|Income Tax Bill - continued||House of Commons|
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Clause 292: Ceasing to meet requirements because of administration or receivership
887. This clause provides a disregard from clauses 290(1) and 291(1) where a company is in administration or receivership and there is no tax avoidance purpose. It is based on paragraph 11A(1) and (3) of Schedule 28B to ICTA.
888. The meanings of "in administration" and "in receivership" are provided by clause 331.
Clause 293: The use of the money raised requirement
889. This clause sets out the times when, and extent and purpose for which, the money raised by the issue of the relevant holding must be intended to be employed or actually employed. It is based on paragraph 6(1) to (2AA) and (3) of Schedule 28B to ICTA.
Clause 294: The relevant company to carry on the relevant qualifying activity requirement
890. This clause contains requirements as to the persons who may carry on the relevant qualifying activity by reference to which the conditions in the preceding clause have been met. It is based on paragraph 6(2AB) to (2AG) of Schedule 28B to ICTA.
891. Subsection (1) links the relevant qualifying activity that it refers to with the use of the money raised from the issue of shares in question. See Change 62 in Annex 1.
Clause 295: The unquoted status requirement
892. This clause requires the relevant company to be unquoted and defines an unquoted company. It is based on paragraph 2 of Schedule 28B to ICTA.
893. The words in brackets in paragraph 2(1), "whether or not it is resident in the United Kingdom" are not rewritten. The words do not add anything to the tests in clause 291.
894. Paragraph 2(5) of Schedule 28B to ICTA which concerns orders made by the Board is not rewritten in this clause. It is instead covered by clause 948 which is based on section 828 of ICTA.
Clause 296: The control and independence requirement
895. This clause requires that:
It is based on paragraph 9 of Schedule 28B to ICTA.
Clause 297: The gross assets requirement
896. This clause sets out the limits that apply to the value of a relevant company's gross assets before and after a share issue. It is based on paragraph 8 of Schedule 28B to ICTA.
897. The requirement differentiates between a "single company" and a "parent company". Both these terms are defined in clause 332.
898. Subsection (3) sets out more clearly what is meant in relation to a group of companies by the "aggregate value at that time of the gross assets" in paragraph 8(2)(b) of Schedule 28B. A similar wording is used in paragraph 12(3) of Schedule 5 to ITEPA (enterprise management incentives).
Clause 298: The qualifying subsidiaries requirement
899. This clause requires that any subsidiary of the relevant company must be a qualifying subsidiary. It is based on paragraphs 3(6) and 10(1) of Schedule 28B to ICTA.
Clause 299: The property managing subsidiaries requirement
900. This clause requires that any property managing subsidiary of the relevant company must also be its qualifying 90% subsidiary. It is based on paragraph 10ZA of Schedule 28B to ICTA.
901. In paragraph 10ZA(3) "land" and "property deriving its value from land" take the meaning in section 776 of ICTA. Subsection (3), applying for the purposes of subsection (2) of the rewritten clause, provides the definition of "property deriving its value from land". "Land" itself is not defined in this Bill and instead relies on the definition in Schedule 1 to the Interpretation Act 1978. See the commentary on clause 705.
Clause 300: Meaning of "qualifying trade"
902. This clause explains the term "qualifying trade". It is based on paragraph 4(1), (2) and (9) and on paragraph 5(4) of Schedule 28B to ICTA.
903. In subsection (1)(b) there is a reference to excluded activities. Excluded activities are set out in clause 303.
904. Subsection (2) provides that the carrying on of any R&D activities is treated as the carrying on of a qualifying trade in certain circumstances. Paragraph (b) of subsection (2) now extends the cases in paragraph (a) in which this treatment occurs. See Change 41 in Annex 1.
905. Subsection (3) provides that preparing to carry out R&D does not count as preparing to carry on a qualifying trade. See Change 63 in Annex 1.
Clause 301: Meaning of "qualifying 90% subsidiary"
906. This clause gives the meaning of "qualifying 90% subsidiary". It is based on paragraph 5A of Schedule 28B to ICTA.
907. The label "qualifying 90% subsidiary" copies EIS clause 190 and replaces "the relevant qualifying subsidiary".
Clause 302: Meaning of "qualifying subsidiary"
908. This clause says what "qualifying subsidiary" means. It is based on paragraph 10 of Schedule 28B to ICTA.
909. The term "51% subsidiary" in this paragraph and elsewhere takes its meaning from the definition in clause 923. This provides a signpost to section 838 of ICTA.
Clause 303: Meaning of "excluded activities"
910. This clause gives the meaning of "excluded activities". It is based on paragraph 4(2) of Schedule 28B to ICTA.
911. The meaning of excluded activities is needed to determine whether a trade is a qualifying trade and the extent to which the business of a group includes non-qualifying activities.
912. Subsection (2) indicates where further detail can be found on certain of the activities listed in subsection (1).
Clause 304: Excluded activities: wholesale and retail distribution
913. This clause supplements clause 303(1)(b). It is based on paragraph 4(3) and (4) of Schedule 28B to ICTA.
914. Subsection (2) makes it clear that there are two sets of determinants, one set establishing what is a trade of wholesale and retail distribution and the other what is an ordinary trade of wholesale and retail distribution.
915. The words "or exposed" before "for sale" have been added in subsection (4). This is intended to reflect the normal description of a trade of retail distribution in United Kingdom statute law.
916. Subsection (5)(b) refers to "the trader" rather than "the company" which is referred to in paragraph 4(3)(c)(ii). See Change 45 in Annex 1.
Clause 305: Excluded activities: leasing of ships
917. This clause supplements clause 303(1)(d). It is based on paragraph 4(7) and (8) and paragraph 5(1) of Schedule 28B to ICTA.
918. Subsection (2) uses as its model paragraph 18(2) of Schedule 5 to ITEPA (enterprise management incentives). This additional material, which is not in the source legislation, makes it clear that the requirements of subsection (4) do not have to be met in relation to offshore installations and pleasure craft.
919. Change 43 in Annex 1 applies for the purposes of subsection (7). See the commentary on clause 290(7).
Clause 306: Excluded activities: receipt of royalties and licence fees
920. This clause supplements clause 303(1)(e). It is based on paragraph 4(5) to (6D) of Schedule 28B to ICTA.
Clause 307: Excluded activities: property development
921. This clause supplements clause 303(1)(g). It is based on paragraph 5(1), (5) and (7) of Schedule 28B to ICTA.
Clause 308: Excluded activities: hotels and comparable establishments
922. This clause supplements clause 303(1)(j). It is based on paragraph 4(3A) and paragraph 5(6) of Schedule 28B to ICTA.
Clause 309: Excluded activities: nursing homes and residential care homes
923. This clause supplements clause 303(1)(k). It is based on paragraph 4(3A) and paragraph 5(1) of Schedule 28B to ICTA.
Clause 310: Excluded activities: provision of services or facilities for another business
924. This clause treats the provision of services or facilities as excluded activities if:
It is based on paragraph 4(2) and paragraph 5(2) to (4) of Schedule 28B to ICTA.
925. The clause is written in terms of a "business". The way the definition of a trade in paragraph 5(4), governing paragraph 4 and 5 of Schedule 28B, is applied within those sections has been simplified. See Change 64 in Annex 1
Clause 311: Power to amend Chapter
926. This clause allows the Treasury to make orders amending the provisions mentioned in the clause. It is based on paragraph 12 of Schedule 28B to ICTA.
Clause 312: Winding up of the relevant company
927. This clause provides that if the requirements of this Chapter would be met but for the winding up of the relevant company, they are treated as met. The winding up must be commercial and not entered into for tax avoidance purposes. It is based on paragraph 11 of Schedule 28B to ICTA.
928. This supplements the provisions on winding up in clause 294(4) and (5) in relation to the relevant company or any other company (in this case this extends to a dissolution too) and in clause 302(3) in relation to a qualifying subsidiary or any other company.
Clause 313: Interpretation of Chapter
929. This clause provides an interpretation for certain terms used in this Chapter. It is based on paragraphs 1(1), 5(4) and 13 of Schedule 28B to ICTA.
930. Subsection (3) excepts references to a trade in certain sections in this Chapter from the extended meaning of "trade" in clause 923, based on the definition in section 832(1) of ICTA. See the commentary on clause 310 and Change 64 in Annex 1.
Chapter 5: Powers: winding up and mergers of VCTs
931. This Chapter gives the Treasury power to make regulations for cases where a VCT is liquidated or two or more VCTs merge. Any such regulations will mainly ensure that reliefs available to shareholders in a VCT are "protected" in the cases that they cover.
932. These powers have been used in making the Venture Capital Trust (Winding up and Mergers) (Tax) Regulations 2004 (SI 2004/2199).
Clause 314: Power to treat VCT-in-liquidation as VCT
933. This clause allows regulations to treat a VCT-in-liquidation as if it remained a VCT and withdrawal of its VCT approval as taking place at a time different to when withdrawal actually takes place. It is based on paragraph 2 of Schedule 33 to FA 2002.
Clause 315: Power to treat conditions for VCT approval as met with respect to VCT-in-liquidation
934. This clause allows regulations to treat a VCT-in-liquidation as if it met conditions in clause 274(2). It is based on paragraph 3 of Schedule 33 to FA 2002.
Clause 316: Power to make provision about distributions by VCT-in-liquidation
935. This clause allows regulations to apply, disapply or modify the way in which tax enactments affect distributions by a VCT-in-liquidation. It is based on paragraph 4 of Schedule 33 to FA 2002.
Clause 317: Power to facilitate disposal to VCT by VCT-in-liquidation
936. This clause allows regulations to be made that have the effect of treating certain holdings acquired by a VCT, from a VCT-in-liquidation, as if those holdings were qualifying holdings of the acquiring VCT. It is based on paragraph 5 of Schedule 33 to FA 2002.
Clause 318: Power in respect of periods before and after winding up
937. This clause extends the powers in the preceding clauses to periods before and after a company becomes a VCT-in-liquidation. It is based on paragraph 6 of Schedule 33 to FA 2002.
Clause 319: Sections 314 to 318: supplementary
938. This clause supplements the preceding clauses. It is based on paragraph 7(1), (2) and (5) of Schedule 33 to FA 2002.
Clause 320: Meaning of "VCT-in-liquidation"
939. This clause provides a definition and allows regulations to specify when winding up starts or ends in certain cases. It is based on paragraph 1 of Schedule 33 to FA 2002.
Clause 321: Power to facilitate mergers of VCTs
940. This clause, in the case of certain mergers of VCTs, allows regulations to be made covering matters set out in clause 322. It is based on paragraph 8(1) and (2) of Schedule 33 to FA 2002.
Clause 322: Provision that may be made by regulations under section 321
941. This clause sets out what regulations under clause 321 may provide. It is based on paragraph 9 of Schedule 33 to FA 2002.
Clause 323: Meaning of "merger" and "successor company"
942. This clause defines certain terms for the purposes of the Chapter. It is based on paragraph 10 of Schedule 33 to FA 2002.
Clause 324: Regulations under Chapter
943. This clause sets out further matters that may be dealt with by regulations under this Chapter. It is based on paragraph 16 of Schedule 33 to FA 2002.
Clause 325: Interpretation of Chapter
944. This clause defines some terms used in this Chapter. It is based on paragraph 17 of Schedule 33 to FA 2002.
Chapter 6: Supplementary and general
945. This Chapter:
Clause 326: Restructuring to which section 327 applies
946. This clause sets out the conditions for clause 327 to apply (treating some requirements in Chapter 4 (qualifying holdings) as met) where a company is issued with a holding in a new company (Newco) in exchange for a qualifying holding in another company (Oldco). The clause also sets out limitations on such application of clause 327. It is based on paragraph 10C(1) to (3), (11) and (13) of Schedule 28B to ICTA.
947. These provisions are similar to provisions in Part 5 (Enterprise investment scheme) under which, assuming that EIS relief is attributable to shares in Oldco held by an individual, the EIS relief would carry over to the shares in Newco received by the individual in exchange (see clause 247). Companies do not get EIS relief or VCT relief for a holding in Oldco. But the company's holding in Oldco may represent a "qualifying holding" and thus influence the VCT approval of that company. This clause may permit the company's holding in Newco (received in exchange for the holding in Oldco) to be treated as a qualifying holding.
Clause 327: Certain requirements of Chapter 4 to be treated as met
948. This clause sets out the requirements of Chapter 4 (qualifying holdings) that are treated as met, and the periods for which they are so treated, in cases to which this clause applies. It is based on paragraph 10C(4) to (10) of Schedule 28B to ICTA.
949. If this clause applies, a holding in Newco may be treated as a qualifying holding of a company where that holding has been received in exchange for a qualifying holding in Oldco.
Clause 328: Supplementary
950. This clause extends the previous two clauses so that they apply to securities as well as shares and defines certain terms. It is based on paragraph 10C(12) and (14) to (17) of Schedule 28B to ICTA.
Clause 329: Conversion of convertible shares and securities
951. This clause sets out cases in which shares in company A, acquired by company B on the conversion of other shares or securities in company A, can be treated as meeting certain requirements in Chapter 4 (qualifying holdings). It is based on paragraph 10D of Schedule 28B to ICTA.
952. If this clause applies, the shares in company A acquired on the conversion may be treated as part of company B's qualifying holdings.
Clause 330: Power to facilitate company reorganisations etc involving exchange of shares
953. This clause allows regulations to be made which treat certain requirements in Chapter 4 (qualifying holdings) as met where company reorganisations involve the replacement of shares or securities that meet those requirements with shares or securities that do not. It is based on paragraph 11B of Schedule 28B to ICTA.
954. This power has been used in making the Venture Capital Trust (Exchange of Shares and Securities) Regulations 2002 (SI 2002/2661).
Clause 331: Meaning of a company being "in administration" or "in receivership"
955. This clause explains references to a company being in administration or in receivership. It is based on paragraphs 6(2AH), 10(4C) and 11A(2) of Schedule 28B to ICTA.
956. Paragraph 11A(1) and (3) is rewritten in clause 292.
957. The reference to Northern Ireland legislation in subsection (2)(a) takes into account amendments to the Insolvency (Northern Ireland) Order 1989 by the Insolvency (Northern Ireland) Order 2005. The reference in subsection (2)(b) to the law of a country or territory outside the United Kingdom accords with the insolvency law in force in Great Britain and in Northern Ireland. See Change 56 in Appendix 1.
Clause 332: Minor definitions etc
958. This clause contains various definitions that apply to the whole Part. It is based on sections 842(4) and 842AA(11) of, and paragraph 6(2) of Schedule 15B and paragraph 5(1) and (5) of Schedule 28B to, ICTA and paragraph 17 of Schedule 33 to FA 2002. Other definitions are new.
959. A single definition of "company" and "shares" is applied for the whole Part. That follows their usage for investment trusts (section 842 of ICTA) from which various provisions are applied in this Part (section 842AA(11)). As the general application of these two definitions is not explicit this might represent a change in the law. See Change 65 in Appendix 1.
960. The definitions of "group", "group company", "parent company" and "single company" are new.
Part 7: Community investment tax relief
961. This Part provides for community investment tax relief, that is income tax reductions to individuals for investments in community development finance institutions (CDFIs). It is based on Schedule 16 to FA 2002.
962. Schedule 16 to FA 2002 continues in force so far as it relates to relief for companies by way of reduction of corporation tax.
963. Schedule 1 to this Bill inserts new sections 151BA, 151BB and 151BC in TCGA, which replace paragraphs 40 and 41 of Schedule 16 to FA 2002 and, so far as they apply for purposes of capital gains tax or corporation tax on chargeable gains, paragraphs 47 and 48(2) of that Schedule. Paragraphs 47(1) to (4), (7) and (8) and 48(2) of Schedule 16 to FA 2002 continue in force for the purposes of corporation tax relief under that Schedule. Clauses 377 and 379(2) are based on those paragraphs for the purposes of income tax relief under this Part.
Chapter 1: Introduction
964. This Chapter quantifies the tax reduction potentially available to an individual, labels certain concepts and provides signposts to material contained elsewhere.
Clause 333: Meaning of "CITR"
965. This clause sets out a general description of the nature of the relief, an entitlement to tax reductions, and defines it as "CITR". It is based on paragraph 51(1) of Schedule 16 to FA 2002.
Clause 334: Eligibility for CITR
966. This clause summarises the general conditions which need to be met for an individual ("the investor") to be eligible for CITR. It is based on paragraph 1 of Schedule 16 to FA 2002.
Clause 335: Form and amount of CITR
967. This clause specifies the amount of the income tax reduction available and the tax years for which it may be claimed. It is based on paragraph 19 of Schedule 16 to FA 2002.
968. The provision in paragraph 19(2) of Schedule 16 to FA 2002 (limiting the tax reduction to the amount which reduces the investor's tax liability to nil) has not been included in this clause. Subsection (2) is expressed simply in terms that the investor is entitled to a tax reduction for the relevant tax year of 5% of the amount invested. The provision limiting the tax reduction is included in clause 29(2) (tax reductions: supplementary).
969. The provisions of paragraph 19(6) of Schedule 16 to FA 2002 are included in clause 27(4) (order of deducting tax reductions: individuals). That clause sets out the order of priority of all the tax reductions (including CITR) that may be available to an individual.
Clause 336: Meaning of "making an investment"
970. This clause provides that an investment in a CDFI may take the form of a loan or an issue of securities or shares. It is based on paragraph 2 of Schedule 16 to FA 2002.
Clause 337: Determination of "the invested amount"
971. This clause sets out rules for determining the amount invested for the purposes of clause 335. In particular, it deals with the complications which arise where a loan may be drawn down in tranches, by requiring the average capital balance of the loan in relation to the tax year to be calculated. It is based on paragraph 21 of Schedule 16 to FA 2002.
Clause 338: Meaning of "the 5 year period" and "the investment date"
972. This clause provides the definitions of two significant terms. It is based on paragraph 3 of Schedule 16 to FA 2002. "The 5 year period", which begins with "the investment date", is the period during which conditions as to the repayment or redemption of the investment are imposed.
Clause 339: Overview of other Chapters of Part
973. This clause indicates the subject matter of the Chapters of this Part not previously mentioned in Chapter 1. It is new.
Chapter 2: Accredited community development finance institutions
974. For an investment in a CDFI to qualify for relief, the CDFI must be accredited by the Secretary of State. Part 2 of Schedule 16 to FA 2002 sets out the criteria for accreditation. It also contains powers to determine the manner of making applications and the terms and conditions of accreditation, and authorises delegation of the Secretary of State's functions. These functions have been assigned to the Secretary of State for Trade and Industry.
975. This Chapter is based on Part 2 of Schedule 16 to FA 2002. So that there is only one set of provisions relating to accreditation, Schedule 1 to this Bill substitutes for paragraphs 4 to 7 of Schedule 16 to FA 2002 a new paragraph 4 applying Chapter 2 of this Part for the purposes of corporation tax relief for companies under that Schedule.
Clause 340: Application and criteria for accreditation
976. This clause sets out the way in which an application for accreditation as a CDFI is to be made and the basis on which it is to be admitted. It is based on paragraph 4 of Schedule 16 to FA 2002.
977. Subsection (2)(b) contains powers for the Treasury to make regulations. Under the powers in paragraphs 4 and 5 of Schedule 16 to FA 2002, the Treasury have made the Community Investment Tax Relief (Accreditation of Community Development Finance Institutions) Regulations 2003 (SI 2003/96).
978. Regulations may make different provision for bodies whose principal objective in providing finance is to invest in enterprises whose business does not consist of financing other enterprises or does so only to the extent permitted by the regulations. If such a body is accredited, it is designated as a retail community development finance institution (a "retail CDFI"). See subsections (6)(b) to (8).
979. The distinction between a retail CDFI and an accredited CDFI which is not a retail CDFI (a "wholesale CDFI") is relevant to the limits on the total value of investments which a CDFI can make for an accreditation period and which are set out in clause 348(4). SI 2003/96 provides different limits on the value of investments which a retail CDFI and a wholesale CDFI may make in any enterprise.
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