Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 7 — Community investment tax relief
Chapter 1 — Introduction
183

(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
336
Meaning of “making an investment”
5
(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
(b)
an issue of securities of or shares in the body, for which the individual
10
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—
(a)
the body uses overdraft facilities provided by the individual, or
15
(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
amount is drawn down.
20
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”
in certain cases where value is received).
25
(2)
In the case of a loan, the invested amount is—
(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
30
(c)
for any subsequent tax year—
(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
35
beginning 18 months after the investment date.
(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
40
period.

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

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.
5
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
10
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
15
(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—
20
(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
25
(b)
that the body meets any other criteria specified in regulations made by
the Treasury.
(3)
For the purposes of this section “enterprises for disadvantaged communities”
include—
(a)
enterprises located in disadvantaged areas, and
30
(b)
enterprises owned or operated by, or designed to serve, members of
disadvantaged groups.
(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.
35
(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
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
40
relation to different areas, and

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

(b)
may, in particular, make different provision in the case of bodies whose
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
5
invested in it for the purposes of its business and either—
(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.
10
(8)
If the Secretary of State accredits a body of a kind mentioned in subsection
(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—
15
(a)
be made on—
(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—
20
(i)
any requirements imposed by regulations, and
(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.
25
(3)
Regulations may—
(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—
30
(i)
provision for the withdrawal of the accreditation with effect
from the time of the failure or a later time, and
(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
35
regulations,
(d)
make different provision for different cases or circumstances or in
relation to different areas, and
(e)
contain incidental, supplemental, consequential and transitional
provision and savings.
40
(4)
In this section “regulations” means regulations made by the Treasury.
342
Period of accreditation
(1)
An accreditation has effect for a period (an “accreditation period”) of 3 years
beginning on the day specified in the accreditation.

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Part 7 — Community investment tax relief
Chapter 3 — Qualifying investments
186

(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
application is made, the day the accreditation is granted, and
(b)
if the body is so accredited, the time the body’s current accreditation
5
expires.
(3)
Subsection (4) applies if—
(a)
the body is accredited at the time the application is made, and
(b)
it makes a request under this subsection.
(4)
The new accreditation may specify that the existing accreditation is to be
10
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).
(5)
This section has effect subject to section 341(3)(b) (power to provide for the
withdrawal of accreditation).
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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.
Chapter 3
Qualifying investments
20
344
Qualifying investments: introduction
For the purposes of this Part the investment is a “qualifying investment” in the
CDFI if—
(a)
the investment consists of—
(i)
a loan in relation to which the conditions of section 345 are met,
25
(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,
(b)
the investor receives from the CDFI a valid tax relief certificate in
relation to the investment (see section 348), and
30
(c)
the requirements of section 349 (no pre-arranged protection against
risks) are met.
345
Conditions to be met in relation to loans
(1)
Condition A of this section is that either—
(a)
the CDFI receives from the investor, on the investment date, the full
35
amount of the loan, or
(b)
if the loan agreement authorises the CDFI to draw down amounts of the
loan over a period of time, the end of that period is not later than 18
months after the investment date.

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Part 7 — Community investment tax relief
Chapter 3 — Qualifying investments
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(2)
Condition B is that the loan must not carry any present or future right to be
converted into or exchanged for a loan which is, or securities, shares or other
rights which are, redeemable within the 5 year period.
(3)
Condition C is that the loan must not have been made on terms that allow any
person to require—
5
(a)
the repayment during the first two years of the 5 year period of any of
the loan capital advanced in those two years,
(b)
the repayment during the third year of that period of more than 25% of
the loan capital outstanding at the end of those two years,
(c)
the repayment before the end of the fourth year of that period of more
10
than 50% of that loan capital, or
(d)
the repayment before the end of that period of more than 75% of that
loan capital.
(4)
Subsection (3) does not apply if the CDFI is required to make the repayment as
a result of its failure to meet any obligation of the loan agreement which—
15
(a)
is imposed merely because of the commercial risks to which the
investor is exposed as lender under that agreement, and
(b)
is no more likely to be breached than any obligation that might
reasonably have been agreed in respect of the loan in the absence of this
Part.
20
(5)
The Treasury may by order substitute any other percentage for any percentage
for the time being specified in subsection (3).
(6)
Any such substitution is to have effect in relation to loans made by an
individual on or after the date specified in the order.
346
Conditions to be met in relation to securities
25
(1)
Condition A of this section is that the securities must be—
(a)
subscribed for wholly in cash, and
(b)
fully paid for on the investment date.
(2)
Condition B is that the securities must not carry—
(a)
any present or future right to be redeemed within the 5 year period, or
30
(b)
any present or future right to be converted into or exchanged for a loan
which is, or securities, shares or other rights which are, redeemable
within that period.
(3)
Securities are not fully paid for the purposes of subsection (1)(b) if there is any
undertaking to pay cash to the CDFI at a future date in connection with the
35
acquisition of the securities.
347
Conditions to be met in relation to shares
(1)
Condition A of this section is that the shares must be—
(a)
subscribed for wholly in cash, and
(b)
fully paid up on the investment date.
40
(2)
Condition B is that the shares must not carry—
(a)
any present or future right to be redeemed during the 5 year period, or

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Part 7 — Community investment tax relief
Chapter 3 — Qualifying investments
188

(b)
any present or future right to be converted into or exchanged for a loan
which is, or securities, shares or other rights which are, redeemable
within that period.
(3)
Shares are not fully paid up for the purposes of subsection (1)(b) if there is any
undertaking to pay cash to the CDFI at a future date in connection with the
5
acquisition of the shares.
348
Tax relief certificates
(1)
A “tax relief certificate” means a certificate issued by the CDFI in respect of the
investment which is in the form specified by the Commissioners for Her
Majesty’s Revenue and Customs.
10
(2)
The CDFI must not issue tax relief certificates under this section in respect of
investments made in the CDFI in an accreditation period if the total value of—
(a)
those investments, and
(b)
any investments to which subsection (3) applies,

will exceed the limit for that period.
15
(3)
This subsection applies to investments which—
(a)
have been made in the CDFI in the accreditation period, and
(b)
in respect of which the CDFI has issued tax relief certificates under
paragraph 12 of Schedule 16 to FA 2002 (which makes in relation to
corporation tax provision corresponding to that made by this section).
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(4)
The limit for an accreditation period is—
(a)
£10 million if the CDFI is accredited for the period as a retail
community development finance institution (see section 340(8)), and
(b)
£20 million in any other case.
(5)
For the purposes of subsection (2) the value of an investment made in the CDFI
25
is—
(a)
if the investment consists of a loan—
(i)
the amount of the loan, or
(ii)
if the loan agreement authorises the CDFI to draw down
amounts of the loan over a period of time, the amount
30
committed under the loan agreement, and
(b)
if the investment consists of securities or shares, the amount subscribed
for them.
(6)
The Treasury may by order substitute any other amount for any amount for the
time being specified in subsection (4).
35
(7)
Any such substitution is to have effect in relation to such accreditation periods
as may be specified in the order; and those periods may, if the substitution
increases the amount for the time being specified in subsection (4), include
periods beginning before the order takes effect.
(8)
Any tax relief certificate issued in contravention of subsection (2) is invalid.
40
(9)
A body is liable to a penalty of not more than £3,000 if it issues a tax relief
certificate which is made fraudulently or negligently.