Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
149

278
Conditions relating to value of investments: general
(1)
This section and section 279 apply for the purposes of the 15% holding limit
condition, the 70% qualifying holdings condition and the 30% eligible shares
condition (“the relevant conditions”).
(2)
The value of a holding of investments of any description is to be taken, unless
5
subsection (3) applies, to be its value when acquired.
(3)
If, in the case of a holding of investments of any description—
(a)
the holding is added to by a further holding of investments of that
description, or
(b)
any payment is made in discharge, in whole or in part, of any obligation
10
attached to the holding that (by discharging the whole or any part of the
obligation) increases the value of the holding,

the value of the holding is to be taken to be its value immediately after the most
recent addition or payment.
(4)
For the purposes of this section an addition is made to a holding of investments
15
of any description whenever the company whose holding it is—
(a)
acquires further investments of that description, but
(b)
does not do so by being allotted shares or securities in a company
without becoming liable to give any consideration.
(5)
Subsection (6) applies if, in connection with a scheme of reconstruction—
20
(a)
a company issues shares or securities,
(b)
the shares or securities are issued to persons holding shares or
securities in a second company in respect of and in proportion to (or as
nearly as may be in proportion to) their holdings in the second
company, and
25
(c)
those persons do not become liable to give any consideration for the
shares or securities.

In this subsection “scheme of reconstruction” has the same meaning as in
section 136 of TCGA 1992.
(6)
For the purposes of this section—
30
(a)
a holding of the shares or securities of any description in the second
company, and
(b)
a corresponding holding of the shares or securities issued by the
company,

are to be regarded as the same holding.
35
279
Conditions relating to value of investments: qualifying holdings
(1)
If—
(a)
any shares (“new shares”) are exchanged for other shares (“old shares”)
under arrangements in relation to which section 326 (restructuring
arrangements) applies, and
40
(b)
those arrangements have not ceased by virtue of section 326(5) to be
arrangements by reference to which requirements of Chapter 4 are
treated as met,

the value of the new shares is taken to be the same as the value, when last
valued in accordance with subsection (2) or (3) of section 278, of the old shares
45
for which they are exchanged.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
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(2)
In subsection (1)—
(a)
references to shares in a company include references to any securities
of that company, and
(b)
the reference to the value of the new shares includes references to the
value of those shares both—
5
(i)
at the time of their acquisition, and
(ii)
immediately after any subsequent addition to a holding of the
new shares that is made under the arrangements.
(3)
If—
(a)
shares (“new shares”) are issued to a company as a result of the exercise
10
by that company of any right of conversion attached to other shares, or
securities, held by that company (“convertibles”), and
(b)
section 329 (conversion of convertible shares and securities) applies in
relation to the issue of the new shares,

the value of the new shares at the time of their acquisition is taken to be the
15
same as the value, when last valued in accordance with subsection (2) or (3) of
section 278, of the convertibles for which they are exchanged.
(4)
Regulations under section 330 may make provision for securing that if—
(a)
there is an exchange of shares to which regulations under section 330
apply, and
20
(b)
the new shares are treated by virtue of the regulations as meeting the
requirements of Chapter 4,

the value of the holding of the new shares, and of any original shares that are
retained under the exchange, is taken to be an amount such that the
requirements of the relevant conditions do not cease to be met because of the
25
exchange.
(5)
In subsection (4)—
(a)
“shares” includes securities, and
(b)
“exchange of shares”, “new shares” and “original shares” have the same
meaning as in section 330.
30
280
Conditions relating to qualifying holdings and eligible shares
(1)
Subsection (2) applies, subject to any regulations under subsection (3), if—
(a)
there has been an issue of ordinary share capital of a company (“the first
issue”),
(b)
a VCT approval of that company has taken effect on or before the day
35
of the making of the first issue, and
(c)
a further issue of ordinary share capital of that company has been made
since the making of the first issue.
(2)
If this subsection applies, the use to which the money raised by the further
issue is put, and the use of any money deriving from that use, are ignored in
40
determining whether either or both of the 70% qualifying holdings condition
and the 30% eligible shares condition are, have been or will be met in relation
to—
(a)
the accounting period in which the further issue is made, or
(b)
any later accounting period ending no more than 3 years after the
45
making of the further issue.
(3)
The Treasury may by regulations make provision for subsection (2)—

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
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(a)
not to apply, or to be treated as not having applied, in specified cases, or
(b)
to apply, or to be treated as having applied, in specified cases—
(i)
only to a specified extent, or
(ii)
only if specified conditions (including conditions requiring
approvals to be obtained) are met.
5
(4)
Provision made by regulations under subsection (3) may (but need not) be
made so that, in any particular case, subsection (2)—
(a)
does not apply, or is treated as not having applied, at prescribed times
or with effect from a prescribed time, or
(b)
applies, or is treated as having applied, in accordance with provision
10
made under subsection (3)(b) at prescribed times or with effect from a
prescribed time.
(5)
In subsection (3) “specified” means specified by regulations and in subsection
(4) “prescribed” means specified by, or determined under, regulations.
(6)
Section 324 applies in relation to—
15
(a)
regulations under subsection (3), and
(b)
any power conferred by that subsection,

as it applies in relation to regulations under Chapter 5 and a power conferred
by any provision of that Chapter.
Withdrawal of approval
20
281
Withdrawal of VCT approval of a company
(1)
The Commissioners for Her Majesty’s Revenue and Customs (“the
Commissioners”) may withdraw the VCT approval of a company if at any time
it appears to them that there are reasonable grounds for believing—
(a)
that the conditions for the approval of the company were not met at the
25
time of the approval,
(b)
in a case where the Commissioners were satisfied for the purposes of
section 274(1)(b) or 275(2) that any of the conditions mentioned in
section 274(2) would be met in relation to any period, that the condition
is one which will not be, or has not been, met in relation to that period,
30
(c)
in the case of a company approved under subsection (2) of section 275
(read with paragraph (b) of subsection (3) of that section), that the
company has not met such other conditions as may be prescribed by
regulations made by the Commissioners in relation to—
(i)
the period of 3 years mentioned in that paragraph, or
35
(ii)
any part of that period,
(d)
in a case where the use of any money falls to be ignored for any
accounting period in accordance with section 280(2), that—
(i)
the first accounting period of the company for which the use of
that money will not be ignored will be a period in relation to
40
which any of the conditions mentioned in section 274(2) will fail
to be met, or
(ii)
the company has not met such other conditions as may be
prescribed by regulations made by the Commissioners in
relation to, or to any part of, an accounting period for which the
45
use of that money falls to be ignored, or
(e)
that—

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Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
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(i)
the company’s most recent complete accounting period or its
current one is a period in relation to which there has been or will
be a failure of any of the conditions mentioned in section 274(2)
to be met, and
(ii)
the failure was not or will not be one which, at the time of the
5
approval, was allowed for in relation to that period by virtue of
section 275(2).
(2)
Subject to subsections (3) and (4), the withdrawal of the approval of a company
for the purposes of this Part has effect as from the time when notice of the
withdrawal is given to the company.
10
(3)
If, in the case of a company approved as a VCT in the exercise of the power
conferred by section 275(2), the approval is withdrawn at a time before all of
the conditions mentioned in section 274(2) have been met with respect to the
company concerned—
(a)
in relation to a complete accounting period of 12 months, or
15
(b)
in relation to successive complete accounting periods constituting a
continuous period of at least 12 months,

the withdrawal of the approval has the effect that the approval is for all
purposes treated as never having been given.
(4)
A notice withdrawing the approval of a company for the purposes of this Part
20
may specify a time falling before the time mentioned in subsection (2) as the
time from which the withdrawal is to be treated as having effect for the
purposes of section 100 of TCGA 1992 (exemption for venture capital trusts
etc).

But the time so specified must be no earlier than the beginning of the
25
accounting period in relation to which it appears to the Commissioners that the
condition by reference to which the approval is withdrawn has not been, or
will not be, met.
(5)
Despite any limitation on the time for making assessments, an assessment to
any tax chargeable in consequence of the withdrawal of any VCT approval
30
may be made at any time before the end of the period of 3 years beginning with
the time when the notice of withdrawal is given.
282
Withdrawal of VCT approval in cases for which provision made under section
280(3)
(1)
The Treasury may by regulations make provision for withdrawal of VCT
35
approval of a company to be treated—
(a)
in a case where the withdrawal is by reference to a condition for
approval that would have been, or would be, met but for provision
made under section 280(3), and
(b)
for the purposes of enactments specified by regulations,
40

as having taken effect as from a time specified in the notice of withdrawal that
is earlier than the time when the notice is given to the company.
(2)
Provision made under subsection (1) has effect subject to the provisions of
section 281(4) (retrospective effect of notices of withdrawal of VCT approval)
as to the earliest time that may be specified by such a notice.
45
(3)
Section 324 applies in relation to—
(a)
regulations under subsection (1), and

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
153

(b)
any power conferred by that subsection,

as it applies in relation to regulations under Chapter 5 and a power conferred
by any provision of that Chapter.
Supplementary
283
Time as from which VCT approval has effect
5
(1)
A VCT approval has effect as from the time specified in the approval.
(2)
That time, if it falls before the time when the VCT approval is given, must be
no earlier than the time when the application was made.
(3)
If the Commissioners for Her Majesty’s Revenue and Customs give a VCT
approval, they may stipulate that the approval is to have effect as from the time
10
when the application for the approval was made or any subsequent time.
284
Power to make regulations as to procedure
Regulations under section 272 may make provision—
(a)
as to the making of applications for VCT approvals and otherwise as to
the procedure to be followed in relation to any such applications and
15
the giving of such approvals,
(b)
as to the procedure to be followed in connection with the withdrawal
of VCT approvals,
(c)
as to the obligations of a company which is a VCT if it should appear to
the company that the conditions for its VCT approval to continue in
20
force are no longer met,
(d)
as to the accounts, records, returns and other information to be kept,
and provided or otherwise made available to the Commissioners for
Her Majesty’s Revenue and Customs, by companies which are or have
been VCTs and by persons who hold or have held shares in such
25
companies, and
(e)
as to the persons liable to account for any tax becoming due where a
VCT approval is withdrawn.
285
Interpretation of Chapter
(1)
Chapter 4 has effect for interpreting references in this Chapter to a “qualifying
30
holding”.
(2)
In this Chapter and the following Chapters of this Part “securities”, in relation
to a company, includes any liability of the company in respect of a loan
(whether secured or not), except that it does not include—
(a)
any liability of the company in respect of a loan which has been made
35
to the company on terms which allow any person to require—
(i)
the loan to be repaid, or
(ii)
any stock or security relating to the loan to be re-purchased or
redeemed,

within the period of 5 years from the making of the loan or, as the case
40
may be, the issue of the stock or security, or
(b)
any stock or security relating to a loan which has been made to the
company on terms which allow any person to require the loan to be

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Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
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repaid, or the stock or security to be re-purchased or redeemed, within
that period.

But see sections 317(4) and 328(2).
(3)
In this Chapter “eligible shares”, in relation to a company, means ordinary
shares in the company which carry—
5
(a)
no present or future preferential right to dividends or to the company’s
assets on its winding up, and
(b)
no present or future right to be redeemed.
(4)
Any reference in this Chapter to a company’s investments is taken to include,
so far as it would not otherwise do so—
10
(a)
money in the company’s possession, and
(b)
any sum owed to the company by another person if the company has
account-holder’s rights over that sum.
(5)
For the purposes of subsection (4)(b) a company has “account-holder’s rights”
over a sum owed to the company if—
15
(a)
the company has a right (whether or not the exercise of the right is
subject to conditions) to require the other person to pay out the sum, or
amounts out of the sum, to the company or at the company’s direction,
and
(b)
the sum is owed to the company—
20
(i)
as a result of amounts having been paid to the other person by
or for the company, or
(ii)
as a result of the other person having identified a sum in respect
of which the company may exercise such a right.
(6)
Subsection (5) does not have effect to cause a company’s investments to be
25
taken to include anything to which the company is not beneficially entitled, but
for this purpose a company is taken to be beneficially entitled to—
(a)
sums subscribed for shares issued by it, and
(b)
anything to which it is entitled that (directly or indirectly) represents
such sums.
30
Chapter 4
Qualifying holdings
Introduction
286
Qualifying holdings: introduction
(1)
If any shares in or securities of any company (“the relevant company”) are at
35
any time held by another company (“the investing company”), this Chapter
applies for determining whether and to what extent those shares or securities
(“the relevant holding”) are, for the purposes of Chapter 3, to be regarded as at
that time comprised in the investing company’s qualifying holdings.
(2)
The relevant holding is to be regarded as comprised in the investing
40
company’s qualifying holding at any time if—
(a)
all the following requirements of this Chapter are met at that time in
relation to the relevant company and the relevant holding, and

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Chapter 4 — Qualifying holdings
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(b)
the relevant holding consists of shares or securities which were first
issued by the relevant company to the investing company and have
been held by the investing company ever since.
(3)
The requirements are those imposed as to—
(a)
maximum qualifying investment (see section 287),
5
(b)
no guaranteed loan (see section 288),
(c)
proportion of eligible shares (see section 289),
(d)
trading (see section 290),
(e)
the carrying on of a qualifying activity (see section 291),
(f)
use of the money raised (see section 293),
10
(g)
the relevant company carrying on the relevant qualifying activity (see
section 294),
(h)
unquoted status (see section 295),
(i)
control and independence (see section 296),
(j)
gross assets (see section 297),
15
(k)
qualifying subsidiaries (see section 298), and
(l)
property managing subsidiaries (see section 299).
(4)
Subject to section 293(7), subsection (5) applies if—
(a)
the requirements of section 287, 293 or 294 would be met as to only part
of the money raised by the issue of the relevant holding, and
20
(b)
that holding is not otherwise capable of being treated as comprising
separate holdings.
(5)
If this subsection applies, this Chapter has effect in relation to the relevant
holding as if it were two separate holdings consisting of—
(a)
a holding from which the part of the money mentioned in subsection
25
(4)(a) was raised, and
(b)
a holding from which the remainder was raised.

Chapter 3 has effect as if the value of the relevant holding were to be
apportioned between the two holdings treated as subsisting by this subsection.
The requirements
30
287
The maximum qualifying investment requirement
(1)
The requirement of this section is that the relevant holding did not, when it was
issued, represent an investment in excess of the maximum qualifying
investment for the relevant period.
(2)
Subject to subsection (7), the maximum qualifying investment for any period is
35
exceeded so far as the total amount of money which—
(a)
is raised in that period, and
(b)
is so raised by the issue to the investing company during that period of
shares in or securities of the relevant company,

exceeds £1 million.
40
(3)
If the relevant holding represented, when issued, an investment in excess of the
maximum qualifying investment for the relevant period—
(a)
the shares or securities which represented the excess are not to be
regarded as part of the relevant holding, and