Finance Bill (HC Bill 102)

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(a) the total amount of relevant investments made in the social
enterprise on or before the date when the investment is made
must not exceed £1.5 million, and

(b) the amount invested must not be more than the amount
5mentioned in subsection (3).

(3) That amount is the amount given by the formula—


where—

  • T is the total of any relevant investments made in the social
    10enterprise in the aid period,

  • M is the total of any de minimis aid, other than relevant
    investments, that is granted during the aid period—

    (a)

    to the social enterprise, or

    (b)

    to a qualifying subsidiary of the social enterprise at a
    15time when it is such a subsidiary,

  • RCG is the highest rate at which capital gains tax is charged in
    the aid period, and

  • RSI is the highest SI rate in the aid period.

(4) In subsection (3) “the aid period” means the 3 years—

(a) 20ending 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.

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

(a) 25in 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.

(6) For the purposes of subsection (3), the amount of any de minimis aid
30is 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.

(7) For the purposes of subsection (3), if—

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

(b) 35any 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.

(8) In this section “relevant investment” has the meaning given by
40section 173A(3) (reading references in section 173A(3) to a company
as including any social enterprise).

(9) Section 173A(4) and (5) apply to determine for the purposes of this
section when a relevant investment is made.

(10) Section 257MNB (which expands the meaning of “relevant
45investments made in the social enterprise”) applies for the purposes

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of each of subsections (2) and (3) above as it applies for the purposes
of section 257MNA(2).

257MND Limit on investment in shorter applicable period

(1) This section applies where condition A or condition B is met.

(2) 5Condition A is that—

(a) a company becomes a 51% subsidiary of the social enterprise
at any time during the shorter applicable period,

(b) all or part of the money raised by the investment is employed
for the purposes of a qualifying activity which consists
10wholly or partly of a trade carried on by that company, and

(c) that trade (or part of it) was carried on by that company
before it became a 51% subsidiary as mentioned in paragraph
(a).

(3) Condition B is that all or part of the money raised by the investment
15is employed for the purposes of a qualifying activity which consists
wholly or partly of a trade which, during the shorter applicable
period, becomes a transferred trade (see subsection (9)).

(4) Where this section applies, at each time in the shorter applicable
period (“the relevant time”) the total of the relevant investments
20made in the social enterprise before that time must not exceed £1.5
million.

(5) In subsection (4) the reference to relevant investments “made in the
social enterprise” includes—

(a) relevant investments made in a company which at any time
25before the relevant time has been a 51% subsidiary of the
social enterprise,

(b) any other relevant investment made in a company to the
extent that the money raised by that relevant investment has
been employed for the purposes of a trade carried on by
30another company (“company X”) which at any time before
the relevant time has been a 51% subsidiary of the social
enterprise, and

(c) any other relevant investment made in a company if—

(i) the money raised by that relevant investment has
35been employed for the purposes of a trade carried on
by that company or another person, and

(ii) after that relevant investment was made, but before
the relevant time, that trade (or part of it) became a
transferred trade.

(6) 40The investments within paragraph (a) of subsection (5)—

(a) include investments made in a company mentioned in that
paragraph before it became a 51% subsidiary of the social
enterprise, but

(b) where a company mentioned in that paragraph is not a 51%
45subsidiary of the social enterprise at the relevant time, do not
include any investments made in that company after it last
ceased to be such a subsidiary.

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(7) For the purposes of subsection (5)(b), where company X is not a 51%
subsidiary of the social enterprise at the relevant time, any money
employed after company X last ceased to be such a subsidiary is to
be ignored.

(8) 5Where only a proportion of the money raised by a relevant
investment is employed for the purposes of a trade which becomes a
transferred trade, only the corresponding proportion of that relevant
investment is to be treated as falling within subsection (5)(c).

(9) For the purposes of this section, if—

(a) 10before the relevant time, a trade is transferred—

(i) to the social enterprise,

(ii) to a company which, at the relevant time, is or has
been a 51% subsidiary of the social enterprise, or

(iii) to a partnership of which the social enterprise, or a
15company within sub-paragraph (ii), is a member, and

(b) the trade or part of it was at any time before the transfer
carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “transferred
trade” when it is transferred as mentioned in paragraph (a).

(10) 20The cases within subsection (9)(a)—

(a) include the case where the trade is transferred to a company
within subsection (9)(a)(ii), or a partnership of which such a
company is a member, before the company became a 51%
subsidiary of the social enterprise, but

(b) 25where a company within subsection (9)(a)(ii) is not a 51%
subsidiary of the social enterprise at the relevant time, do not
include the case where the trade is transferred to that
company, or a partnership of which that company is a
member, after that company last ceased to be such a
30subsidiary.

(11) In this section—

  • “qualifying activity” has the same meaning as in section
    257MNA (see subsection (4) of that section);

  • “relevant investment” has the meaning given by section 173A(3)
    35(reading references in section 173A(3) to a company as
    including any social enterprise).

(12) Section 173A(4) and (5) apply to determine for the purposes of this
section when a relevant investment is made.

(13) Section 173A(6) and (7) (meaning of “trade” etc) apply also for the
40purposes of this section.

257MNE Power to amend limits on amounts that may be invested

(1) The Treasury may by regulations substitute a different figure for the
figure for the time being specified in section 257MNA(2), 257MNC(2)
or (3) or 257MND(4).

(2) 45Regulations under this section may make incidental, supplemental,
consequential, transitional or saving provision.

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(3) Regulations under this section may not be made unless a draft of the
instrument containing them has been laid before, and approved by a
resolution of, the House of Commons.”

(4) In section 1014 (orders and regulations), in subsection (5)(b) (orders and
5regulations excluded from subsection (4)) for sub-paragraph (iiia)
substitute—

(“iiia) section 257MNE (social investment relief:
amendment of limits on investments),”.

Number of employees limit

7 10In section 257MH (the number of employees requirement), in each of
subsections (1) and (2) for “500” substitute “250”.

Financial health requirement

8 After section 257MI insert—

257MIA The financial health requirement

(1) 15The social enterprise must meet the financial health requirement at
the beginning of the shorter applicable period.

(2) The financial health requirement is that the social enterprise is not in
difficulty.

(3) The social enterprise is “in difficulty” if it is reasonable to assume
20that it would be regarded as a firm in difficulty for the purposes of
the Community Guidelines on State Aid for Rescuing and
Restructuring Firms in Difficulty (2004/C 244/02).”

Purposes for which money raised can be used

9 (1) Section 257MM (requirement to use money raised and to trade for minimum
25period) is amended as follows.

(2) After subsection (3) insert—

(3A) Employing money on the repayment of a loan does not amount to
employing the money for the funded purpose.”

(3) In subsection (7)(c) after “(3),” insert “(3A),”.

30Excluded activities

10 (1) Section 257MQ (meaning of “excluded activity”) is amended as set out in
sub-paragraphs (2) to (4).

(2) In subsection (1)—

(a) in paragraph (b) omit “(but see subsection (2))”;

(b) 35after paragraph (b) insert—

(ba) leasing (including letting ships on charter or other
assets on hire),

(bb) receiving royalties or licence fees,

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(bc) operating or managing nursing homes or residential
care homes or managing property used as a nursing
home or residential care home (see section 257MQA),

(bd) generating electricity, exporting electricity (see
5subsection (3)) or making electricity generating
capacity available,

(be) generating heat,

(bf) generating any form of energy not within paragraph
(bd) or (be),

(bg) 10producing gas or fuel,”;

(c) omit paragraph (f) (subsidised generation or export of electricity).

(3) Omit subsection (2).

(4) After subsection (2) insert—

(3) For the purposes of subsection (1)(bd) electricity is exported if it is
15exported onto a distribution system or transmission system (within
the meaning of section 4 of the Electricity Act 1989).”

(5) After section 257MQ insert—

257MQA Excluded activities: nursing homes and residential care homes

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

(2) 20“Nursing home” means any establishment which exists wholly or
mainly for the provision of nursing care—

(a) for persons suffering from sickness, injury or infirmity, or

(b) for women who are pregnant or have given birth.

(3) “Residential care home” means any establishment which exists
25wholly or mainly for the provision of residential accommodation,
together with board and personal care, for persons in need of
personal care because of—

(a) old age,

(b) mental or physical disability,

(c) 30past or present dependence on alcohol or drugs,

(d) any past illnesses, or

(e) past or present mental disorder.

(4) The activities of a person are not to be taken to fall within section
257MQ(1)(bc) unless that person has an estate or interest in, or is in
35occupation of, the nursing home or residential care home in
question.”

(6) Omit section 257MS (subsidised generation or export of electricity).

Part 2 Consequential amendments

11 (1) 40ITA 2007 is amended as follows.

(2) In section 178A (EIS: the no disqualifying arrangements requirement), in
subsection (6), in the definition of “relevant tax relief” after paragraph (b)

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insert—

(ba) SI relief under Part 5B in respect of the shares;”.

(3) In section 257CF (SEIS: the no disqualifying arrangements requirement), in
subsection (6), in the definition of “relevant tax relief” after paragraph (b)
5insert—

(ba) SI relief under Part 5B in respect of the shares;”.

(4) In section 299A (VCTs: the no disqualifying arrangements requirement), in
subsection (6), in the definition of “relevant tax relief” after paragraph (c)
insert—

(ca) 10SI relief (within the meaning of Part 5B) in respect of the
shares;”.

12 In Schedule 6 to FA 2015 (investment reliefs: excluded activities) omit
paragraph 13 (which is superseded by paragraph 10 of this Schedule).

13 In Part 2 of Schedule 24 to FA 2016 (tax advantages about which information
15may be obtained from certain persons), after the entry relating to relief
granted to investors in a company under the enterprise investment scheme
insert—

“Relief granted to
investors in a social
enterprise
Part 5B of ITA 2007 The social
enterprise”
20

Part 3 Commencement

14 (1) The amendments made by paragraphs 3 and 6 to 9 have effect in relation to
investments made on or after 6 April 2017.

(2) 25Nothing in sub-paragraph (1) prevents investments made before 6 April
2017 from constituting “relevant investments” for any purpose of section
257MNA, 257MNB, 257MNC or 257MND of ITA 2007.

(3) Subject to sub-paragraph (4), the amendments made by paragraphs 4 and 5
have effect in relation to investments made on or after 6 April 2017.

(4) 30Arrangements which include any transaction entered into before 6 April
2017 are not “disqualifying arrangements” for the purposes of section
257LEA of ITA 2007.

15 The amendments made by paragraph 10—

(a) so far as they apply for the purposes of section 257JD of ITA 2007,
35come into force on 6 April 2017;

(b) so far as they apply for the purposes of sections 257MJ and 257MP of
ITA 2007, have effect in relation to investments made on or after 6
April 2017.

16 (1) Subject to sub-paragraph (3), the amendments made by paragraph 11(2) and
40(3) have effect in relation to shares issued on or after 6 April 2017.

(2) Subject to sub-paragraph (3), the amendment made by paragraph 11(4) has
effect for the purpose of determining whether shares or securities issued on

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or after 6 April 2017 are to be regarded as comprised in a company’s
qualifying holdings.

(3) The amendments made by paragraph 11 do not have effect for the purposes
of determining any question whether particular arrangements which
5include any transaction entered into before 6 April 2017 are “disqualifying
arrangements” for the purposes of section 178A, 257CF or 299A of ITA 2007.

Section 16

SCHEDULE 2 Trades and property businesses: calculation of profits

Part 1 10Trades etc: amendments of ITTOIA 2005

1 ITTOIA 2005 is amended as follows.

2 For section 33A (cash basis: capital expenditure) substitute—

33A Cash basis: capital expenditure

(1) This section applies in relation to the calculation of the profits of a
15trade on the cash basis.

(2) No deduction is allowed for an item of a capital nature incurred on,
or in connection with, the acquisition or disposal of a business or part
of a business.

(3) No deduction is allowed for an item of a capital nature incurred on,
20or in connection with, education or training.

(4) No deduction is allowed for an item of a capital nature incurred on,
or in connection with, the provision, alteration or disposal of—

(a) any asset that is not a depreciating asset (see subsections (6)
and (7)),

(b) 25any asset not acquired or created for use on a continuing
basis in the trade,

(c) a car (see subsection (14)),

(d) land,

(e) a non-qualifying intangible asset (see subsections (8) to (11)),
30or

(f) a financial asset (see subsection (12)).

(5) But subsection (4)(d) does not prevent a deduction being made for
expenditure that—

(a) is incurred on the provision of a depreciating asset which, in
35being provided, is installed or otherwise fixed to land so as to
become, in law, part of the land, but

(b) is not incurred on, or in connection with, the provision of—

(i) a building,

(ii) a wall, floor, ceiling, door, gate, shutter or window or
40stairs,

(iii) a waste disposal system,

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(iv) a sewerage or drainage system, or

(v) a shaft or other structure in which a lift, hoist,
escalator or moving walkway may be installed.

(6) An asset is a “depreciating” asset if, on the date the item of a capital
5nature is incurred, it is reasonable to expect that before the end of 20
years beginning with that date—

(a) the useful life of the asset will end, or

(b) the asset will decline in value by 90% or more.

(7) The useful life of an asset ends when it could no longer be of use to
10any person for any purpose as an asset of a business.

(8) “Intangible asset” means anything that is capable of being an
intangible asset within the meaning of FRS 105 and, in particular,
includes—

(a) an internally-generated intangible asset, and

(b) 15intellectual property.

(9) An intangible asset is “non-qualifying” unless, by virtue of having a
fixed maximum duration, it must cease to exist before the end of 20
years beginning with the date on which the item of a capital nature
is incurred.

(10) 20An intangible asset is “non-qualifying” if it consists of a right,
whether conditional or not, to obtain an intangible asset without a
fixed maximum duration by virtue of which that asset must,
assuming the right is exercised at the last possible time, cease to exist
before the end of 20 years beginning with the date on which the item
25of a capital nature is incurred.

(11) Where—

(a) the trader has an intangible asset, and

(b) the trader grants a licence or any other right in respect of that
asset to another person,

30any intangible asset that consists of a licence or other right granted to
the trader in respect of the intangible asset mentioned in paragraph
(a) is “non-qualifying”.

(12) A “financial asset” means any right under or in connection with—

(a) a financial instrument, or

(b) 35an arrangement that is capable of producing a return that is
economically equivalent to a return produced under any
financial instrument.

(13) A reference to acquisition, provision, alteration or disposal includes
potential acquisition, provision, alteration or (as the case may be)
40disposal.

(14) In this section—

  • “arrangement” includes any agreement, understanding,
    scheme, transaction or series of transactions (whether or not
    legally enforceable);

  • 45“building” includes any fixed structure;

  • “car” has the same meaning as in Part 2 of CAA 2001 (see section
    268A of that Act);

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  • “financial instrument” has the same meaning as in FRS 105;

  • “FRS 105” means Financial Reporting Standard 105 (the
    Financial Reporting Standard applicable to the Micro-entities
    Regime), issued by the Financial Reporting Council in July
    52015;

  • “intellectual property” means—

    (a)

    any patent, trade mark, registered design, copyright
    or design right, plant breeders’ rights or rights under
    section 7 of the Plant Varieties Act 1997,

    (b)

    10any right under the law of a country or territory
    outside the United Kingdom corresponding or
    similar to a right within paragraph (a),

    (c)

    any information or technique not protected by a right
    within paragraph (a) or (b) but having industrial,
    15commercial or other economic value, or

    (d)

    any licence or other right in respect of anything
    within paragraph (a), (b) or (c);

  • “provision” includes creation, construction or acquisition;

  • “the trader” means the person carrying on the trade.”

3 20In section 95A (application of Chapter 6 of Part 2 (trade profits: receipts) to
the cash basis)—

(a) the existing text becomes subsection (1),

(b) in that subsection, omit the entry relating to section 96A, and

(c) after that subsection insert—

(2) 25Section 96A makes provision about capital receipts in certain
cases where the profits of a trade are calculated on the cash
basis or have previously been calculated on the cash basis
(and see also section 96B).”

4 (1) Section 96A (cash basis: capital receipts) is amended as follows.

(2) 30For the heading substitute “Capital receipts under, or after leaving, cash
basis”.

(3) For subsections (1) to (3) substitute—

(1) This section applies in relation to a trade carried on by a person in
two cases—

(a) 35Case 1 (see subsections (2) to (3A)), and

(b) Case 2 (see subsections (3B) to (3E)).

(2) Case 1 is a case in which conditions A and B are met.

(3) Condition A is that the person receives disposal proceeds or a capital
refund in relation to an asset at a time when an election under section
4025A (cash basis for trades) has effect in relation to the trade.

(3A) Condition B is that—

(a) an amount of capital expenditure (see subsection (3H))
45relating to the asset has been brought into account in
calculating the profits of the trade on the cash basis, or

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(b) an amount of capital expenditure relating to the asset
which—

(i) has been incurred (or treated as incurred) by the
person before the tax year for which the person last
5entered the cash basis, and

(ii) is cash basis deductible in relation to that tax year (see
section 96B(4)),

has been brought into account in calculating the profits of the
trade for a tax year for which no election under section 25A
10had effect in relation to the trade.

(3B) Case 2 is a case in which—

(a) 15condition C is met, and

(b) condition D or E is met.

(3C) Condition C is that disposal proceeds or a capital refund arise to the
person in relation to an asset at a time—

(a) when no election under section 25A has effect in relation to
20the trade, and

(b) which is after a time when such an election had had effect in
relation to the trade.

(3D) Condition D is that an amount of capital expenditure relating to the
asset—

(a) 25has been paid at a time when an election under section 25A
had effect in relation to the trade,

(b) has been brought into account in calculating the profits of the
trade on the cash basis, and

(c) on the assumption that an election under section 25A had not
30had effect at the time the expenditure was paid, would not
have been qualifying expenditure.

(3E) Condition E is that an amount of capital expenditure relating to the
asset has been brought into account in calculating the profits of the
trade for a tax year—

(a) 35for which no election under section 25A had effect in relation
to the trade, and

(b) which is before the tax year for which the person last entered
the cash basis.

The reference in this subsection to expenditure brought into account
40does not include a reference to expenditure brought into account
under CAA 2001 (see section 96B(5)).

(3F) “Disposal proceeds” means—

(a) any proceeds arising from the disposal of an asset or any part
of it,

(b) 45any proceeds arising from the grant of any right in respect of,
or any interest in, the asset, or

(c) any amount of damages, proceeds of insurance or other
compensation received in respect of the asset.