Finance Bill

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Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 8 — Venture capital schemes
101

Schedule 8
Section 27

Venture capital schemes
Enterprise investment scheme
1     (1)
Paragraph 9 of Schedule 5B to TCGA 1992 (enterprise investment scheme:
reinvestment) is amended as follows.
5
      (2)
For sub-paragraph (1) substitute—
    “(1)
This paragraph applies if section 135 or 136 (company
reconstructions) applies in relation to shares to which deferral
relief, but not relief under Part 5 of ITA 2007 (or Chapter 3 of Part
7 of the Taxes Act), is attributable.
10
     (1A)
Paragraphs 3 and 4 of this Schedule have effect as if section 135 or
136 did not apply in relation to the shares.”
      (3)
In sub-paragraph (2), for “Sub-paragraph (1) above shall not have effect to
disapply section 135 or 136 where” substitute “Sub-paragraph (1A) does not
apply if”.
15
      (4)
For sub-paragraph (3) substitute—
    “(3)
Sub-paragraph (1A) does not apply if paragraph 8 applies in
relation to the shares.”
2     (1)
Section 158 of ITA 2007 (form and amount of EIS relief) is amended as
follows.
20
      (2)
In subsection (4), omit—
(a)
“Subject to subsection (5),”, and
(b)
“before 6 October”.
      (3)
Omit subsection (5).
3     (1)
Section 175 of that Act (the use of money raised requirement) is amended as
25
follows.
      (2)
For subsection (1) substitute—
“(1)
The requirement of this section is that all of the money raised by the
issue of the relevant shares (other than any of them which are bonus
shares) is, no later than the time mentioned in subsection (3),
30
employed wholly for the purpose of the qualifying business activity
for which it was raised.”
      (3)
In subsection (2), for “requirements in subsection (1)(a) and (b) do”
substitute “requirement in subsection (1) does”.
      (4)
In subsection (3)—
35
(a)
for “subsection (1)(a)” substitute “subsection (1)”, and
(b)
for “12 months” (in both places) substitute “two years”.
Corporate venturing scheme
4     (1)
Paragraph 36 of Schedule 15 to FA 2000 (corporate venturing scheme:
requirement as to money raised) is amended as follows.
40

Finance Bill
Schedule 8 — Venture capital schemes
102

      (2)
In sub-paragraph (1), for “At least 80%” substitute “All”.
      (3)
Omit sub-paragraph (1A).
      (4)
In sub-paragraph (1B), for “12 months” (in both places) substitute “two
years”.
      (5)
In sub-paragraph (1C), for “Sub-paragraphs (1) and (1A) are” substitute
5
“Sub-paragraph (1) is”.
      (6)
In sub-paragraph (5) omit “does not apply and the requirement of sub-
paragraph (1A)”.
Venture Capital Trusts
5     (1)
Section 293 of ITA 2007 (use of the money raised requirement) is amended
10
as follows.
      (2)
For subsection (1) substitute—
“(1)
The requirement of this section is that—
(a)
less than two years has passed since the trading time, or
(b)
at least two years has passed since the trading time and all of
15
the money raised by the issue of the relevant holding has
been employed wholly for the purposes of a relevant
qualifying activity.”
      (3)
Omit subsections (2) to (4).
Commencement
20
6
The amendments made by paragraph 1 have effect in relation to—
(a)
any exchange of shares to which section 135 of TCGA 1992 applies,
where the new holding is issued on or after 22 April 2009, and
(b)
any arrangement within section 136(1) of that Act entered into on or
after that date.
25
7     (1)
The amendments made by paragraph 2 have effect as follows.
      (2)
The amendments made by sub-paragraph (2) have effect in relation to shares
issued in the tax year 2009-10 or a subsequent tax year.
      (3)
The amendment made by sub-paragraph (3) has effect in relation to claims
made under section 158(4) of ITA 2007 in respect of shares issued in the tax
30
year 2009-10 or a subsequent tax year.
8
The amendments made by paragraphs 3 and 4 have effect in relation to
shares issued on or after 22 April 2009.
9
The amendments made by paragraph 5 have effect in relation to shares or
securities issued on or after 22 April 2009.
35

Finance Bill
Schedule 9 — Group relief: preference shares
103

Schedule 9
Section 28

Group relief: preference shares
Amendments of Schedule 18 to ICTA
1
Schedule 18 to ICTA (definitions relating to group relief) is amended as
follows.
5
2     (1)
Paragraph 1 is amended as follows.
      (2)
In sub-paragraph (2), for “fixed-rate” substitute “relevant”.
      (3)
In sub-paragraph (3)—
(a)
for “fixed-rate” substitute “relevant”,
(b)
for paragraph (c) substitute—
10
“(c)
either—
(i)
do not carry a right to dividends, or
(ii)
carry a right to dividends to which
paragraph 1A applies; and”, and
(c)
in paragraph (d), for “that new consideration” substitute “the new
15
consideration received by the company in respect of the issue of the
shares”.
3
After paragraph 1 insert—
“1A   (1)
This paragraph applies to a right to dividends carried by shares in
a company if—
20
(a)
the dividends represent no more than a reasonable
commercial return on the new consideration received by
the company in respect of the issue of the shares, and
(b)
condition A, B or C is met.
      (2)
Condition A is that—
25
(a)
the dividends are of a fixed amount or at a fixed rate per
cent of the nominal value of the shares, and
(b)
the company is not entitled in any circumstances to reduce
the amount of, or not to pay, any of the dividends.
      (3)
Condition B is that—
30
(a)
the dividends are of a rate per cent of the nominal value of
the shares and the rate fluctuates in accordance with—
(i)
a standard published rate of interest, or
(ii)
the retail prices index, or any similar general index
of prices which is published by the government, or
35
by an agent of the government, of the country or
territory in whose currency the shares are
denominated, and
(b)
the company is not entitled in any circumstances to reduce
the amount of, or not to pay, any of the dividends.
40
      (4)
Condition C is that condition A or B would be met but for sub-
paragraph (2)(b) or (3)(b), and—

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Schedule 9 — Group relief: preference shares
104

(a)
the company is only entitled to reduce the amount of, or
not to pay, any of the dividends in relevant circumstances,
or
(b)
having regard to all the circumstances, it is reasonable to
assume that the company is only likely to reduce the
5
amount of, or not to pay, any of the dividends in relevant
circumstances.
      (5)
For the purposes of sub-paragraph (4) a company reduces the
amount of, or does not pay, dividends “in relevant circumstances”
if—
10
(a)
at the time the dividend is or would be payable, the
company is in severe financial difficulties, or
(b)
it does so for the purpose of—
(i)
complying with a requirement, under the law of
any country or territory, relating to capital
15
adequacy, or
(ii)
following a recommendation of a relevant
regulatory body.
      (6)
The Treasury may by order specify circumstances in which a
company is to be treated as in severe financial difficulties for the
20
purposes of sub-paragraph (5)(a).
      (7)
In sub-paragraph (5)(b) “relevant regulatory body” means—
(a)
in relation to a dividend paid by a company that is
authorised for the purposes of the Financial Services and
Markets Act 2000, the Financial Services Authority, and
25
(b)
in relation to a dividend paid by any other company, a
body discharging functions in relation to the company
under the law of a country or territory outside the United
Kingdom that correspond to functions discharged by the
Financial Services Authority in relation to a company
30
authorised as mentioned in paragraph (a).
      (8)
In this paragraph “new consideration” has the same meaning as in
section 254.”
4
In paragraph 5B(4)(b), for “fixed-rate” substitute “relevant”.
Commencement
35
5
The amendments made by this Schedule have effect for accounting periods
beginning on or after 1 January 2008.
Election to opt out of changes in relation to pre-existing etc shares
6
If a company so elects, the amendments made by this Schedule do not have
effect in relation to shares issued by the company—
40
(a)
before 18 December 2008, or
(b)
on or after that date under an agreement entered into before that
date.
7
An election under paragraph 6—

Finance Bill
Schedule 10 — Sale of lessor companies etc: reforms
105

(a)
must be made by the company by being included in its company tax
return for the first accounting period of the company beginning on
or after 1 January 2008 (and may be included in the return originally
made or by amendment), and
(b)
is irrevocable.
5
Paragraph 2(7) of Schedule 25 to ICTA
8
The amendments made by this Schedule do not have effect for the purposes
of paragraph 2(7) of Schedule 25 to ICTA (controlled foreign companies:
definition of non-voting fixed-rate preference shares).
Schedule 10
10
Section 29

Sale of lessor companies etc: reforms
Introduction
1
Schedule 10 to FA 2006 (sale etc of lessor companies etc) is amended as
follows.
Paragraph 7
15
2     (1)
Paragraph 7 (provision for purposes of condition A in paragraph 6) is
amended as follows.
      (2)
In sub-paragraph (8)(b), for “acquires any plant or machinery directly or
indirectly from a person who is connected with the company” substitute
“acquired any plant or machinery in circumstances in which this paragraph
20
applies”.
      (3)
For sub-paragraph (9) substitute—
    “(9)
Paragraph (b) of sub-paragraph (8) above applies if—
(a)
the relevant day falls on or after 22 March 2006,
(b)
the plant or machinery was acquired directly or indirectly
25
from a person who was connected with the company when
the acquisition took place, and
(c)
either the acquisition took place on or after 5 December
2005 or the person from whom the plant or machinery was
so acquired was also connected with the company on that
30
date.”
Paragraph 13A
3
After paragraph 13 insert—
       “No qualifying change of ownership where principal company’s interest in
consortium company unchanged
35
13A   (1)
This paragraph applies if—
(a)
a company (“company A”) is owned by a consortium, and

Finance Bill
Schedule 10 — Sale of lessor companies etc: reforms
106

(b)
a relevant change in the relationship between company A
and a principal company of company A occurs on any day,

but the principal company’s interest in company A remains
unchanged.
      (2)
For the purposes of this Schedule, there is no qualifying change of
5
ownership in relation to company A on that day as a result of that
change in that relationship.
      (3)
For the purposes of this paragraph the principal company’s
interest in company A remains unchanged if the percentage of the
ordinary share capital of company A that is beneficially owned
10
directly or indirectly by the principal company is the same at the
beginning and end of that day.
      (4)
Section 838(2) and (4) to (10) of ICTA apply for construing sub-
paragraph (3).”
Paragraph 17
15
4     (1)
Paragraph 17 (meaning of “PM” in paragraph 16) is amended as follows.
      (2)
In sub-paragraph (7)(b), for “acquires any plant or machinery directly or
indirectly from a person who is connected with the company” substitute
“acquired any plant or machinery in circumstances in which this paragraph
applies”.
20
      (3)
For sub-paragraph (8) substitute—
    “(8)
Paragraph (b) of sub-paragraph (7) above applies if—
(a)
the relevant day falls on or after 22 March 2006,
(b)
the plant or machinery was acquired directly or indirectly
from a person who was connected with the company when
25
the acquisition took place, and
(c)
either the acquisition took place on or after 5 December
2005 or the person from whom the plant or machinery was
so acquired was also connected with the company on that
date.”
30
Paragraph 23
5
In paragraph 23 (leasing business carried on by company in partnership:
change in company’s interest in business), for sub-paragraph (6)
substitute—
    “(6)
This paragraph is subject to paragraph 23A and is supplemented
35
by paragraph 24.”
Paragraph 23A
6
After that paragraph insert—
“23A  (1)
Paragraph 23 does not apply where conditions A, B and C are met.
      (2)
Condition A is that at the end of the relevant day none of the
40
companies by which the business was carried on any longer have
any share in the profits or loss of the business.

Finance Bill
Schedule 10 — Sale of lessor companies etc: reforms
107

      (3)
Condition B is that, in consequence of what happens on the
relevant day, the disposal value of all of the plant and machinery
which was used for the purposes of the business and in respect of
which capital allowances have been claimed is to be brought into
account under section 61 of CAA 2001.
5
      (4)
Condition C is that the disposal value to be brought into account
in relation to all of the plant or machinery is the price which the
plant or machinery would fetch in the open market on that day.”
Paragraph 32
7     (1)
Paragraph 32 (leasing business carried on by a company in partnership:
10
amount of expense) is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
in sub-paragraph (c), for “increases at any time on” substitute “is
greater at the end of that day than at the start of”, and
(b)
in sub-paragraph (d), omit “at that time” (in both places).
15
      (3)
For sub-paragraph (3) substitute—
    “
(3)  The appropriate percentage is—

OCI
PCD


where—
OCI is the increase in the other company’s percentage share
in the profits or losses of the business which is wholly
20
attributable to the change in the partner company’s
interest in the business, and
PCD is the decrease in the partner company’s percentage
share in the profits or losses of the business.”
Paragraph 39
25
8     (1)
Paragraph 39 (relief for expense otherwise giving rise to carried forward
loss) is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
in paragraph (c), insert at the end “or a later accounting period,”,
(b)
in paragraph (d), after “company” insert “after the accounting period
30
in which the loss is made”, and
(c)
in paragraph (e), for “12 months beginning with” substitute “5 years
beginning immediately after”.
      (3)
In subsection (1A)—
(a)
in paragraph (b), for “, and” substitute “or a later accounting
35
period,”,
(b)
in paragraph (c), after “company” insert “after the accounting period
in which the loss is made”, and
(c)
after that paragraph insert “and
(d)
the subsequent accounting period starts within the period of
40
5 years beginning with the day that is the relevant day within
the meaning of paragraph 23(1) and does not start as a result
of paragraph 3 or 33.”