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
151

Withdrawal of approval
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—
5
(a)
that the conditions for the approval of the company were not met at the
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
10
is one which will not be, or has not been, met in relation to that period,
(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—
15
(i)
the period of 3 years mentioned in that paragraph, or
(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
20
that money will not be ignored will be a period in relation to
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
25
relation to, or to any part of, an accounting period for which the
use of that money falls to be ignored, or
(e)
that—
(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
30
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
approval, was allowed for in relation to that period by virtue of
section 275(2).
35
(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.
(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conferred by section 275(2), the approval is withdrawn at a time before all of
40
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
(b)
in relation to successive complete accounting periods constituting a
continuous period of at least 12 months,
45

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
may specify a time falling before the time mentioned in subsection (2) as the

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 3 — VCT approvals
152

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
accounting period in relation to which it appears to the Commissioners that the
5
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
may be made at any time before the end of the period of 3 years beginning with
10
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
approval of a company to be treated—
15
(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,

as having taken effect as from a time specified in the notice of withdrawal that
20
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.
(3)
Section 324 applies in relation to—
25
(a)
regulations under subsection (1), 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.
Supplementary
30
283
Time as from which VCT approval has effect
(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
35
approval, they may stipulate that the approval is to have effect as from the time
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
40
the procedure to be followed in relation to any such applications and
the giving of such approvals,

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

(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
force are no longer met,
5
(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
companies, and
10
(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
holding”.
15
(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
to the company on terms which allow any person to require—
20
(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
may be, the issue of the stock or security, or
25
(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
repaid, or the stock or security to be re-purchased or redeemed, within
that period.

But see sections 317(4) and 328(2).
30
(3)
In this Chapter “eligible shares”, in relation to a company, means ordinary
shares in the company which carry—
(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.
35
(4)
Any reference in this Chapter to a company’s investments is taken to include,
so far as it would not otherwise do so—
(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.
40
(5)
For the purposes of subsection (4)(b) a company has “account-holder’s rights”
over a sum owed to the company if—
(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,
45
and
(b)
the sum is owed to the company—

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
154

(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
5
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.
10
Chapter 4
Qualifying holdings
Introduction
286
Qualifying holdings: introduction
(1)
If any shares in or securities of any company (“the relevant company”) are at
15
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
20
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
(b)
the relevant holding consists of shares or securities which were first
issued by the relevant company to the investing company and have
25
been held by the investing company ever since.
(3)
The requirements are those imposed as to—
(a)
maximum qualifying investment (see section 287),
(b)
no guaranteed loan (see section 288),
(c)
proportion of eligible shares (see section 289),
30
(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),
(g)
the relevant company carrying on the relevant qualifying activity (see
section 294),
35
(h)
unquoted status (see section 295),
(i)
control and independence (see section 296),
(j)
gross assets (see section 297),
(k)
qualifying subsidiaries (see section 298), and
(l)
property managing subsidiaries (see section 299).
40
(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

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
155

(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
5
(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
10
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
15
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.
20
(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
(b)
the amount of money raised by those shares or securities is to be
25
ignored for the purposes of any subsequent application of subsection
(2).
(4)
For the purposes of this section, if there is any question as to whether any
shares in or securities of the relevant company which are for the time being
held by the investing company represent an investment in excess of the
30
maximum qualifying investment for any period, that question is determined
on the following assumption in relation to disposals by the investing company.
(5)
The assumption is that, as between shares or securities of the same description,
those which represent the whole or any part of the excess are disposed of
before those which do not.
35
(6)
Subsection (7) applies if—
(a)
at the time of the issue of the relevant holding the relevant company or
any of its qualifying subsidiaries was a member of a partnership or a
party to a joint venture,
(b)
the trade which meets the requirement of section 291 was at that time
40
being carried on, or to be carried on, by those partners in partnership or
by the parties to the joint venture, and
(c)
the other partners or parties to the joint venture include at least one
other company.

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Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
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(7)
If this subsection applies, this section has effect in relation to the relevant
company as if the sum of money for the time being specified in subsection (2)
were to be divided by the number of companies (including the relevant
company) which, at the time when the relevant holding was issued, were
members of the partnership or, as the case may be, parties to the joint venture.
5
(8)
For the purposes of this section “the relevant period” is the period beginning
with whichever is the earlier of—
(a)
the time 6 months before the issue of the relevant holding, and
(b)
the beginning of the tax year in which the issue of that holding took
place,
10

and (in either case) ending with the issue of that holding.
288
The no guaranteed loan requirement
(1)
The requirement of this section is that there are no securities relating to a
guaranteed loan in the relevant holding.
(2)
For the purposes of this section, a security relates to a guaranteed loan if (and
15
only if) there are arrangements for the investing company to be or to become
entitled to receive anything (whether directly or indirectly) from a third party
in the event of the failure by any person to comply with—
(a)
the terms of the loan to which the security relates, or
(b)
the terms of the security.
20
(3)
For the purposes of subsection (2) it does not matter whether the arrangements
apply in all cases of a failure to comply or only in some such cases.
(4)
For the purposes of this section “third party” means any person except—
(a)
the relevant company, and
(b)
if the relevant company is a parent company that meets the trading
25
requirement in section 290(1)(b), the subsidiaries of that company.
289
The proportion of eligible shares requirement
(1)
The requirement of this section is that eligible shares represent at least 10% by
value of the totality of the shares in or securities of the relevant company
(including the relevant holding) which are held by the investing company.
30
(2)
For the purposes of this section the value at any time of any shares in or
securities of a company is taken (subject to subsection (4)) to be their value
immediately after—
(a)
any relevant event occurring at that time, or
(b)
if no relevant event occurs at that time, the last relevant event to occur
35
before that time.
(3)
In subsection (2) “the relevant event”, in relation to any shares in or securities
of the relevant company, means—
(a)
the acquisition by the investing company of those shares or securities,
(b)
the acquisition by the investing company of any other shares in or
40
securities of the relevant company which—
(i)
are of the same description as those shares or securities, and
(ii)
are acquired by the investing company otherwise than by being
allotted to the investing company without its being liable to
give any consideration, or
45

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
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(c)
the making of any such payment in discharge, in whole or in part, of
any obligation attached to any shares in or securities of the relevant
company held by the investing company as (by discharging that
obligation) increases the value of any such shares or securities.
(4)
If at any time the value of any shares or securities held by the investing
5
company is less than the consideration given by the investing company for
those shares or securities, it is to be assumed for the purposes of this section
that the value of the shares or securities at that time is equal to the amount of
that consideration.
(5)
In this section “eligible shares” has the same meaning as in Chapter 3 (see
10
section 285(3)).
290
The trading requirement
(1)
The requirement of this section is that—
(a)
the relevant company, ignoring any incidental purposes, exists wholly
for the purpose of carrying on one or more qualifying trades, or
15
(b)
the relevant 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.
(2)
If the relevant company intends that one or more other companies should
become its qualifying subsidiaries with a view to their carrying on one or more
20
qualifying trades—
(a)
the relevant company is treated as a parent company for the purposes
of subsection (1)(b), and
(b)
the reference in subsection (1)(b) to the group includes the relevant
company and any existing or future company that will be its qualifying
25
subsidiary after the intention in question is carried into effect.

This subsection does not apply at any time after the abandonment of that
intention.
(3)
For the purposes of subsection (1)(b) the business of the group means what
would be the business of the group if the activities of the group companies
30
taken together were regarded as one business.
(4)
For the purpose of determining the business of a group, activities are ignored
so far as they are carried on by a mainly trading subsidiary otherwise than for
its main purpose.
(5)
For the purpose of determining the business of a group, activities of a group
35
company are ignored so far as they consist in—
(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, or
(c)
the holding and managing of property used by a group company for
40
the purpose of one or more qualifying trades carried on by a group
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
45
be derived, or