Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
180

Conversion of shares etc and company reorganisations
329
Conversion of convertible shares and securities
(1)
This section applies if—
(a)
shares have been issued to a company (“the investing company”) by the
exercise by it of any right of conversion attached to other shares or
5
securities held by it (“the convertibles”),
(b)
the shares so issued are in the same company as the convertibles to
which the right was attached,
(c)
the convertibles to which the right was attached were first issued to the
investing company and were held by it from the time they were issued
10
until converted, and
(d)
the right was attached to the convertibles when they were first so issued
and was not varied before it was exercised.
(2)
If this section applies, subsections (3) and (4) have effect to determine the extent
to which, and the times for which, the requirements of the following provisions
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of Chapter 4 are met in relation to the shares issued to the investing company
by the exercise by it of the right of conversion—
section 287 (the maximum qualifying investment requirement),
section 289 (the proportion of eligible shares requirement),
section 291 (the carrying on of a qualifying activity requirement),
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section 293 (the use of money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying
activity requirement), and
section 297 (the gross assets requirement).
(3)
Subsections (3) to (6) of section 327 apply in relation to the exchange of
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convertibles for shares by virtue of the exercise of the right of conversion as if—
(a)
that exchange were an exchange, under any arrangements to which
that section applies, of new shares for old shares, and
(b)
the references in those subsections and section 328(5)(b) to the
arrangements were references to the provision conferring the right of
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conversion.
(4)
For the purposes of section 289 the value of the new shares immediately after
the time of their acquisition by the investing company is to be taken as the same
as the value, when last valued in accordance with that section, of the
convertibles for which they are exchanged.
35
330
Power to facilitate company reorganisations etc involving exchange of shares
(1)
The Treasury may by regulations make provision for cases where—
(a)
a holding of shares or securities that meets the requirements of Chapter
4 is exchanged for other shares or securities,
(b)
the exchange is made for genuine commercial reasons and does not
40
form part of a scheme or arrangement the main purpose or one of the
main purposes of which is the avoidance of tax, and
(c)
the new shares or securities do not meet some or all of the requirements
of Chapter 4,

providing that the new shares or securities are to be treated as meeting those
45
requirements.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
181

(2)
The references in subsection (1) to an exchange of shares or securities include
any form of company reorganisation or other arrangement which involves a
holder of shares in or securities of a company receiving other shares or
securities—
(a)
whether the original shares or securities are transferred, cancelled or
5
retained, and
(b)
whether the new shares or securities are in or of the same or another
company.
(3)
The regulations must specify—
(a)
the cases in which, and conditions subject to which, they apply,
10
(b)
which requirements of Chapter 4 are to be treated as met, and
(c)
the period for which those requirements are to be treated as met.
(4)
The regulations may contain such administrative provisions (including
provision for advance clearances) as appear to the Treasury to be necessary or
appropriate.
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(5)
The regulations may authorise the Commissioners for Her Majesty’s Revenue
and Customs to give notice to any person requiring that person to provide such
information, specified in the notice, as they may reasonably require in order to
determine whether any conditions imposed by the regulations are met.
(6)
Regulations under this section —
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(a)
may make different provision for different cases,
(b)
may contain incidental, supplemental, consequential and transitional
provision and savings, and
(c)
may include provision having retrospective effect.
Supplementary
25
331
Meaning of a company being “in administration” or “in receivership”
(1)
References in this Part to a company being “in administration” or “in
receivership” are to be read as follows.
(2)
A company is “in administration” if—
(a)
it is in administration within the meaning of Schedule B1 to the
30
Insolvency Act 1986 (c. 45) or Schedule B1 to the Insolvency (Northern
Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or
(b)
there is in force in relation to it under the law of a country or territory
outside the United Kingdom any appointment corresponding to an
appointment of an administrator under either of those Schedules.
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(3)
A company is “in receivership” if there is in force in relation to it—
(a)
an order for the appointment of an administrative receiver, a receiver
and manager or a receiver under Chapter 1 or 2 of Part 3 of the
Insolvency Act 1986 or Part 4 of the Insolvency (Northern Ireland)
Order 1989, or
40
(b)
any corresponding order under the law of a country or territory outside
the United Kingdom.

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 1 — Introduction
182

332
Minor definitions etc
In this Part—
“associate” has the meaning given by section 253,
“company” includes any body corporate or unincorporated association
but does not include a partnership, and is to be read in accordance with
5
section 99 of TCGA 1992 (unit trust schemes),
“director” is read in accordance with section 417(5) of ICTA,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or
any of its qualifying subsidiaries,
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“ordinary shares” means shares forming part of a company’s ordinary
share capital,
“parent company” means a company that has one or more qualifying
subsidiaries and “single company” means a company that does not,
“research and development” has the meaning given by section 940, and
15
“shares” includes stock.
Part 7
Community investment tax relief
Chapter 1
Introduction
20
CITR
333
Meaning of “CITR”
This Part provides for community investment tax relief (“CITR”), that is,
entitlement to tax reductions in respect of amounts invested by individuals in
community development finance institutions.
25
334
Eligibility for CITR
(1)
An individual (“the investor”) who makes an investment (“the investment”) in
a body is eligible for CITR in respect of the investment if—
(a)
that body is accredited as a community development finance
institution under Chapter 2 at the time the investment is made,
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(b)
the investment is a qualifying investment (see Chapter 3), and
(c)
the general conditions of Chapter 4 are met.
(2)
In this Part references to “the CDFI” are to the body in which the investment is
made.
335
Form and amount of CITR
35
(1)
If the investor is eligible for CITR in respect of the investment, the investor may
make a claim in respect of the investment for any one or more of the relevant
tax years.

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Part 7 — Community investment tax relief
Chapter 1 — Introduction
183

(2)
If the investor makes a claim for a relevant tax year, the investor is entitled to
a tax reduction for that year of 5% of the invested amount in respect of the
investment for the year.
(3)
For this purpose the “relevant” tax years are—
(a)
the tax year in which the investment date falls, and
5
(b)
each of the 4 subsequent tax years.
(4)
The tax reduction is given effect at Step 6 of the calculation in section 23.
(5)
The investor is entitled to make a claim for CITR for a relevant tax year if—
(a)
the investor considers that the conditions for the CITR are for the time
being met, and
10
(b)
the investor has received a tax relief certificate (see section 348) relating
to the investment from the CDFI,

but no claim may be made before the end of the tax year to which it relates.
(6)
Subsection (5) is subject to the following provisions—
(a)
section 354 (loans: no claim after disposal or excessive repayments or
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receipts of value),
(b)
section 355 (securities or shares: no claim after disposal or excessive
receipts of value), and
(c)
section 356 (no claim after loss of accreditation by CDFI).
Miscellaneous
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336
Meaning of “making an investment”
(1)
For the purposes of this Part, an individual makes an investment in a body at
any time when—
(a)
the individual makes a loan (whether secured or unsecured) to the
body, or
25
(b)
an issue of securities of or shares in the body, for which the individual
has subscribed, is made to the individual.
(2)
The following provisions of this section apply for the purposes of subsection
(1)(a).
(3)
An individual does not make a loan to a body if—
30
(a)
the body uses overdraft facilities provided by the individual, or
(b)
the individual subscribes for or otherwise acquires securities of the
body.
(4)
If the loan agreement authorises the body to draw down amounts of the loan
over a period of time, the loan is treated as made at the time when the first
35
amount is drawn down.
337
Determination of “the invested amount”
(1)
This section applies for the purpose of determining “the invested amount” in
respect of any loan, securities or shares included in the investment.

This is subject to sections 363(2) and 369 (which adjust “the invested amount”
40
in certain cases where value is received).
(2)
In the case of a loan, the invested amount is—

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 2 — Accredited community development finance institutions
184

(a)
for the tax year in which the investment date falls, the average capital
balance for the first year of the 5 year period,
(b)
for the next tax year, the average capital balance for the second year of
the 5 year period, and
(c)
for any subsequent tax year—
5
(i)
the average capital balance for the period of 12 months
beginning with the anniversary of the investment date falling in
the tax year concerned, or
(ii)
if less, the average capital balance for the period of 6 months
beginning 18 months after the investment date.
10
(3)
In the case of securities or shares, the invested amount for a tax year is the
amount subscribed by the investor for the securities or shares.
(4)
For the purposes of this section, the average capital balance of the loan for a
period is the mean of the daily balances of capital outstanding during the
period.
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338
Meaning of “the 5 year period” and “the investment date”
In this Part—
“the 5 year period” means the period of 5 years beginning with the
investment date, and
“the investment date” means the day the investment is made.
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339
Overview of other Chapters of Part
In this Part—
(a)
Chapter 5 provides for the making of claims for CITR and the
attribution of CITR to investments,
(b)
Chapter 6 provides for CITR to be withdrawn or reduced in the
25
circumstances mentioned in that Chapter, and
(c)
Chapter 7 contains supplementary and general provision.
Chapter 2
Accredited community development finance institutions
340
Application and criteria for accreditation
30
(1)
Applications for accreditation as a community development finance institution
must be made to the Secretary of State in the form and manner specified by the
Secretary of State.
(2)
The Secretary of State is to accredit a body if (and only if) the Secretary of State
is satisfied—
35
(a)
that the body’s principal objective is to provide (directly or
indirectly)—
(i)
finance, or
(ii)
finance and access to business advice,

for enterprises for disadvantaged communities, and
40
(b)
that the body meets any other criteria specified in regulations made by
the Treasury.

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 2 — Accredited community development finance institutions
185

(3)
For the purposes of this section “enterprises for disadvantaged communities”
include—
(a)
enterprises located in disadvantaged areas, and
(b)
enterprises owned or operated by, or designed to serve, members of
disadvantaged groups.
5
(4)
The criteria mentioned in paragraph (b) of subsection (2) may include criteria
relating to the enterprises to which the body provides or proposes to provide
finance or access to business advice.
(5)
Regulations under that paragraph may make the provision authorised by that
paragraph by reference to any material published by, or on behalf of, the
10
Secretary of State (whether before or after the coming into force of this section).
(6)
Regulations under that paragraph—
(a)
may make different provision for different cases or circumstances or in
relation to different areas, and
(b)
may, in particular, make different provision in the case of bodies whose
15
principal objective in providing finance as mentioned in subsection
(2)(a) is to invest directly in enterprises that meet the conditions of
subsection (7).
(7)
An enterprise meets the conditions of this subsection if it uses the money
invested in it for the purposes of its business and either—
20
(a)
that business does not include the provision of finance for other
enterprises, or
(b)
if it does, the nature and extent of such provision meets any conditions
prescribed by regulations made by the Treasury.
(8)
If the Secretary of State accredits a body of a kind mentioned in subsection
25
(6)(b), the Secretary of State must specify in the accreditation that the body is
accredited as a retail community development finance institution.
341
Terms and conditions of accreditation
(1)
An accreditation under this Chapter must—
(a)
be made on—
30
(i)
any terms required by regulations, and
(ii)
any other terms the Secretary of State considers appropriate,
and
(b)
be made conditional on compliance with—
(i)
any requirements imposed by regulations, and
35
(ii)
any other requirements the Secretary of State considers
appropriate.
(2)
The requirements that may be imposed by virtue of subsection (1)(b) include
requirements relating to the provision of information.
(3)
Regulations may—
40
(a)
make provision for appeals to the Special Commissioners against
refusals to grant accreditation under this Chapter,
(b)
make provision about the consequences of a failure to comply with any
requirement of an accreditation, including—
(i)
provision for the withdrawal of the accreditation with effect
45
from the time of the failure or a later time, and

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Part 7 — Community investment tax relief
Chapter 3 — Qualifying investments
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(ii)
provision for the imposition of penalties,
(c)
make provision for the making of decisions by the Secretary of State as
to any matter required to be decided for the purposes of the
regulations,
(d)
make different provision for different cases or circumstances or in
5
relation to different areas, and
(e)
contain incidental, supplemental, consequential and transitional
provision and savings.
(4)
In this section “regulations” means regulations made by the Treasury.
342
Period of accreditation
10
(1)
An accreditation has effect for a period (an “accreditation period”) of 3 years
beginning on the day specified in the accreditation.
(2)
Subject to subsection (4), the accreditation must not specify a day which is
earlier than—
(a)
if the body is not accredited under this Chapter at the time the
15
application is made, the day the accreditation is granted, and
(b)
if the body is so accredited, the time the body’s current accreditation
expires.
(3)
Subsection (4) applies if—
(a)
the body is accredited at the time the application is made, and
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(b)
it makes a request under this subsection.
(4)
The new accreditation may specify that the existing accreditation is to be
treated for the purposes of this Part (including subsection (2)(b)) as expiring
immediately before the grant of the new accreditation (if it would otherwise
expire at a later time).
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(5)
This section has effect subject to section 341(3)(b) (power to provide for the
withdrawal of accreditation).
343
Delegation of Secretary of State’s functions
The Secretary of State may delegate any functions conferred on the Secretary
of State by or under this Chapter.
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Chapter 3
Qualifying investments
344
Qualifying investments: introduction
For the purposes of this Part the investment is a “qualifying investment” in the
CDFI if—
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(a)
the investment consists of—
(i)
a loan in relation to which the conditions of section 345 are met,
(ii)
securities in relation to which the conditions of section 346 are
met, or
(iii)
shares in relation to which the conditions of section 347 are met,
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