Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 2 — Limit on amount raised annually by company through risk capital schemes
203

(ii)
a compliance statement under section 205 of ITA
2007 (enterprise investment scheme),

in respect of the shares.
      (4)
An investment within sub-paragraph (3)(b) is regarded as made
when the shares are issued.”
5
      (4)
In paragraph 63(1)(a) (withdrawal of relief: interest), after sub-paragraph (i)
insert—
“(ia)
paragraph 35A (maximum amount raised annually
through risk capital schemes);”.
Enterprise investment scheme
10
5     (1)
Part 5 of ITA 2007 is amended as follows.
      (2)
In section 172 (overview of Chapter), after paragraph (a) insert—
“(aa)
the maximum amount raised annually through risk capital
schemes (see section 173A),”.
      (3)
After section 173 insert—
15
“173A
The maximum amount raised annually through risk capital schemes
requirement
(1)
The total amount of relevant investments made in the issuing
company in the year ending with the date the relevant shares are
issued must not exceed £2 million.
20
(2)
In subsection (1), the reference to relevant investments made in the
issuing company includes relevant investments made in any
company that is, or has at any time in the year mentioned there been,
a subsidiary of the issuing company (whether or not it was such a
subsidiary when the investment was made).
25
(3)
A “relevant investment” is made in a company if—
(a)
an investment (of any kind) in the company is made by a
VCT, or
(b)
the company issues shares (money having been subscribed
for them), and (at any time) the company provides—
30
(i)
a compliance statement under section 205, or
(ii)
a compliance statement under paragraph 42 of
Schedule 15 to FA 2000 (corporate venturing scheme),

in respect of the shares.
(4)
An investment within subsection (3)(b) is regarded as made when
35
the shares are issued.”
      (4)
In section 239(1) (withdrawal etc of relief: date from which interest is
chargeable), in column 1 of the Table, after “163,” insert “173A”.
      (5)
The amendments made by this paragraph do not have effect in relation to
shares issued to the managers of an approved fund which closed before the
40
day on which this Act is passed.
      (6)
Paragraph 2(5) (meaning of “the managers of an approved fund” etc) applies
for the purposes of sub-paragraph (5).

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 2 — Limit on amount raised annually by company through risk capital schemes
204

Venture capital trusts
6     (1)
Chapter 4 of Part 6 of ITA 2007 (qualifying holdings) is amended as follows.
      (2)
In section 286(3) (introduction) after paragraph (e) insert—
“(ea)
the maximum amount raised annually through risk capital
schemes (see section 292A),”.
5
      (3)
After section 292 insert—
“292A
The maximum amount raised annually through risk capital schemes
requirement
(1)
The total amount of relevant investments made in the relevant
company in the year ending with the date the relevant holding is
10
issued must not exceed £2 million.
(2)
In subsection (1), the reference to relevant investments made in the
relevant company includes relevant investments made in any
company that is, or has at any time in the year mentioned there been,
a subsidiary of the relevant company (whether or not it was such a
15
subsidiary when the investment was made).
(3)
A “relevant investment” is made in a company if—
(a)
an investment (of any kind) in the company is made by a
VCT, or
(b)
the company issues shares (money having been subscribed
20
for them), and (at any time) the company provides—
(i)
a compliance statement under section 205 (enterprise
investment scheme), or
(ii)
a compliance statement under paragraph 42 of
Schedule 15 to FA 2000 (corporate venturing scheme),
25

in respect of the shares.
(4)
For the purposes of subsections (1) and (2), an investment within
subsection (3)(b) is regarded as made when the shares are issued.
(5)
Subsection (6) applies if, by virtue of the provision of a compliance
statement under section 205 above or paragraph 42 of Schedule 15 to
30
FA 2000, the requirement of this section is not met.
(6)
The requirement is to be treated as having been met throughout the
period—
(a)
beginning with the time the relevant holding was issued, and
(b)
ending with the time the compliance statement was
35
provided.”
      (4)
This paragraph is deemed to have come into force on 6th April 2007.
      (5)
The amendments made by this paragraph do not have effect in relation to an
investment made by a VCT of protected money.
      (6)
“Protected money” means—
40
(a)
money raised by the issue on or before 5th April 2007 of shares in or
securities of the VCT, and
(b)
money derived from the investment of such money.

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 3 — Excluded activities: receipt of royalties and licence fees
205

Enterprise investment scheme: reinvestment
7     (1)
Schedule 5B to TCGA 1992 is amended as follows.
      (2)
In paragraph 1 (application of Schedule)—
(a)
in sub-paragraph (2), after paragraph (d) insert—
“(da)
the total amount of relevant investments made in
5
the company in the year ending with the date the
shares are issued does not exceed £2 million,”, and
(b)
after sub-paragraph (5) insert—
    “(6)
Section 173A(3) and (4) of ITA 2007 (meaning of “relevant
investment”) apply for the purposes of sub-paragraph
10
(2)(da).
      (7)
In sub-paragraph (2)(da), the reference to relevant
investments made in the company includes relevant
investments made in a company that is, or has at any time
in the year mentioned there been, a subsidiary of the
15
company (whether or not it was such a subsidiary when
the investment was made).”
      (3)
In paragraph 1A(1) (failure of conditions of application), after “(2)(b)” insert
“or (2)(da)”.
Transitional provision
20
8     (1)
This paragraph applies for the purposes of—
(a)
paragraph 35A of Schedule 15 to FA 2000,
(b)
section 173A of ITA 2007 (including that section as applied by
paragraph 1(6) of Schedule 5B to TCGA 1992), and
(c)
section 292A of ITA 2007.
25
      (2)
References to investments made by a VCT do not include—
(a)
investments made on or before 5th April 2007,
(b)
investments of protected money (as defined by paragraph 6(6)).
      (3)
References to shares in respect of which compliance statements are provided
do not include—
30
(a)
shares issued before the day on which this Act is passed, or
(b)
shares issued to the managers of an approved fund which closed
before that day.
      (4)
Paragraph 2(5) (meaning of “the managers of an approved fund” etc) applies
for the purposes of sub-paragraph (3)(b) above.
35
Part 3
Excluded activities: receipt of royalties and licence fees
Corporate venturing scheme
9
In paragraph 29(3) of Schedule 15 to FA 2000, for paragraphs (a) and (b)
substitute—
40
“(a)
by the issuing company, or

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 3 — Excluded activities: receipt of royalties and licence fees
206

(b)
by a company which was a qualifying subsidiary of the
issuing company at all times during which it created the
intangible asset.”
Enterprise investment scheme
10    (1)
In section 297 of ICTA (qualifying trades)—
5
(a)
in subsection (5), for paragraphs (a) and (b) substitute—
“(a)
by the company mentioned in section 293(1), or
(b)
by a company which was a subsidiary of that
company at all times during which it created the
intangible asset.”, and
10
(b)
in subsection (5A), omit paragraphs (b) and (c) and the words after
paragraph (c).
      (2)
In section 576B of that Act (share loss relief: the trading requirement), after
subsection (8) insert—
“(9)
In section 195 of ITA 2007 as applied by subsection (7) for the
15
purposes mentioned in subsection (8), references to the issuing
company are to be read as references to the company mentioned in
subsection (1).”
      (3)
In section 137 of ITA 2007 (share loss relief: trading requirement for shares
to which EIS relief not attributable), after subsection (8) insert—
20
“(9)
In section 195 as applied by subsection (7) for the purposes
mentioned in subsection (8), references to the issuing company are to
be read as references to the company mentioned in subsection (1).”
      (4)
In section 195 of ITA 2007 (EIS: excluded activities: receipt of royalties and
licence fees)—
25
(a)
in subsection (4), for paragraphs (a) and (b) substitute—
“(a)
by the issuing company, or
(b)
by a company which was a qualifying subsidiary of
the issuing company at all times during which it
created the intangible asset.”;
30
(b)
in subsection (6), omit the definition of “holding company”.
Venture capital trusts
11    (1)
Section 306 of ITA 2007 (qualifying holdings) is amended as follows.
      (2)
In subsection (4), for paragraphs (a) and (b) substitute—
“(a)
by the relevant company, or
35
(b)
by a company which was a qualifying subsidiary of the
relevant company at all times during which it created the
intangible asset.”
      (3)
In subsection (6), omit the definition of “holding company”.
Commencement
40
12
This Part of this Schedule is deemed to have come into force on 6th April
2007.

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 4 — Meaning of “qualifying 90% subsidiary”
207

Transitional provision
13    (1)
This paragraph applies if—
(a)
shares in or securities of a company (“the company”) were issued
before 6th April 2007,
(b)
immediately before that date—
5
(i)
the right to exploit an intangible asset (“the asset”) was vested
in the company or a subsidiary of it (in either case, whether
alone or jointly with others), and
(ii)
the asset was a relevant intangible asset,
(c)
at any time on or after that date, an activity carried on by the
10
company or a subsidiary of it would be an excluded activity by
reason only of the receipt of royalties or licence fees attributable to
the exploitation of the asset, and
(d)
the activity would not be an excluded activity if the amendments
made by this Part of this Schedule had not been made.
15
      (2)
The activity is to be treated, in relation to those shares or securities, as not
being an excluded activity at that time.
      (3)
In sub-paragraphs (1) and (2), references to an excluded activity are to be
read—
(a)
for the purposes of Chapter 3 of Part 7 of ICTA (including any
20
provision of that Chapter as applied by any other provision), as
references to—
(i)
an activity within section 293(3B)(a) of ICTA, or
(ii)
an activity within subsection (2) of section 297 of ICTA which
causes a trade to fail to comply with that section,
25
(b)
for the purposes of Schedule 15 to FA 2000, as references to an
excluded activity other than the receiving of royalties or licence fees
within paragraph 29 of that Schedule in circumstances where the
requirements of sub-paragraph (2) of that paragraph are met.
Part 4
30
Meaning of “qualifying 90% subsidiary”
Corporate venturing scheme
14    (1)
Schedule 15 to FA 2000 is amended as follows.
      (2)
In paragraph 23 (trading activities requirement), omit sub-paragraphs (10)
and (11).
35
      (3)
After that paragraph insert—
“Meaning of “qualifying 90% subsidiary”
23A   (1)
For the purposes of this Schedule, a company (“the subsidiary”) is
a qualifying 90% subsidiary of the issuing company if the
following conditions are met—
40
(a)
the issuing company possesses not less than 90% of the
issued share capital of, and not less than 90% of the voting
power in, the subsidiary;

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 4 — Meaning of “qualifying 90% subsidiary”
208

(b)
the issuing company would—
(i)
in the event of a winding up of the subsidiary, or
(ii)
in any other circumstances,

be beneficially entitled to receive not less than 90% of the
assets of the subsidiary which would then be available for
5
distribution to the shareholders of the subsidiary;
(c)
the issuing company is beneficially entitled to not less than
90% of any profits of the subsidiary which are available for
distribution to the shareholders of the subsidiary;
(d)
no person other than the issuing company has control of
10
the subsidiary within the meaning of section 840 of the
Taxes Act 1988;
(e)
no arrangements are in existence by virtue of which any of
the conditions in paragraphs (a) to (d) would cease to be
met.
15
      (2)
Paragraph 21(3) and (4) (effect of receivership etc) apply in
relation to the conditions in sub-paragraph (1) as they apply in
relation to the conditions in paragraph 21(2).
      (3)
If—
(a)
arrangements are in existence for the disposal by the
20
issuing company of all its interest in the subsidiary, and
(b)
the disposal is to be for commercial reasons and is not to be
part of a scheme or arrangement the main purpose of
which, or one of the main purposes of which, is the
avoidance of tax,
25

the subsidiary is not to be regarded as having ceased on that
account to be a qualifying 90% subsidiary of the issuing company.
      (4)
For the purposes of this Schedule, a company (“company A”)
which is a subsidiary of a company that is not the issuing company
(“company B”) is a qualifying 90% subsidiary of the issuing
30
company if—
(a)
company A would be a qualifying 90% subsidiary of
company B (if company B were the issuing company), and
company B is a qualifying 100% subsidiary of the issuing
company; or
35
(b)
company A is a qualifying 100% subsidiary of company B,
and company B is a qualifying 90% subsidiary of the
issuing company.
      (5)
For the purposes of sub-paragraph (4), no account is to be taken of
any control the issuing company may have of company A.
40
      (6)
For those purposes, a company (“company X”) is a qualifying
100% subsidiary of another company (“company Y”) at any time
when the conditions in sub-paragraph (1) would be met if—
(a)
company X were the subsidiary;
(b)
company Y were the issuing company; and
45
(c)
in sub-paragraph (1) for “not less than 90%” in each place
there were substituted “100%”.”

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 4 — Meaning of “qualifying 90% subsidiary”
209

      (4)
In paragraph 103 (index of defined expressions), in the entry relating to the
definition of “qualifying 90% subsidiary”, for “paragraph 23(10) and (11)”
substitute “paragraph 23A”.
Enterprise investment scheme etc
15    (1)
In Chapter 3 of Part 7 of ICTA—
5
(a)
in section 289 (eligibility for relief), for subsections (9) to (13)
substitute—
“(9)
Section 190 of ITA 2007 (meaning of “qualifying 90%
subsidiary”) applies for the purposes of this Chapter.”;
(b)
in section 312(1) (interpretation of Chapter), in the definition of
10
“qualifying 90% subsidiary”, omit “to (13)”.
      (2)
In section 190 of ITA 2007 (EIS: meaning of “qualifying 90% subsidiary”),
after subsection (1) insert—
“(1A)
For the purposes of this Part, a company (“company A”) which is a
subsidiary of another company (“company B”) is a qualifying 90%
15
subsidiary of a third company (“company C”) if—
(a)
company A is a qualifying 90% subsidiary of company B, and
company B is a qualifying 100% subsidiary of company C, or
(b)
company A is a qualifying 100% subsidiary of company B,
and company B is a qualifying 90% subsidiary of company C.
20
(1B)
For the purposes of subsection (1A), no account is to be taken of any
control company C may have of company A.
(1C)
For those purposes, a company (“company X”) is a qualifying 100%
subsidiary of another company (“company Y”) at any time when the
conditions in subsection (1)(a) to (e) would be met if—
25
(a)
company X were the subsidiary,
(b)
company Y were the relevant company, and
(c)
in subsection (1) for “at least 90%” in each place there were
substituted “100%”.”
Venture capital trusts
30
16
In section 301 of ITA 2007, after subsection (1) insert—
“(1A)
For the purposes of this Chapter, a company (“company A”) which
is a subsidiary of a company that is not the relevant company
(“company B”) is a qualifying 90% subsidiary of the relevant
company if—
35
(a)
company A would be a qualifying 90% subsidiary of
company B (if company B were the relevant company), and
company B is a qualifying 100% subsidiary of the relevant
company, or
(b)
company A is a qualifying 100% subsidiary of company B,
40
and company B is a qualifying 90% subsidiary of the relevant
company.
(1B)
For the purposes of subsection (1A), no account is to be taken of any
control the relevant company may have of company A.