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Income Tax Bill


Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 3 — General requirements

90

 

176     

The minimum period requirement

(1)   

The issue of shares which includes the relevant shares must meet—

(a)   

the requirement of subsection (2) in a case where the money raised by

an issue of shares is raised wholly for the purpose of a qualifying

business activity falling within section 179(2),

5

(b)   

the requirement of subsection (3) in a case where the money raised by

an issue of shares is raised wholly or partly for the purpose of a

qualifying business activity falling within section 179(4).

(2)   

The requirement is that—

(a)   

the trade concerned must have been carried on for a period of at least 4

10

months ending at or after the time of the issue, and

(b)   

throughout that period—

(i)   

the trade must have been carried on by the issuing company or

a qualifying 90% subsidiary of that company, and

(ii)   

the trade must not have been carried on by any other person.

15

(3)   

The requirement is that—

(a)   

the research and development concerned must have been carried on for

a period of at least 4 months ending at or after the time of the issue, and

(b)   

throughout that period—

(i)   

the research and development must have been carried on by the

20

issuing company or a qualifying 90% subsidiary of that

company, and

(ii)   

the research and development must not have been carried on by

any other person.

(4)   

If—

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(a)   

merely because of the issuing company or any other company being

wound up, or dissolved without winding up—

(i)   

the trade is carried on as mentioned in subsection (2), or

(ii)   

the research and development is carried on as mentioned in

subsection (3),

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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 a scheme or arrangement the main purpose or one

of the main purposes of which is the avoidance of tax,

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subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter

period.

(5)   

If—

(a)   

merely because of anything done as a result of the issuing company or

any other company being in administration or receivership—

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(i)   

the trade is carried on as mentioned in subsection (2), or

(ii)   

the research and development is carried on as mentioned in

subsection (3),

   

for a period shorter than 4 months, and

(b)   

the entry into administration or receivership, and everything done as a

45

result of the company concerned being in administration or

receivership—

(i)   

is for genuine commercial reasons, and

 
 

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 3 — General requirements

91

 

(ii)   

is not part of a scheme or arrangement the main purpose or one

of the main purposes of which is the avoidance of tax,

   

subsection (2) or, as the case may be, (3) has effect as if it referred to that shorter

period.

177     

The no pre-arranged exits requirement

5

(1)   

The issuing arrangements for the relevant shares must not include—

(a)   

arrangements with a view to the subsequent repurchase, exchange or

other disposal of those shares or of other shares in or securities of the

issuing company,

(b)   

arrangements for or with a view to the cessation of any trade which is

10

being or is to be or may be carried on by the issuing company or a

person connected with that company,

(c)   

arrangements for the disposal of, or of a substantial amount (in terms

of value) of, the assets of the issuing company or of a person connected

with that company, or

15

(d)   

arrangements the main purpose or one of the main purposes of which

is (by means of any insurance, indemnity or guarantee or otherwise) to

provide partial or complete protection for persons investing in shares

in the issuing company against what would otherwise be the risks

attached to making the investment.

20

(2)   

The arrangements referred to in subsection (1)(a) do not include any

arrangements with a view to such an exchange of shares, or shares and

securities, as is mentioned in section 247(1).

(3)   

The arrangements referred to in subsection (1)(b) and (c) do not include any

arrangements applicable only on the winding up of a company except in a case

25

where—

(a)   

the issuing arrangements include arrangements for the company to be

wound up, or

(b)   

the arrangements are applicable on the winding up of the company

otherwise than for genuine commercial reasons.

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(4)   

The arrangements referred to in subsection (1)(d) do not include any

arrangements which are confined to the provision—

(a)   

for the issuing company itself, or

(b)   

if the issuing company is a parent company that meets the trading

requirement in section 181(2)(b), for the issuing company itself, for the

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issuing company itself and one or more of its subsidiaries or for one or

more of its subsidiaries,

   

of any such protection against the risks arising in the course of carrying on its

business as might reasonably be expected to be provided in normal

commercial circumstances.

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(5)   

In this section “the issuing arrangements” means—

(a)   

the arrangements under which the shares are issued to the individual,

and

(b)   

any arrangements made before the issue of the shares to the individual

in relation to or in connection with that issue.

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Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 3 — General requirements

92

 

178     

The no tax avoidance requirement

The relevant shares must be issued for genuine commercial reasons, and not as

part of a scheme or arrangement the main purpose or one of the main purposes

of which is the avoidance of tax.

Meaning of "qualifying business activity"

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179     

Meaning of “qualifying business activity”

(1)   

In this Part “qualifying business activity”, in relation to the issuing company,

means—

(a)   

activity A, or

(b)   

activity B,

10

   

if it is carried on by the company or a qualifying 90% subsidiary of the

company.

   

This is subject to subsections (3) and (5).

(2)   

Activity A is—

(a)   

the carrying on of a qualifying trade which, on the date the relevant

15

shares are issued, the company or a qualifying 90% subsidiary of the

company is carrying on, or

(b)   

the activity of preparing to carry on (or preparing to carry on and then

carrying on) a qualifying trade—

(i)   

which, on that date, is intended to be carried on wholly or

20

mainly in the United Kingdom by the company or such a

subsidiary, and

(ii)   

which is begun to be carried on by the company or such a

subsidiary within two years after that date.

(3)   

But activity A is a qualifying business activity only if, at any time in period B

25

when the qualifying trade is so carried on, the qualifying trade is carried on

wholly or mainly in the United Kingdom.

(4)   

Activity B is the carrying on of research and development—

(a)   

which, on the date the relevant shares are issued, the company or a

qualifying 90% subsidiary of the company is carrying on, or which the

30

company or such a subsidiary begins to carry on immediately

afterwards, and

(b)   

from which, on that date, it is intended—

(i)   

that a qualifying trade which the company or such a subsidiary

will carry on wholly or mainly in the United Kingdom will be

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derived, or

(ii)   

that a qualifying trade which the company or such a subsidiary

is carrying on, or will carry on, wholly or mainly in the United

Kingdom will benefit.

(5)   

But activity B is a qualifying business activity only if, at any time in period B

40

when—

(a)   

the research and development is carried on, or

(b)   

the qualifying trade which is derived, or which benefits or is intended

to benefit, from the research and development is carried on,

   

the research and development or, as the case may be, the qualifying trade is

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carried on wholly or mainly in the United Kingdom.

 
 

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 4 — The issuing company

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(6)   

In determining—

(a)   

for the purposes of subsection (2)(b) when a qualifying trade is begun

to be carried on by a qualifying 90% subsidiary of the company, or

(b)   

for the purposes of subsection (4)(a) when research and development is

begun to be carried on by such a subsidiary,

5

   

any carrying on of the trade or, as the case may be, the research and

development by it before it became such a subsidiary is ignored.

(7)   

References in subsection (2)(b)(i) or (4)(b) to a qualifying 90% subsidiary of the

company include references to any existing or future company which will be

such a subsidiary at any future time.

10

Chapter 4

The issuing company

Introduction

180     

Overview of Chapter

The issuing company is a qualifying company in relation to the relevant shares

15

if the requirements of this Chapter are met as to—

(a)   

trading (see section 181),

(b)   

the issuing company to carry on the qualifying business activity (see

section 183),

(c)   

unquoted status (see section 184),

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(d)   

control and independence (see section 185),

(e)   

gross assets (see section 186),

(f)   

qualifying subsidiaries (see section 187), and

(g)   

property managing subsidiaries (see section 188).

The requirements

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181     

The trading requirement

(1)   

The issuing company must meet the trading requirement throughout period B.

(2)   

The trading requirement is that—

(a)   

the company, ignoring any incidental purposes, exists wholly for the

purpose of carrying on one or more qualifying trades, or

30

(b)   

the company is a parent company and the business of the group does

not consist wholly or as to a substantial part in the carrying on of non-

qualifying activities.

(3)   

If the company intends that one or more other companies should become its

qualifying subsidiaries with a view to their carrying on one or more qualifying

35

trades—

(a)   

the company is treated as a parent company for the purposes of

subsection (2)(b), and

(b)   

the reference in subsection (2)(b) to the group includes the company

and any existing or future company that will be its qualifying

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subsidiary after the intention in question is carried into effect.

 
 

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 4 — The issuing company

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This subsection does not apply at any time after the abandonment of that

intention.

(4)   

For the purpose of subsection (2)(b) the business of the group means what

would be the business of the group if the activities of the group companies

taken together were regarded as one business.

5

(5)   

For the purpose of determining the business of a group, activities 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 a group

company are ignored so far as they consist in—

10

(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,

(c)   

the holding and managing of property used by a group company for

the purpose of one or more qualifying trades carried on by a group

15

company, or

(d)   

the holding and managing of property used by a group company for

the purpose of research and development from which it is intended—

(i)   

that a qualifying trade to be carried on by a group company will

be derived, or

20

(ii)   

that a qualifying trade carried on or to be carried on by a group

company will benefit.

(7)   

Any reference in subsection (6)(d)(i) or (ii) to a group company includes a

reference to any existing or future company which will be a group company at

any future time.

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(8)   

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 company in question,

“mainly trading subsidiary” means a qualifying subsidiary which, apart

30

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

“non-qualifying activities” means—

(a)   

excluded activities, and

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(b)   

activities (other than research and development) carried on

otherwise than in the course of a trade.

(9)   

This section is supplemented by section 189 (meaning of “qualifying trade”)

and sections 192 to 199 (excluded activities).

182     

Ceasing to meet trading requirement because of administration or

40

receivership

(1)   

A company is not regarded as ceasing to meet the trading requirement merely

because of anything done in consequence of the company or any of its

subsidiaries being in administration or receivership.

   

This has effect subject to subsections (2) and (3).

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(2)   

Subsection (1) applies only if—

 
 

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 4 — The issuing company

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(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 a scheme or arrangement

the main purpose or one of the main purposes of which is the avoidance of tax.

5

(3)   

A company ceases to meet the trading requirement if before the end of period

B—

(a)   

a resolution is passed, or an order is made, for the winding up of the

company or any of its subsidiaries (or, in the case of a winding up

otherwise than under the Insolvency Act 1986 (c. 45) or the Insolvency

10

(Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), any other act is

done for the like purpose), or

(b)   

the company or any of its subsidiaries is dissolved without winding up.

   

This is subject to subsection (4).

(4)   

Subsection (3) does not apply if the winding up or dissolution is for genuine

15

commercial reasons, and is not part of a scheme or arrangement the main

purpose or one of the main purposes of which is the avoidance of tax.

183     

The issuing company to carry on the qualifying business activity requirement

(1)   

The requirement of this section is met in relation to the issuing company if, at

no time in period B, is any of the following—

20

(a)   

the relevant qualifying trade,

(b)   

relevant preparation work (if any), and

(c)   

relevant research and development (if any),

   

carried on by a person other than the issuing company or a qualifying 90%

subsidiary of that company.

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(2)   

Subsection (3) has effect for the purpose of determining whether the

requirement of this section is met in relation to the issuing company in a case

where relevant preparation work is carried out by that company or a

qualifying 90% subsidiary of that company.

(3)   

The carrying on of the relevant qualifying trade by a company other than the

30

issuing company or a subsidiary of that company is to be ignored if it takes

place at any time in period B before the issuing company or any qualifying 90%

subsidiary of that company begins to carry on that trade.

(4)   

The requirement of this section is not regarded as failing to be met in relation

to the issuing company if, merely because of any act or event within subsection

35

(5), the relevant qualifying trade—

(a)   

ceases to be carried on in period B by the issuing company or any

qualifying 90% subsidiary of that company, and

(b)   

is subsequently carried on in that period by a person who is not at any

time in period C connected with the issuing company.

40

(5)   

The following are acts and events within this subsection—

(a)   

anything done as a consequence of the issuing company or any other

company being in administration or receivership, and

(b)   

the issuing company or any other company being wound up, or

dissolved without being wound up.

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(6)   

Subsection (4) applies only if—

 
 

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 4 — The issuing company

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(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,

   

is for genuine commercial reasons, and is not part of a scheme or arrangement

5

the main purpose or one of the main purposes of which is the avoidance of tax.

(7)   

In this section—

“relevant preparation work” means preparations within section 179(2)(b)

which are the subject of the qualifying business activity mentioned in

section 174,

10

“the relevant qualifying trade” means the qualifying trade which is the

subject of that qualifying business activity,

“relevant research and development” means—

(a)   

research and development within section 179(4) which is the

subject of that qualifying business activity, and

15

(b)   

any other preparations for the carrying on of the qualifying

trade which is the subject of that activity.

184     

The unquoted status requirement

(1)   

At the beginning of period B—

(a)   

the issuing company must be an unquoted company,

20

(b)   

there must be no arrangements in existence for the issuing company to

cease to be an unquoted company, and

(c)   

there must be no arrangements in existence for the issuing company to

become a subsidiary of another company (“the new company”) by

virtue of an exchange of shares, or shares and securities, if—

25

(i)   

section 247 applies in relation to the exchange, and

(ii)   

arrangements have been made with a view to the new company

ceasing to be an unquoted company.

(2)   

In this section “unquoted company” means a company none of whose shares,

stocks, debentures or other securities are marketed to the general public.

30

(3)   

For the purposes of subsection (2), shares, stocks, debentures or other securities

are marketed to the general public if they are—

(a)   

listed on the Stock Exchange or a stock exchange that is a recognised

stock exchange by virtue of an order made under section 939,

(b)   

listed on a designated exchange in a country outside the United

35

Kingdom, or

(c)   

dealt in outside the United Kingdom by such means as may be

designated.

(4)   

In subsection (3)(b) and (c) “designated” means designated by an order made

by the Commissioners for Her Majesty’s Revenue and Customs for the

40

purposes of that provision.

(5)   

An order made for the purposes of subsection (3)(b) may designate an

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.

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