Finance (No. 2) Bill (HC Bill 190)

recipient (whether or not the person is such an
associate at the material time),

(c) any payment for the acquisition of an asset which does not
exceed its market value,

(d) any payment, as rent for any property occupied by—

(i) 5the original recipient, or

(ii) any person who at any time in the longer applicable
period is an associate of the original recipient
(whether or not the person is such an associate at the
material time),

10of an amount not exceeding a reasonable and commercial
rent for the property,

(e) any payment in discharge of an ordinary trade debt, and

(f) any payment for shares in or securities of any company in
circumstances that do not fall within subsection (4)(a)(ii).

(6) 15For the purposes of this section, the amount of the replacement value
is—

(a) in a case within paragraph (a) of subsection (4), the sum of—

(i) the amount of any payment within sub-paragraph (i)
of that paragraph, and

(ii) 20the difference between the market value of any asset
to which sub-paragraph (ii) or (iii) of that paragraph
applies and the amount or value of the consideration
(if any) received for it,

(b) in a case within subsection (4)(b), the same as the amount of
25the original value, and

(c) in a case within subsection (4)(c), the amount or value of the
consideration received by the original supplier.

Section 257QF applies for the purpose of determining the amount of
the original value.

(7) 30In this section—

(a) any reference to a payment to a person (however expressed)
includes a reference to a payment made to the person
indirectly or to the person’s order or for the person’s benefit,
and

(b) 35“ordinary trade debt” has the meaning given by section
257QE(9).

257QI Section 257QH: supplementary

(1) The receipt of the replacement value by the original supplier is
ignored for the purposes of section 257QH(1) to the extent to which
40it has previously been set under section 257QH against a receipt of
value to prevent any reduction or withdrawal of SI relief under
section 257Q.

(2) The receipt of the replacement value by the original supplier (“the
event”) is ignored for the purposes of section 257QH if—

(a) 45the event occurs before the longer applicable period,

(b) where the event occurs after the time the original recipient
receives the original value, it does not occur as soon after that
time as is reasonably practicable in the circumstances, or

(c) where an appeal has been brought by the investor against an
assessment to withdraw or reduce any SI relief attributable to
the investment because of the receipt of the original value, the
event occurs more than 60 days after the day on which the
5amount of the relief which falls to be withdrawn has been
finally determined.

But nothing in section 257QH or this section requires the
replacement value to be received after the original value.

(3) This subsection applies if—

(a) 10the receipt of the replacement value by the original supplier
is a qualifying receipt for the purposes of section 257QH(1),
and

(b) in consequence of the receipt, any receipts of value are
ignored for the purposes of section 257Q as that section
15applies in relation to the investment or any other investments
made by the investor, and

(c) the event which gives rise to the receipt is (or includes) the
making of an investment by—

(i) the investor, or

(ii) 20any person who at any time in the longer applicable
period is an associate of the investor (whether or not
the person is such an associate at the material time).

(4) If subsection (3) applies, the person who makes the investment
concerned is not to be eligible for SI relief in relation to the
25investment concerned or any other investments in the same issue.

(5) In this section “the original recipient”, “the original supplier” and
“replacement value” have the same meaning as in section 257QH.

Repayments etc of investments to other persons

257QJ Repayments etc of share capital to other persons

(1) 30This section applies if any SI relief is attributable to the whole or any
part of the investment and, at any time in the longer applicable
period, the social enterprise or any subsidiary—

(a) repays, redeems or repurchases any of its share capital which
belongs to any member other than—

(i) 35the investor, or

(ii) a person who falls within subsection (5), or

(b) makes any payment to any such member for giving up the
member’s right to any of the share capital of the social
enterprise or subsidiary on its cancellation or
40extinguishment.

(2) The SI relief must—

(a) if it is greater than the amount given by the formula set out in
subsection (3), be reduced by that amount, and

(b) in any other case, be withdrawn.

(3) 45The formula is—

where—

• A is the amount received by the member, and

• R is the SI rate for the tax year for which the SI relief was given.

(4) This section is subject to sections 257QK to 257QP; and sections
5257QL to 257QO are to be applied in the order in which they appear
in this Part.

(5) A person falls within this subsection if the repayment causes any SI
relief attributable to that person’s shares in the social enterprise to be
withdrawn or reduced by virtue of—

(a) 10section 257QE(2)(a) (receipt of value by virtue of repayment
of investments etc), or

(b) section 257R (disposal of whole or part of the investment).

(6) A repayment is treated as having the effect mentioned in subsection
(5)(a) if it would have that effect were it not an insignificant receipt;
15and here “insignificant receipt” is to be read in accordance with
section 257QA(1).

(7) A repayment is to be ignored, for the purposes of this section, to the
extent to which SI relief attributable to any shares has already been
withdrawn or reduced on its account.

(8) 20In this section and sections 257QK to 257QP—

(a) “repayment” means a repayment, redemption, repurchase or
payment mentioned in subsection (1)(a) or (b), and

(b) references to a subsidiary of the social enterprise are
references to a company which at any time in the longer
25applicable period is a 51% subsidiary of the social enterprise
(whether or not it is such a subsidiary at the time of the
repayment).

257QK Insignificant payments ignored for the purposes of section 257QJ

(1) A repayment is ignored for the purposes of section 257QJ if both—

(a) 30the market value of the shares to which it relates (“the target
shares”) immediately before the event occurs, and

(b) the amount received by the member in question,

are insignificant in relation to the market value of the remaining
issued share capital of the social enterprise, or (as the case may be)
35the subsidiary, immediately after the event occurs.

This is subject to subsection (3).

This is subject to subsection (3).

(2) For the purposes of subsection (1) it is to be assumed that the target
shares are cancelled at the time the repayment is made.

(3) 40Subsection (1) does not apply if repayment arrangements are in
existence at any time in the period—

(a) beginning 12 months before the investment date, and

(b) ending at the end of the investment date.

(4) For this purpose “repayment arrangements” means arrangements
45which provide—

(a) for a repayment by the social enterprise or any subsidiary of
the social enterprise (whether or not it is such a subsidiary at
the time the arrangements are made), or

(b) for anyone to be entitled to such a repayment,

5at any time in the longer applicable period.

257QL Amount of repayments etc if there is more than one issue of shares

(1) This section applies if, in relation to the same repayment, section
257QJ(2) applies to SI relief attributable to two or more issues of
shares.

(2) 10Section 257QJ(3) has effect in relation to the shares included in each
of those issues as if the amount referred to as A were reduced by
multiplying it by the fraction—

where—

• 15I is the amount on which SI relief was obtained by individuals
  in respect of shares which are included in the issue and to
  which SI relief is or, but for section 257QJ(2)(b), would be
  attributable, and

• T is the total of that amount and the corresponding amount or
  20amounts in respect of the other issue or issues.

257QM Single issue affecting more than one individual

(1) This section applies if, in relation to the same repayment, section
257QJ(2) applies to SI relief attributable to shares held by two or
more individuals.

(2) 25Section 257QJ(3) has effect in relation to each individual as if the
amount referred to as A were reduced by multiplying it by the
fraction—

where—

• 30I is the amount on which the individual obtains SI relief in
  respect of the shares to which SI relief is or, but for section
  257QJ(2)(b), would be attributable, and

• T is the total of that amount and the corresponding amount or
  amounts on which the other individual or individuals obtain
  35SI relief in respect of such shares.

257QN Single issue treated as made partly in previous tax year

(1) This section applies if—

(a) section 257QJ(2) applies to SI relief attributable to shares held
by an individual, and

(b) 40part of the issue of shares has been treated as issued to the
individual in a previous tax year for the purposes of section
257JA(1) and (2).

(2) This subsection explains how the calculation under section 257QJ(3)
is to be made.

Step 1

Apportion the amount referred to as A between the tax year in which
the shares were issued and the previous tax year by multiplying that
amount by the fraction—

5

where—

• I is the amount on which the individual obtains SI relief in
  respect of the shares treated as issued in the tax year in
  question, and

• 10T is the total of that amount and the corresponding amount in
  respect of the shares treated as issued in the other tax year.

Step 2

In relation to each of the amounts (“A1” and “A2”) so apportioned to
the two tax years, calculate the amounts (“X1” and “X2”) that would
15be given by the formula if there were separate issues of shares in
those tax years.

In calculating amounts X1 and X2, apply section 257QO if
appropriate but do not apply section 257QL or 257QM.

Step 3

20Add amounts X1 and X2 together.

The result is the required amount.

The result is the required amount.

257QO Maximum relief not obtained for share issue

(1) This section applies if section 257QJ(2) applies to SI relief attributable
25to shares held by the investor and—

(a) the amount of the reduction (“D”) in the investor’s liability to
income tax for any tax year in respect of the shares, is less
than

(b) the amount given by—

30

where—

• I is the amount on which the investor claims SI relief in
  respect of the investment, and

• R is the SI rate for the tax year for which the SI relief was
  35given.

(2) Section 257QJ(3) has effect as if the amount referred to as A were
reduced by multiplying it by the fraction—

(3) If the amount of SI relief attributable to any of the shares has been
40reduced before the SI relief was obtained, the amount referred to in
subsections (1) and (2) as D is to be treated for the purposes of those
subsections as the amount it would have been without that
reduction.

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

257QP Repayment of authorised minimum within 12 months

(1) This section applies if—

(a) a company issues share capital (“the original shares”) of
nominal value equal to the authorised minimum (within the
5meaning of the Companies Act 2006) for the purposes of
complying with section 761 of that Act (public company:
requirement as to minimum share capital), and

(b) the registrar of companies issues the company with a
certificate under that section.

(2) 10Section 257QJ(2) does not apply in relation to any redemption of the
original shares within 12 months of the date on which they were
issued.

Miscellaneous

257QQ Acquisition of a trade or trading assets

(1) 15Any SI relief attributable to the investment is withdrawn if—

(a) at any time in the longer applicable period, the social
enterprise or any qualifying subsidiary—

(i) begins to carry on as its trade, or as part of its trade, a
trade which was previously carried on at any time in
20that period otherwise than by the social enterprise or
any qualifying subsidiary, or

(ii) acquires the whole, or the greater part, of the assets
used for the purposes of a trade previously so carried
on, and

(b) 25the investor is a person, or one of a group of persons, to
whom subsection (2) or (3) applies.

(2) This subsection applies to any person or group of persons—

(a) to whom an interest amounting in total to more than a half
share in the trade (as previously carried on) belonged at any
30time in the longer applicable period, and

(b) who is or are a person or group of persons to whom such an
interest in the trade carried on by the social enterprise
belongs or has, at any such time, belonged.

(3) This subsection applies to any person or group of persons who—

(a) 35control or, at any time in the longer applicable period, have
controlled the social enterprise, and

(b) is or are a person or group of persons who, at any such time,
controlled another company which previously carried on the
trade.

(4) 40For the purposes of subsection (2)—

(a) for the purpose of determining the person to whom a trade
belongs and, if a trade belongs to two or more persons, their
respective shares in that trade—

(i) apply section 941(6) of CTA 2010, and

(ii) 45an interest in a trade belonging to a company may be
treated in accordance with any of the options set out
in section 942 of that Act, and

(b) any interest, rights or powers of a person who is an associate
of another person are treated as those of that other person.

(5) If the investor—

(a) is a director of, or of a company which is a partner of, the
5social enterprise or any qualifying subsidiary, and

(b) is in receipt of, or entitled to receive, remuneration as such a
director falling within section 257LF(5)(g) (reasonable
remuneration for services),

then, in determining whether any SI relief attributable to the
10investment is to be withdrawn, the reference in subsection (3)(b), and
(so far as relating to that provision) the reference in subsection
(1)(a)(i), to any time in the longer applicable period are to be read as
references to any time before the end of the longer applicable period.

(6) Section 257LF(8) (director also an employee) applies for the purposes
15of subsection (5) as it applies for the purposes of section 257LF, and
in subsection (5) “remuneration” includes any benefit or facility.

(7) In this section “trade” includes any business or profession, and
references to a trade previously carried on include references to part
of such a trade.

257QR 20 Acquisition of share capital

(1) Any SI relief attributable to the investment is withdrawn if—

(a) the social enterprise comes to acquire all of the issued share
capital of another company at any time in the longer
applicable period, and

(b) 25the investor is a person, or one of a group of persons, to
whom subsection (2) applies.

(2) This subsection applies to any person or group of persons who—

(a) control or have, at any time in the longer applicable period,
controlled the social enterprise, and

(b) 30is or are a person or group of persons who, at any such time,
controlled the other company.

(3) If the investor—

(a) is a director of, or of a company which is a partner of, the
social enterprise or any qualifying subsidiary, and

(b) 35is in receipt of, or entitled to receive, remuneration as such a
director falling within section 257LF(5)(g) (reasonable
remuneration for services),

then, in determining whether any SI relief attributable to the
investment is to be withdrawn, the reference in subsection (2)(b) to
40any time in the longer applicable period is to be read as a reference
to any time before the end of the longer applicable period.

(4) Section 257LF(8) (director also an employee) applies for the purposes
of subsection (3) as it applies for the purposes of section 257LF, and
in subsection (3) “remuneration” includes any benefit or facility.

257QS 45 Relief subsequently found not to have been due

(1) Any SI relief obtained by the investor which is subsequently found
not to have been due must be withdrawn.

(2) SI relief obtained by the investor in respect of the investment may not
be withdrawn on the ground that the requirements of Chapter 4 are
not met unless the requirements of subsection (3) are met.

(3) The requirements of this subsection are met if either—

(a) 5the social enterprise has given notice under section 257SF in
relation to the investment (information to be provided by the
social enterprise etc), or

(b) an officer of Revenue and Customs has given notice to the
social enterprise stating the officer’s opinion that, because of
10the ground in question, the whole or any part of the SI relief
attributable to the investment (whether alone or with other SI
relief) was not due.

Disposals

257R Disposal of whole or part of the investment

(1) 15This section applies if—

(a) the investor disposes of the whole or part of the investment,

(b) the disposal takes place before the shorter applicable period
ends,

(c) SI relief is attributable to the shares, or qualifying debt
20investments, disposed of,

(d) the disposal is not to an individual who—

(i) is the spouse, or civil partner, of the investor, and

(ii) is living together with the investor at the time of the
disposal, and

(e) 25the disposal does not occur as a result of the investor’s death.

(2) If the disposal is not made by way of a bargain at arm’s length, the SI
relief attributable to those shares, or qualifying debt investments,
must be withdrawn.

(3) If the disposal is made by way of a bargain at arm’s length, the SI
30relief attributable to those shares or qualifying debt investments
must—

(a) if it is greater than the amount given by the formula set out in
subsection (4), be reduced by that amount, and

(b) in any other case, be withdrawn.

(4) 35The formula is—

where—

• C is the amount or value of the consideration received by the
  investor for the shares or qualifying debt investments, and

• 40R is the SI rate for the tax year for which the SI relief was given.

257RA Cases where maximum relief not obtained

(1) Subsection (2) applies if the investor’s liability to income tax for any
tax year is reduced under this Part in respect of the investment and—

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

(b) the amount given by—

where—

• A is the amount on which the investor claims SI relief in
  5respect of the investment, and

• R is the SI rate for that tax year.

(2) Section 257R(3) and (4) have effect as if the amount or value referred
to as C were reduced by multiplying it by the fraction—

(3) 10If section 257JA(1) and (2) apply in the case of the investment as if
part of it had been made in a previous tax year, subsections (1) and
(2) of this section have 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).

(4) 15If the amount of SI relief attributable to the investment or any part of
it has been reduced before SI relief was obtained, the amount
referred to in subsections (1) and (2) as D is to be treated for the
purposes of those subsections as the amount that it would have been
without that reduction.

(5) 20Subsection (4) does not apply to a reduction of SI relief by virtue of
section 257N(5) (attribution of SI relief if there is a corresponding
issue of bonus shares).

257RB Call options

(1) This section applies if the investor grants an option which, if
25exercised, would bind the investor to sell the whole or part of
investment.

(2) The grant of the option is treated for the purposes of section 257R as
a disposal—

(a) of the investment, or

(b) 30(as the case may be) of the part of the investment to which the
option relates.

(3) Nothing in this section prejudices section 257LB (no pre-arranged
exits).

257RC Put options

(1) 35This section applies if, at any time in the longer applicable period, a
person grants the investor an option which, if exercised, would bind
the grantor to purchase the whole or part of the investment.

(2) Any SI relief—

(a) attributable to the investment, or

(b) 40(as the case may be) attributable to the part of the investment
to which the option relates,

must be withdrawn.

(3) For the purposes of subsection (2)(b), the part of the investment to
which an option relates is the part which, if—

(a) the option were exercised immediately after the grant, and

(b) any investments made in the social enterprise by the investor
after the grant were disposed of immediately after being
made,

5would be treated for the purposes of section 257R as disposed of in
pursuance of the option.

CHAPTER 8 Withdrawal or reduction of SI relief: procedure

Assessments and appeals

257S Assessments for the withdrawal or reduction of SI relief

10 If any SI relief which has been obtained falls to be withdrawn or
reduced under Chapter 7, it must be withdrawn or reduced by the
making of an assessment to income tax for the tax year for which the
relief was obtained.

257SA Appeals against section 257QS(3)(b) notices

15 For the purposes of the provisions of TMA 1970 relating to appeals,
the giving of notice by an officer of Revenue and Customs under
section 257QS(3)(b) is taken to be a decision disallowing a claim by
the social enterprise.

257SB Time limits for assessments

(1) 20An officer of Revenue and Customs may—

(a) make an assessment for withdrawing or reducing the SI relief
attributable to whole or any part of the investment, or

(b) give a notice under section 257QS(3)(b),

at any time not more than 6 years after the end of the relevant tax
25year.

(2) In subsection (1) “the relevant tax year” means—

(a) the tax year containing the end of the 28 months beginning
with the investment date, or

(b) if later, the tax year in which occurs the event which causes
30the SI relief to be withdrawn or reduced.

(3) Subsection (1) is without prejudice to section 36(1A) of TMA 1970
(loss of tax brought about deliberately etc).

257SC Cases where assessment not to be made

(1) No assessment for withdrawing or reducing SI relief in respect of the
35investment may be made because of an event occurring after the
investor’s death.

(2) Subsection (3) applies if the investor has, by a disposal or disposals
to which section 257R(3) applies, disposed of all investments
which—

(a) 40have been made by the investor in the social enterprise, and

(b) are investments—