Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 1 — Limit on number of employees of company in which investment is made
202

Venture capital trusts
3     (1)
Part 6 of ITA 2007 is amended as follows.
      (2)
In section 286(3) (qualifying holdings: introduction) after paragraph (j)
insert—
“(ja)
number of employees (see section 297A),”.
5
      (3)
After section 297 insert—
“297A
The number of employees requirement
(1)
If the relevant company is a single company, the full-time equivalent
employee number for it must be less than 50 when the relevant
holding is issued.
10
(2)
If the relevant company is a parent company, the sum of—
(a)
the full-time equivalent employee number for it, and
(b)
the full-time equivalent employee numbers for each of its
qualifying subsidiaries,

must be less than 50 when the relevant holding is issued.
15
(3)
The full-time equivalent employee number for a company is
calculated as follows—

Step 1

Find the number of full-time employees of the company.

Step 2
20

Add, for each employee of the company who is not a full-time
employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.
(4)
In this section references to an employee—
(a)
include a director, but
25
(b)
do not include—
(i)
an employee on maternity or paternity leave, or
(ii)
a student on vocational training.”
      (4)
In section 327 (certain requirements of Chapter 4 to be treated as met)—
(a)
in subsection (1), at the end insert “, and
30
section 297A (the number of employees requirement).”;
(b)
in subsection (4)(b) for “and 297” substitute “, 297 and 297A”.
      (5)
This paragraph is deemed to have come into force on 6th April 2007.
      (6)
The amendments made by this paragraph do not have effect in relation to—
(a)
a relevant holding issued before that date, or
35
(b)
a relevant holding acquired by a company (“the investing company”)
by means of the investment of protected money.
      (7)
For the purposes of sub-paragraph (6)(b), “protected money” is—
(a)
money raised by the issue before 6th April 2007 of shares in or
securities of the investing company, or
40
(b)
money derived from the investment of such money.

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

Part 2
Limit on amount raised annually by company through risk capital schemes
Corporate venturing scheme
4     (1)
Schedule 15 to FA 2000 is amended as follows.
      (2)
In paragraph 34 (introduction to Part) after sub-paragraph (a) insert—
5
“(aa)
the maximum amount raised annually through risk capital
schemes (see paragraph 35A);”.
      (3)
After paragraph 35 insert—
“Requirement as to maximum amount raised annually through risk capital schemes
35A   (1)
The total amount of relevant investments made in the issuing
10
company in the year ending with the date the relevant shares are
issued must not exceed £2 million.
      (2)
In sub-paragraph (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
15
been, a subsidiary of the issuing company (whether or not it was
such a 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
20
(b)
the company issues shares (money having been subscribed
for them), and (at any time) the company provides—
(i)
a compliance statement under paragraph 42, or
(ii)
a compliance statement under section 205 of ITA
2007 (enterprise investment scheme),
25

in respect of the shares.
      (4)
An investment within sub-paragraph (3)(b) is regarded as made
when the shares are issued.”
      (4)
In paragraph 63(1)(a) (withdrawal of relief: interest), after sub-paragraph (i)
insert—
30
“(ia)
paragraph 35A (maximum amount raised annually
through risk capital schemes);”.
Enterprise investment scheme
5     (1)
Part 5 of ITA 2007 is amended as follows.
      (2)
In section 172 (overview of Chapter), after paragraph (a) insert—
35
“(aa)
the maximum amount raised annually through risk capital
schemes (see section 173A),”.

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

      (3)
After section 173 insert—
“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
5
issued must not exceed £2 million.
(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
10
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
15
for them), and (at any time) the company provides—
(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.
20
(4)
An investment within subsection (3)(b) is regarded as made when
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
25
shares issued to the managers of an approved fund which closed before the
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).
Venture capital trusts
30
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),”.
      (3)
After section 292 insert—
35
“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
issued must not exceed £2 million.
40
(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,

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 2 — Limit on amount raised annually by company through risk capital schemes
205

a subsidiary of the relevant company (whether or not it was such a
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
5
(b)
the company issues shares (money having been subscribed
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
10
Schedule 15 to FA 2000 (corporate venturing scheme),

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
15
statement under section 205 above or paragraph 42 of Schedule 15 to
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
20
(b)
ending with the time the compliance statement was
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.
25
      (6)
“Protected money” means—
(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.
Enterprise investment scheme: reinvestment
30
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
the company in the year ending with the date the
35
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
(2)(da).
40
      (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

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

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
5
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.
10
      (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—
15
(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.
20
Part 3
Excluded activities: receipt of royalties and licence fees
Corporate venturing scheme
9     (1)
Paragraph 29 of Schedule 15 to FA 2000 is amended as follows.
      (2)
In sub-paragraph (3), for paragraphs (a) and (b) substitute—
25
“(a)
by the issuing company, or
(b)
by a company which was a qualifying subsidiary of the
issuing company throughout a period during which it
created the whole or greater part (in terms of value) of the
intangible asset.”
30
      (3)
After sub-paragraph (6) insert—
    “(7)
If—
(a)
the issuing company acquired all the shares (“old shares”)
in another company (“the old company”) at a time when
the only shares issued in the issuing company were
35
subscriber shares, and
(b)
the consideration for the old shares consisted wholly of the
issue of shares in the issuing company,

references in sub-paragraph (3) to the issuing company include
the old company.”
40
10
In paragraph 86(2) (substitution of new shares for old shares), after
“Schedule”, in the first place it occurs, insert “(except paragraph 29(7))”.

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 3 — Excluded activities: receipt of royalties and licence fees
207

Enterprise investment scheme
11    (1)
In section 297 of ICTA (qualifying trades)—
(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
5
company throughout a period during which it
created the whole or greater part (in terms of value) of
the intangible asset.”,
(b)
in subsection (5A), omit paragraphs (b) and (c) and the words after
paragraph (c), and
10
(c)
after subsection (5C) insert—
“(5D)
If—
(a)
the company mentioned in section 293(1) (“the
issuing company”) acquired all the shares (“old
shares”) in another company (“the old company”) at a
15
time when the only shares issued in the issuing
company were subscriber shares, and
(b)
the consideration for the old shares consisted wholly
of the issue of shares in the issuing company,

references in subsection (5) above to the company mentioned
20
in section 293(1) include the old company.”
      (2)
In section 304A of that Act (acquisition of share capital by new company)—
(a)
in subsection (3), after “Chapter” insert “(except section 297(5D))”,
and
(b)
in subsection (4), after “Chapter” insert “(except section 297(5D))”.
25
      (3)
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
purposes mentioned in subsection (8), references to the issuing
company are to be read as references to the company mentioned in
30
subsection (1).”
      (4)
In section 576K of that Act (share loss relief: substitution of new shares for
old), after subsection (3) insert—
“(4)
Nothing in subsection (2) applies in relation to section 195(7) of ITA
2007 as applied by section 576B(7) above for the purposes mentioned
35
in section 576B(8).”
      (5)
In section 137 of ITA 2007 (share loss relief: trading requirement for shares
to which EIS relief not attributable), after subsection (8) insert—
“(9)
In section 195 as applied by subsection (7) for the purposes
mentioned in subsection (8), references to the issuing company are to
40
be read as references to the company mentioned in subsection (1).”
      (6)
In section 146 of that Act (share loss relief: substitution of new shares for
old), after subsection (2) insert—
“(3)
Nothing in subsection (2) applies in relation to section 195(7) as
applied by section 137(7) for the purposes mentioned in section
45
137(8).”

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 3 — Excluded activities: receipt of royalties and licence fees
208

      (7)
In section 195 of ITA 2007 (EIS: excluded activities: receipt of royalties and
licence fees)—
(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
5
the issuing company throughout a period during
which it created the whole or greater part (in terms of
value) of the intangible asset.”,
(b)
in subsection (6), omit the definition of “holding company”, and
(c)
after that subsection insert—
10
“(7)
If—
(a)
the issuing company acquired all the shares (“old
shares”) in another company (“the old company”) at a
time when the only shares issued in the issuing
company were subscriber shares, and
15
(b)
the consideration for the old shares consisted wholly
of the issue of shares in the issuing company,

references in subsection (4) to the issuing company include
the old company.”
      (8)
In section 249 of that Act (substitution of new shares for old shares)—
20
(a)
in subsection (2), after “Part” insert “(except section 195(7))”, and
(b)
in subsection (4), after “Part” insert “(except section 195(7))”.
Venture capital trusts
12    (1)
Section 306 of ITA 2007 (qualifying holdings) is amended as follows.
      (2)
In subsection (4), for paragraphs (a) and (b) substitute—
25
“(a)
by the relevant company, or
(b)
by a company which was a qualifying subsidiary of the
relevant company throughout a period during which it
created the whole or greater part (in terms of value) of the
intangible asset.”
30
      (3)
In subsection (6), omit the definition of “holding company”.
      (4)
After that subsection insert—
“(7)
If—
(a)
the relevant company acquired all the shares (“old shares”) in
another company (“the old company”) at a time when the
35
only shares issued in the relevant company were subscriber
shares, and
(b)
the consideration for the old shares consisted wholly of the
issue of shares in the relevant company,

references in subsection (4) to the relevant company include the old
40
company.”
Commencement
13
This Part of this Schedule is deemed to have come into force on 6th April
2007.