in
subsection (2), be reduced by that amount, and

(b) in any other case, be withdrawn.

(2) 10The formula is—


V × R

where—

(3) Subsections (1) and (2) are subject to—

(a) section 257QA (value received: insignificant receipts),

(b) section 257QB (value received where there is more than one
issue of investments),

(c) 20section 257QC (value received where part of investment
treated as made in previous tax year),

(d) section 257QD (cases where maximum SI relief not obtained),

(e) section 257QG (receipts of value by and from connected
persons etc), and

(f) 25section 257QH (receipt of replacement value).

(4) Sections 257QB to 257QD are to be applied in the order in which they
appear in this Part.

(5) Value received is to be ignored, for the purposes of this section, so far
as SI relief attributable to the investment has already been
30withdrawn or reduced on its account.

(6) For the purposes of this section and sections 257QA to 257QI, an
individual—

(a) who acquires any part of the investment, and

(b) who does so on such a transfer as is mentioned in section
35257T (spouses or civil partners),

is treated as the investor.

257QA Value received: insignificant receipts

(1) In this section “insignificant receipt” means a receipt whose
amount—

(a) 40is not more than £1,000, or

(b) is more than £1,000 but is insignificant in relation to the
amount invested.

Finance (No. 2) BillPage 354

(2) Section 257Q(1) does not apply to an insignificant receipt, subject as
follows.

(3) Section 257Q(1) applies to all receipts within the longer applicable
period if, at any time on the investment date or in the preceding 12
5months, arrangements are in existence providing for the investor to
receive, or to be entitled to receive, value from the social enterprise
at any time in the longer applicable period.

(4) Once section 257Q(1) has applied to a receipt, it applies also to all
other receipts within the longer applicable period except any earlier
10insignificant receipts.

(5) The amount of the first receipt to which section 257Q(1) applies is
treated as increased by the total amount of any earlier insignificant
receipts.

(6) In subsection (3)—

(a) 15the reference to the investor includes any person who at any
time in the longer applicable period is an associate of the
investor (whether or not an associate at the material time),
and

(b) the reference to the social enterprise includes any person who
20at any time in the longer applicable period is connected with
the social enterprise (whether or not connected at the
material time).

257QB Value received where there is more than one issue of investments

(1) Subsection (3) applies if—

(a) 25a time in the longer applicable period when the investor
receives value from the social enterprise is within the period
that for the purposes of this Part is the longer applicable
period in relation to another investment in the social
enterprise, and

(b) 30that other investment is one for which the investor has SI
relief.

(2) That other investment is an “overlapping investment” for the
purposes of subsection (3).

(3) Section 257Q(2) has effect in relation to the investment as if the
35amount V were reduced by multiplying it by—


where—

257QC Value received where part of investment treated as made in previous
tax year

(1) Subsection (2) applies if—

(a) 45section 257Q(1) applies to a receipt, and

Finance (No. 2) BillPage 355

(b) section 257JA(1) and (2) apply as if part of the amount
invested had been invested in a previous tax year.

(2) The calculation under section 257Q(2) in relation to that receipt is to
be made as follows—

5Step 1

Apportion the amount referred to as “V” between the tax year in
which the investment was made and the preceding tax year by
multiplying that amount by—


10where—

Step 2

In relation to each of the amounts (“V1” and “V2”) so apportioned to
the two tax years, calculate the amounts (“X1” and “X2”) that would
20be given by the formula if separate investments had been made in
those tax years.

In calculating amounts X1 and X2, apply section 257QD if
appropriate but do not apply section 257QB.

Step 3

25Add amounts X1 and X2 together.

The result is the required amount.

The result is the required amount.

257QD Cases where maximum SI relief not obtained

(1) If the investor’s liability to income tax is reduced for any tax year in
30respect of the investment and—

(a) the amount of the reduction (“A”), is less than

(b) the amount (“B”) which is equal to income tax at the SI rate
for that tax year on the amount on which the investor has SI
relief in the case of the investment,

35section 257Q(2) has effect in relation to any value received as if the
amount referred to as “V” were reduced by multiplying it by—


(2) If the amount of SI relief attributable to the investment has been
reduced before the SI relief was obtained, the amount referred to in
40subsection (1) as “A” is to be treated for the purposes of that
subsection as the amount that it would have been without that
reduction.

(3) Subsection (2) does not apply to a reduction of SI relief as a result of
section 257N(5) (attribution of SI relief where there is a
45corresponding issue of bonus shares).

Finance (No. 2) BillPage 356

257QE When value is received

(1) This section applies for the purposes of sections 257Q and 257QB.

(2) The investor receives value from the social enterprise at any time
when the social enterprise—

(a) 5repays, redeems or repurchases any investments in the social
enterprise which belong to the investor, or makes any
payment to the investor for giving up the investor’s right to
investments in the social enterprise on their cancellation or
extinguishment,

(b) 10repays, in pursuance of any arrangements for or in
connection with the making of the investment, any debt
owed to the investor other than a debt which was incurred by
the social enterprise—

(i) on or after the investment date, and

(ii) 15otherwise than in consideration of the
extinguishment of a debt incurred before that date,

(c) makes to the investor any payment for giving up on its
extinguishment the investor’s right to any debt, other than—

(i) a debt in respect of a repayment of the kind
20mentioned in section 257LF(5)(a) or (f), or

(ii) an ordinary trade debt,

(d) releases or waives any liability of the investor to the social
enterprise or discharges or undertakes to discharge any
liability of the investor to a third person,

(e) 25makes a loan or advance to the investor which has not been
repaid in full before the investment is made,

(f) provides a benefit or facility for the investor by providing, at
a price less than the arm’s-length price or free of charge,
goods or services for whose provision the social enterprise
30ordinarily makes a charge,

(g) otherwise provides any benefit or facility for the investor,

(h) transfers an asset to the investor for no consideration or for
consideration less than its market value or acquires an asset
from the investor for consideration greater than its market
35value, or

(i) makes to the investor any other payment except—

(i) a payment of a kind mentioned in section 257LF(5), or

(ii) a payment in discharge of an ordinary trade debt.

(3) For the purposes of subsection (2)(d), the social enterprise is treated
40as having released or waived a liability if the liability is not
discharged within 12 months of the time when it ought to have been
discharged.

(4) For the purposes of subsection (2)(e), each of the following is treated
as a loan made by the social enterprise to the investor—

(a) 45the amount of any debt, other than an ordinary trade debt,
incurred by the investor to the social enterprise, and

(b) the amount of any debt due from the investor to a third party
which has been assigned to the social enterprise.

(5) The investor also receives value from the social enterprise if—

Finance (No. 2) BillPage 357

(a) in respect of ordinary shares, or qualifying debt investments,
held by the investor any payment or asset is received in a
winding-up or dissolution of the social enterprise, and

(b) the winding-up or dissolution is for genuine commercial
5reasons, and is not part of any arrangements the main
purpose or one of the main purposes of which is the
avoidance of tax.

(6) The investor also receives value from the social enterprise if—

(a) a person—

(i) 10purchases any investments in the social enterprise
which belong to the investor, or

(ii) makes any payment to the investor for giving up any
right in relation to any investments in the social
enterprise, and

(b) 15that person is an individual in relation to whom not all of the
requirements in sections 257LF and 257LG would be met if
references in those sections to the investor were read as
references to that person.

(7) If, because of the investor’s disposal of investments in the social
20enterprise, any SI relief attributable to those investments is
withdrawn or reduced under section 257R, the investor is not to be
treated as receiving value from the social enterprise in respect of the
disposal.

(8) If the investor is a director of the social enterprise, the investor is not
25to be treated as receiving value from the social enterprise merely
because of the payment to the investor of reasonable remuneration
(including any benefit or facility) for any services rendered to the
social enterprise as a director or employee.

(9) In this section “ordinary trade debt” means any debt for goods or
30services supplied in the ordinary course of a trade or business if any
credit given—

(a) is for not more than 6 months, and

(b) is not for longer than that normally given to customers of the
person carrying on the trade or business.

257QF 35 The amount of value received

In a case falling within a provision listed in column 1 of the following
table, the amount of value received for the purposes of sections 257Q
and 257QB is given by the corresponding entry in column 2 of the
table.

Finance (No. 2) BillPage 358

40Provision The amount of value received
Section 257QE(2)(a),
(b) or (c)
The amount received by the
45investor or, if greater, the market
value of the investments or debt
Section 257QE(2)(d) The amount of the liability
Section 257QE(2)(e) The amount of the loan or advance,
less the amount of any repayment
made before the investment is made
5Section 257QE(2)(f) The arm’s-length price for the
goods or services, less any amount
paid for them by the investor
Section 257QE(2)(g) 10The cost to the social enterprise of
providing the benefit or facility, less
any consideration given for it by the
investor
Section 257QE(2)(h) 15The difference between the market
value of the asset and the
consideration (if any) given for it
Section 257QE(2)(i) The amount of the payment
20Section 257QE(5) The amount of the payment or the
market value of the asset
Section 257QE(6) The amount received by the
25investor or, if greater, the market
value of the investments
257QG Receipts of value by and from connected persons etc

In sections 257Q, 257QA, 257QB, 257QE and 257QF—

(a) any reference to a payment or transfer to the investor
30includes a reference to a payment or transfer made to the
investor indirectly or to the investor’s order or for the
investor’s benefit,

(b) any reference to the investor includes a reference to an
associate of the investor, and

(c) 35any reference to the social enterprise includes a reference to a
person who at any time in the longer applicable period is
connected with the social enterprise (whether or not that
person is so connected at the material time).

257QH Receipt of replacement value

(1) 40If—

(a) any SI relief attributable to the investment would, in the
absence of this section, be reduced or withdrawn under
section 257Q because of a receipt of value within section
257QE(2) or (6) (“the original value”),

(b) 45the original supplier receives value (“the replacement value”)
from the original recipient and the receipt is a qualifying
receipt, and

(c) the amount of the replacement value is at least the amount of
the original value,

50section 257Q does not, because of the receipt of the original value,
have effect to withdraw or reduce the SI relief.

Finance (No. 2) BillPage 359

This is subject to section 257QI(1) and (2).

This is subject to section 257QI(1) and (2).

(2) For the purposes of this section—

(3) If the amount of the original value is, by virtue of section 257QB,
treated as reduced for the purposes of section 257Q(2) as it applies in
10relation to the investment, the reference in subsection (1)(c) to the
amount of the original value is to be read as a reference to the amount
of that value ignoring the reduction.

(4) A receipt of the replacement value is a qualifying receipt for the
purposes of subsection (1) if it arises—

(a) 15because of the original recipient doing one or more of the
following—

(i) making a payment to the original supplier, other than
a payment within paragraph (c) or a payment to
which subsection (5) applies,

(ii) 20acquiring any asset from the original supplier for a
consideration the amount or value of which is more
than the market value of the asset, and

(iii) disposing of any asset to the original supplier for no
consideration or for a consideration the amount or
25value of which is less than the market value of the
asset,

(b) if the receipt of the original value was within section
257QE(2)(d), because of an event the effect of which is to
reverse the event which constituted the receipt of the original
30value, or

(c) if the receipt of the original value was within section
257QE(6), because of the original recipient repurchasing the
investments in question, or (as the case may be) re-acquiring
the right in question, for a consideration the amount or value
35of which is at least the amount of the original value.

(5) This subsection applies to—

(a) any payment for any goods, services or facilities, provided
(whether in the course of trade or otherwise) by—

(i) the original supplier, or

(ii) 40any other person who at any time in the longer
applicable period is an associate of, or is connected
with, the original supplier (whether or not the person
is such an associate, or is so connected, at the material
time),

45which is reasonable in relation to the market value of those
goods, services or facilities,

(b) any payment of any interest which represents no more than a
reasonable commercial return on any money lent to—

(i) the original recipient, or

(ii) 50any other person who at any time in the longer
applicable period is an associate of the original

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