Finance Bill (HC Bill 10)

257LC The no risk avoidance requirement

(1) There must not at any time in the shorter applicable period be any
arrangements in existence the main purpose or one of the main
purposes of which is (by means of any insurance, indemnity,
5guarantee, hedging of risk or otherwise) to provide partial or
complete protection for the investor against what would otherwise
be the risks attached to making the investment.

(2) The arrangements referred to in subsection (1) do not include any
arrangements which are confined to the provision—

(a) 10for the social enterprise itself, or

(b) if the social enterprise is a parent company that meets the
trading requirement in section 257MJ(2)(c)—

(i) for the social enterprise itself,

(ii) for the social enterprise itself and one or more of its
15subsidiaries, or

(iii) for one or more of the subsidiaries of the social
enterprise,

of any such protection against the risks arising in the course of
carrying on its business as might reasonably be expected to be
20provided in normal commercial circumstances.

257LD The no linked loans requirement

(1) No linked loan is to be made by any person, at any time in the longer
applicable period, to the investor or an associate of the investor.

(2) In this section “linked loan” means any loan which—

(a) 25would not have been made, or

(b) would not have been made on the same terms,

if the investor had not made the investment, or had not been
proposing to do so.

(3) References in this section to the making by any person of a loan to the
30investor or an associate of the investor include—

(a) references to the giving by that person of any credit to the
investor or any associate of the investor, and

(b) references to the assignment to that person of a debt due from
the investor or any associate of the investor.

257LE 35 The no tax avoidance requirement

The investment must not be made as part of any arrangements the
main purpose or one of the main purposes of which is the avoidance
of tax.

257LF Restrictions on being an employee, partner or paid director

(1) 40This section applies—

(a) to the investor, and

(b) to any individual who is an associate of the investor.

(2) An individual to whom this section applies must not at any time in
the longer applicable period be—

(a) 45an employee of—

(i) the social enterprise,

(ii) any subsidiary of the social enterprise,

(iii) a partner of the social enterprise, or

(iv) a partner of any subsidiary of the social enterprise,

(b) 5a partner of—

(i) the social enterprise, or

(ii) any subsidiary of the social enterprise,

(c) a trustee of—

(i) the social enterprise, or

(ii) 10any subsidiary of the social enterprise, or

(d) a remunerated director of—

(i) the social enterprise, or

(ii) a linked company.

(3) In this section—

• 15 “linked company” means—

  (a)

  a subsidiary of the social enterprise,

  (b)

  a company which is a partner of the social enterprise,
  or

  (c)

  a company which is a partner of a subsidiary of the
  20social enterprise;

• “related person” means—

  (a)

  the social enterprise,

  (b)

  a person connected with the social enterprise,

  (c)

  a linked company of which the individual is a
  25director, or

  (d)

  a person connected with such a company;

• “subsidiary”, in relation to the social enterprise, means a
  company which at any time in the longer applicable period is
  a 51% subsidiary of the social enterprise (and such a
  30company is therefore a subsidiary of the social enterprise for
  the purposes of this section even at times when it is not a 51%
  subsidiary of the social enterprise).

(4) For the purposes of subsection (2)(d), an individual who is a director
of the social enterprise or a linked company is “remunerated” if the
35individual (or a partnership of which the individual is a member)—

(a) receives at any time in the longer applicable period a
payment from a related person, or

(b) is entitled to receive a payment from a related person in
respect of any time in the longer applicable period.

(5) 40For the purposes of subsection (4) the following are ignored—

(a) any payment or reimbursement of travelling or other
expenses wholly, exclusively and necessarily incurred by the
individual in the performance of the individual’s duties as a
director,

(b) 45any interest which represents no more than a reasonable
commercial return on money lent to a related person,

(c) any dividend or other distribution which does not exceed a
normal return on the investment,

(d) any payment for the supply of goods which does not exceed
their market value,

(e) any payment of rent for any property occupied by a related
person which does not exceed a reasonable and commercial
5rent for the property,

(f) any necessary and reasonable remuneration which—

(i) is paid for services, rendered to a related person in the
course of a trade or profession, that are not secretarial
services and are not managerial services and are not
10services of a kind provided by the person to whom
they are rendered, and

(ii) is taken into account in calculating for tax purposes
the profits of that trade or profession, and

(g) if condition A is met and (where applicable) condition B is
15also met, any other reasonable remuneration (including any
benefit or facility) received by the individual, or to which the
individual is entitled, for services rendered by the
individual—

(i) to the company (whether the social enterprise or a
20linked company) of which the individual is a director,
and

(ii) in the individual’s capacity as a director of that
company.

(6) Condition A is that the investor made the investment, or previously
25made another investment meeting the requirement in section
257L(1), at a time (“the qualifying time”) when—

(a) the requirements of this section and sections 257LG and
257LH (even if the three sections were not then in force)
would have been met even if each other reference in the three
30sections to any time in the longer applicable period were a
reference to any time before the qualifying time, and

(b) the investor had never been involved in carrying on (whether
on the investor’s own account or as a partner, director or
employee) the whole or any part of the trade, business or
35profession carried on by the social enterprise or a subsidiary
of the social enterprise.

(7) Condition B is that—

(a) the investment did not meet condition A (but a previous
investment did), and

(b) 40the investment was made before the third anniversary of the
date when the investor last made an investment in the social
enterprise which met condition A.

(8) References in this section to an individual in the individual’s
capacity as a director of a company include, if the individual is both
45a director and an employee of the company, references to the
individual in the individual’s capacity as an employee of the
company but, apart from that, an individual who is both a director
and an employee of a company is treated for the purposes of this
section as a director, and not an employee, of the company.

(9) 50In subsections (2), (4) and (5) “director” does not include a trustee of
a charity that is a trust.

257LG The requirement not to be interested in capital etc of social enterprise

(1) This section applies—

(a) to the investor, and

(b) to any individual who is an associate of the investor.

(2) 5In this section “related company” means—

(a) the social enterprise, or

(b) a company which at any time in the longer applicable period
is a 51% subsidiary of the social enterprise (and such a
company is therefore a related company for the purposes of
10this section even at times when it is not a 51% subsidiary of
the social enterprise).

(3) There must not be any time in the longer applicable period when an
individual to whom this section applies has control of a related
company.

(4) 15There must not be any time in the longer applicable period when an
individual to whom this section applies directly or indirectly
possesses or is entitled to acquire—

(a) more than 30% of the ordinary share capital of a related
company,

(b) 20more than 30% of the loan capital of a related company, or

(c) more than 30% of the voting power in a related company.

(5) For the purposes of subsections (3) and (4) ignore any shares in a
related company held by the individual, or by an associate of the
individual, at a time when that company—

(a) 25has not issued any shares other than subscriber shares, and

(b) has not begun to carry on, or make preparations for carrying
on, any trade or business.

(6) For the purposes of this section, the loan capital of a company—

(a) is treated as including any debt incurred by the company—

(i) 30for any money borrowed or capital assets acquired by
the company,

(ii) for any right to receive income created in favour of the
company, or

(iii) for consideration the value of which to the company
35was (at the time when the debt was incurred)
substantially less than the amount of the debt
(including any premium on it), and

(b) is treated as not including any debt incurred by the company
by overdrawing an account with a person carrying on a
40business of banking if the debt arose in the ordinary course of
that business.

(7) For the purposes of this section—

(a) an individual is treated as entitled to acquire anything which
the individual is entitled to acquire at a future date or will at
45a future date be entitled to acquire, and

(b) there is attributed to any individual any rights or powers of
any other person who is an associate of the individual.

257LH Requirement for no collusion with a non-qualifying investor

There must not at any time in the longer applicable period be any
arrangements—

(a) as part of which—

(i) 5the investor makes the investment, or

(ii) the investor, or an individual who is an associate of
the investor, makes any other investment in the social
enterprise,

(b) which provide for a person to make an investment in a
10company other than the social enterprise, where that person
is not the individual (“A”) who invests as mentioned in
paragraph (a), and

(c) to which there is a party (whether or not A) who is an
individual in relation to whom not all of the requirements in
15sections 257LF and 257LG would be met if—

(i) references in those sections to the investor were read
as references to that individual, and

(ii) references in those sections to the social enterprise
were read as references to the company mentioned in
20paragraph (b).

CHAPTER 4 Eligibility: conditions relating to the social enterprise

Conditions relating to the social enterprise

257MA The amount raised from investments potentially eligible for relief

(1) The amount invested must not be more than the amount given by—

25

(2) In subsection (1) “the aid period” is the 3 years—

(a) ending with the day on which the investment is made, but

(b) in the case of that day, including only the part of the day
before the investment is made.

(3) 40In this section “de minimis aid” means de minimis aid which fulfils
the conditions laid down—

(a) in Commission Regulation (EU) No. 1407/2013 (de minimis
aid) as amended from time to time, or

(b) in any EU instrument from time to time replacing the whole
or any part of that Regulation.

(4) 5For the purposes of subsection (1), the amount of any de minimis aid
is the amount of the grant or, if the aid is not in the form of a grant,
the gross grant equivalent amount within the meaning of that
Regulation as amended from time to time.

(5) For the purposes of this section—

(a) 10a scheme investment is an investment in respect of which the
social enterprise (at any time) provides a compliance
statement, and

(b) section 257KB applies for the purpose of determining when a
scheme investment is made, but as if references in that section
15to this Part, the investment and the investor were
(respectively) to this section, the scheme investment and the
person making the scheme investment.

(6) For the purposes of subsection (1), if—

(a) the investment or any scheme investment is made, or

(b) 20any aid is granted,

in sterling or any other currency that is not the euro, its amount is to
be converted into euros at an appropriate spot rate of exchange for
the date on which the investment is made or the aid is paid.

257MB Power to amend limits on amounts raised

(1) 25The Treasury may by order amend this Part for the purpose of—

(a) altering any limit for the time being imposed by this Part on
amounts that a social enterprise may raise through
investments eligible for SI relief;

(b) complying with any undertakings given to the European
30Commission, or any conditions imposed by the Commission,
in connection with an application for State aid approval.

(2) In subsection (1) “State aid approval” means approval that the
provision made by this Part, so far as it constitutes the granting of aid
to which any of the provisions of Article 107 or 108 of the Treaty on
35the Functioning of the European Union applies, is or would be
compatible with the internal market, within the meaning of Article
107 of that Treaty.

(3) An order under this section may make incidental, supplemental,
consequential, transitional or saving provision.

(4) 40An order under this section may not be made unless a draft of the
instrument containing it has been laid before, and approved by a
resolution of, the House of Commons.

257MC The gross assets requirement

(1) If the social enterprise is a single company, the value of its assets—

(a) 45must not exceed £15 million immediately before the
investment is made, and

(b) must not exceed £16 million immediately after the
investment is made.

(2) If the social enterprise is a parent company, the value of the group
assets—

(a) 5must not exceed £15 million immediately before the
investment is made, and

(b) must not exceed £16 million immediately after the
investment is made.

(3) For the purposes of subsection (2), the value of the group assets is the
10sum of the values of the gross assets of each of the members of the
group, ignoring any assets that consist in rights against, or shares in
or securities of, another member of the group.

257MD The unquoted status requirement

(1) At the beginning of the shorter applicable period—

(a) 15the social enterprise must not be a quoted company,

(b) there must be no arrangements in existence for the social
enterprise to become a quoted company, and

(c) there must be no arrangements in existence for the social
enterprise to become a subsidiary of a company (“the new
20company”) by virtue of an exchange of shares, or shares and
securities, if arrangements have been made with a view to the
new company becoming a quoted company.

(2) For the purpose of this section, a company is a “quoted company” if
any shares, stocks, debentures or other securities of the company
25are—

(a) listed on a recognised stock exchange,

(b) listed on a designated exchange in a country outside the
United Kingdom, or

(c) dealt in outside the United Kingdom by such means as may
30be designated.

(3) In subsection (2)(b) and (c) “designated” means designated by an
order made by the Commissioners for Her Majesty’s Revenue and
Customs for the purposes of that provision.

(4) An order made for the purposes of subsection (2)(b) may designate
35an exchange by name, or by reference to any class or description of
exchanges, including a class or description framed by reference to
any authority or approval given in a country outside the United
Kingdom.

(5) The arrangements referred to in subsection (1)(b), and the second
40arrangements referred to in subsection (1)(c), do not include
arrangements in consequence of which any shares, stocks,
debentures or other securities of the social enterprise or the new
company (as the case may be) are at any subsequent time—

(a) listed on a stock exchange that is a recognised stock exchange
45by virtue of an order under section 1005(1)(b), or

(b) listed on an exchange, or dealt in by any means, designated
by an order made for the purposes of subsection (2)(b) or (c),

if the order was made after the beginning of the shorter applicable
period.

257ME The control and independence requirements

(1) The social enterprise must not at any time in the shorter applicable
5period control (whether on its own or together with any person
connected with it) any company which is not a qualifying subsidiary
of the social enterprise.

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

(a) 10be a 51% subsidiary of a company, or

(b) be under the control of a company, or under the control of a
company 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
15applicable period by virtue of which the social enterprise could fail
to meet either or both of subsections (1) and (2) (whether during that
period or otherwise).

257MF The qualifying subsidiaries requirement

Any subsidiary that the social enterprise has at any time in the shorter
20applicable period must be a qualifying subsidiary of the social
enterprise.

257MG 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
25subsidiary of the social enterprise.

(2) In subsection (1) “property-managing subsidiary” means a
subsidiary 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 30 The number of employees requirement

(1) If the social enterprise is a single company, the full-time equivalent
employee 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) 35the full-time equivalent employee number for it, and

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

must be less than 500 when the investment is made.

(3) The full-time equivalent employee number for a company is
40calculated by taking the number of full-time employees of the
company and adding, for each employee of the company who is not
a full-time employee, such fraction as is just and reasonable.

(4) In this section “employee”—

(a) includes a director, but

(b) 45does not include—

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

(ii) a student on vocational training.

257MI The no partnership requirement

(1) The requirements in this section apply during the shorter applicable
5period.

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

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

257MJ The trading requirement

(1) 10The social enterprise must meet the trading requirement throughout
the 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,
15and its business does not, if things done for incidental
purposes 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
20to a substantial part, in the carrying-on of non-qualifying
activities.

(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) 25the social enterprise is treated as a parent company for the
purposes 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
30carried out,

but 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
35group companies taken together were regarded as one business.

(5) For 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
40a group company are ignored so far as they consist in—

(a) the 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
45company for the purpose of one or more qualifying trades
carried on by a group company.

(7) In this section—

• “incidental purposes” means purposes having no significant
  effect (other than in relation to incidental matters) on the
  extent of the activities of the body in question;

• 5“mainly trading subsidiary” means a qualifying subsidiary
  which, apart from incidental purposes, exists wholly for the
  purpose of carrying on one or more qualifying trades, and
  any reference to the main purpose of such a subsidiary is to
  be read accordingly, and

• 10“non-qualifying activities” means—

  (a)

  excluded activities, and

  (b)

  activities, other than activities carried on by a charity,
  that are carried on otherwise than in the course of a
  trade.

257MK 15 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
social enterprise or any of its subsidiaries being in administration or
receivership, but this is subject to subsections (2) and (3).

(2) 20Subsection (1) applies only if—

(a) the entry into administration or receivership, and

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

is for genuine commercial reasons, and is not part of any
25arrangements 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
end of the shorter applicable period—

(a) a resolution is passed, or an order is made, for the winding-
30up 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
(S.I. 1989/2405 (N.I. 19)S.I. 1989/2405 (N.I. 19)), any other act is done for the like
purpose), or

(b) 35the company or any of its subsidiaries is dissolved without
winding-up,

but this is subject to subsection (4).

(4) Subsection (3) does not apply if the winding-up or dissolution is for
genuine commercial reasons, and is not part of any arrangements the
40main 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) The 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
45carrying-on, by the social enterprise or a 90% social subsidiary of the
social enterprise, of—