Finance Bill (HC Bill 1)

(a) a qualifying trade which on the investment date is carried on
by 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
5and then carrying on) a qualifying trade—

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

(ii) which is begun to be carried by the social enterprise
10or such a subsidiary within 2 years after that date.

(2) In this Chapter—

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

(b) the qualifying trade mentioned in subsection (1)(a) or (b) is
15referred 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”
means preparations that form the whole or part of the
activity.

(3) 20In 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
became such a subsidiary is ignored.

(4) The reference in subsection (1)(b)(i) to a 90% social subsidiary of the
25social 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) All of the money raised by the social enterprise from the making of
the investment must, no later than the end of 28 months beginning
30with 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
months ending at or after the time the investment is made and,
throughout that period, the trade—

(a) 35must 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) Employing money on the acquisition of shares or stock in a body
does not of itself amount to employing the money for the funded
40purpose.

(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) If—

(a) merely because of the social enterprise or any other company
45being 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) the 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
5tax,

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

(6) If—

(a) merely because of anything done as a result of the social
enterprise or any other company being in administration or
10receivership, the chosen trade is carried on as mentioned in
subsection (2) for a period shorter than 4 months, and

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

(i) 15is 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,

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

257MN 20 The social enterprise must carry on the chosen trade

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

(a) the chosen trade, or

(b) relevant preparation work,

is carried on by a person who is neither the social enterprise nor a
2590% social subsidiary of the social enterprise.

(2) If relevant preparation work is carried out in the shorter applicable
period 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
30chosen 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
subsidiary 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
35chosen trade—

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

(b) it is subsequently carried on in that period by a person who
40is not any time in the longer applicable period connected
with the social enterprise.

(4) The 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,
45and

(b) the social enterprise or any other company being wound up,
or 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) the winding-up or dissolution,

5is 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.

Interpretation of conditions relating to the social enterprise

257MP Meaning of “qualifying trade”

(1) 10For 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
realisation 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
15excluded activities.

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

257MQ Meaning of “excluded activity”

(1) 20The following are excluded activities for the purposes of sections
257MJ and 257MP—

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

(b) banking, insurance, money-lending, debt-factoring, hire-
25purchase financing or other financial activities (but see
subsection (2)),

(c) property 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
301999 on the common organisation of the markets in fishery
and aquaculture products,

(e) the 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
35covered by Council Regulation (EC) No. 104/2000 (fishery
and aquaculture products),

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

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

(h) 40providing services or facilities for a business carried on by
another person (other than a company of which the provider
of 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),
45and

(ii) a controlling interest (see section 257MT) in the
business 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 5 Excluded activities: property development

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

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

(b) 10with the sole or main object of realising a gain from the
disposal of an interest in the land when it is developed.

(2) For 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
15right affecting the use or disposition of land, or

(b) any right to obtain such an estate, interest or right from
another 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
20rentcharge) whose debt is secured by way of mortgage, an
agreement for a mortgage or a charge of any kind over land,
or

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

257MS 25 Excluded activity: subsidised generation or export of electricity

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

(2) Electricity 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) 30The 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
subsidy in respect of the electricity exported.

(5) In this section—

• 35 “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
  encourage small-scale low-carbon generation of
  40electricity, or

  (b)

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

• 45“small-scale low-carbon generation of electricity” has the
  meaning given by section 41(4) of the Energy Act 2008.

257MT 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) 5In the case of a business carried on by a company, a person (“A”) has
a controlling interest in the business if—

(a) A controls the company,

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

(i) 10is the beneficial owner of more than 30% of the
ordinary share capital of the company, or

(ii) is 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) 15at least half of the business could, in accordance with section
942 of CTA 2010, be regarded as belonging to A for the
purposes 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
20the person is entitled to at least half of the assets used for, or of the
income arising from, the business.

(4) For 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) 25“business” includes any trade, profession or vocation.

257MU Meaning of “qualifying subsidiary”

(1) For 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) 30no person other than the parent, or another of its subsidiaries,
has control of the subsidiary, and

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

(2) 35The conditions in subsection (1)(a) to (c) do not cease to be met
merely because the subsidiary or any other company is wound up,
or 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
40the main purposes of which is the avoidance of tax.

(3) The conditions in subsection (1)(a) to (c) do not cease to be met
merely 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) 45everything 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
which is the avoidance of tax.

(4) The conditions in subsection (1)(a) to (c) do not cease to be met
5merely because arrangements are in existence for the disposal by the
parent 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

(b) is not to be part of any arrangements the main purpose or one
10of 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
90% social subsidiary of another company (“the parent”) if—

(a) the subsidiary is a social enterprise,

(b) 15the 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) in the event of a winding-up of the subsidiary, or

(ii) in any other circumstances,

20be 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) the parent is beneficially entitled to receive at least 90% of any
profits of the subsidiary which are available for distribution
25to equity holders of the subsidiary,

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

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

(2) 30For 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) company A is a 90% social subsidiary of company B, and
company B is a 100% social subsidiary of company C, or

(b) 35company 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
control company C may have of company A.

(4) For the purposes of subsection (2), a company (“company X”) is a
40100% 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) company Y were the parent, and

(c) in subsection (1) for “at least 90%” there were substituted
45“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

or 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
5the main purposes of which is the avoidance of tax.

(6) 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
or any other company being in administration, or receivership, if—

(a) the entry into administration or receivership, and

(b) 10everything 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
which is the avoidance of tax.

(7) 15The 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) is not to be part of any arrangements the main purpose or one
20of 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
equity holder would be entitled,

25are 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
read as references to an equity holder, and

(b) 30references 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 Attribution of relief

257N 35 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
attributed to that investment in accordance with this section.

40This 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) If an individual’s liability to income tax is reduced under this Part in
45any 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) if the reduction is obtained because of two or more distinct
5investments, 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,
and

(ii) 10is attributed to those investments accordingly.

(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
15investments, 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
20subsection (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
25investments, 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
30issued 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) 35In 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,
40this 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
45be 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)
5(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.

(2) 10If 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
on a day in the previous tax year).

257PA 15 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) For the purposes of PAYE regulations, no regard is to be had to SI
20relief 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
the relief has been duly made by the investor.

257PB 25 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
individual, the requirements for SI relief—

(a) 30are 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
for Her Majesty’s Revenue and Customs may direct and must
35contain—

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

(b) 40a 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) The 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) 5later than 2 years after the end of the tax year in which the
investment 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) 10For the purposes of this Chapter, a “compliance certificate” is a
certificate which—

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

(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
15time being met in relation to the investment, and

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

(2) Before issuing a compliance certificate, the social enterprise must
provide an officer of Revenue and Customs with a compliance
20statement in respect of the investment.

(3) The social enterprise must not issue a compliance certificate without
the 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
25Revenue and Customs that relates (whether or not exclusively) to the
investment, a compliance certificate must not be issued unless the
authority mentioned in subsection (3) of this section is given or
renewed after receipt of the notice.

(5) If—

(a) 30an officer of Revenue and Customs has been requested to
give or renew an authority to issue a compliance certificate,
and

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

35an officer of Revenue and Customs must give notice of the decision
to the social enterprise.

(6) For 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
40a claim by the social enterprise.

(7) In the case of requirements that cannot be met until a future time,
references 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

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

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