Finance Act 2000 (c. 17)

(The document as of February, 2008)

-- Back --

Page 37

Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 | P.15 | P.16 | P.17 | P.18 | P.19 | P.20 | P.21 | P.22 | P.23 | P.24 | P.25 | P.26 | P.27 | P.28 | P.29 | P.30 | P.31 | P.32 | P.33 | P.34 | P.35 | P.36 | P.37 | P.38 | P.39 | P.40 | P.41 | P.42 | P.43 | P.44 | P.45 | P.46 | P.47 | P.48 | P.49 | P.50 | P.51 | P.52 | P.53 | P.54 | P.55 | P.56 | P.57 | P.58 | P.59

Entitlement to claim

40 (1) The investing company is entitled to make a claim to investment relief in respect of the amount subscribed by it for the relevant shares if it appears to it that the requirements for the relief are for the time being met.

This is subject to sub-paragraph (2).

(2) The investing company is not entitled to make a claim to investment relief in relation to the amount subscribed by it for the relevant shares unless--

(a) the funded trade has been carried on by the issuing company or a subsidiary of the company for four months (disregarding any time spent preparing to carry on that trade), and

(b) the investing company has received from the issuing company a compliance certificate in respect of those shares.

(3) For the purposes of this paragraph, "the funded trade" means the trade or trades by reference to which the requirement of paragraph 36 (use of money raised) is met in respect of the relevant issue of shares (as defined by sub-paragraph (2) of that paragraph).

This is subject to sub-paragraph (4).

(4) To the extent that the funded trade would, by virtue of sub-paragraph (3), be a trade derived or benefiting from a trade within paragraph 25(2), the funded trade shall be deemed, for the purposes of this paragraph, to be the trade within that paragraph.

(5) Where--

(a) the company or subsidiary concerned, by reason of its being wound up, or dissolved without winding up, carries on the funded trade for a period shorter than four months, and

(b) the winding up or dissolution was for commercial reasons and was not part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax,

sub-paragraph (2)(a) shall have effect as if it referred to that shorter period.

(6) Where--

(a) the company or subsidiary concerned, by reason of anything done as a consequence of its being in administration or receivership, carries on the funded trade for a period shorter than four months, and

(b) the making of the order within paragraph (a) or, as the case may be, (b) of paragraph 102(4) (administration orders and orders for appointment of receiver etc.), and everything done as a consequence of the company being in administration or receivership, is for commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax,

sub-paragraph (2)(a) shall have effect as if it referred to that shorter period.

(7) No application shall be made under section 55(3) or (4) of the Taxes Management Act 1970 (application for postponement of payment of tax pending appeal) on the ground that the investing company is eligible for investment relief unless a claim for the relief has been duly made by that company.

Compliance certificates

41 (1) A "compliance certificate" is a certificate which--

(a) is issued by the issuing company in respect of the relevant shares,

(b) states that, except so far as they fall to be met by or in relation to the investing company, the requirements for investment relief are for the time being met in relation to those shares, and

(2) Before issuing a compliance certificate in respect of the relevant shares, the issuing company must provide the Inland Revenue with a compliance statement in respect of the issue of shares which includes the relevant shares.

(3) The issuing company must not issue a compliance certificate without the authority of the Inland Revenue.

(4) Where the company or a person connected with the company has given notice to the Inland Revenue under paragraph 65 (information to be provided by issuing company etc.) the authority of the Inland Revenue must be given or renewed after the receipt of the notice.

Compliance statements

42 (1) A "compliance statement" is a statement, in respect of an issue of shares, to the effect that, except so far as they fall to be satisfied by or in relation to companies to which the shares included in that issue have been issued, the requirements for investment relief--

(a) are for the time being met in relation to the shares to which the statement relates, and

(b) have been so met at all times since the shares were issued.

In determining for the purposes of this sub-paragraph whether those requirements are met at any time in relation to the issue of shares, references in this Schedule to "the relevant shares" shall be read as references to the shares included in the issue.

(2) A compliance statement must be in such form as the Inland Revenue direct and must contain--

(a) such additional information as the Inland Revenue reasonably require,

(b) a declaration that the statement is correct to the best of the issuing company's knowledge and belief, and

(3) Without prejudice to the generality of sub-paragraph (2)(a) the information required by the Inland Revenue may include--

(a) information relating to the companies to which compliance certificates may be issued under paragraph 41 in respect of any shares included in the issue of shares to which the statement relates, and

(b) information to enable the Inland Revenue to determine whether the requirements of paragraph 35(2)(b) and (c) (shares to be subscribed for wholly in cash and fully paid up) are met in relation to shares included in that issue subscribed for by such companies.

(4) The issuing company may not provide the Inland Revenue with a compliance statement in respect of any shares issued by it in any accounting period--

(a) before the condition in paragraph 40(2)(a) (no claim until trade carried on for four months) is satisfied; or

(b) later than two years after the end of that accounting period or, if that condition is first satisfied after the end of that accounting period, later than two years after the condition is first satisfied.

Appeal against refusal to authorise compliance certificate

43 For the purposes of the provisions of the [1970 c. 9.] Taxes Management Act 1970 relating to appeals, the refusal of the Inland Revenue to authorise the issue of a compliance certificate shall be taken to be a decision disallowing a claim by the issuing company which is not a claim for discharge or repayment of tax.

Penalties for fraudulent certificate or statement etc.

44 The issuing company is liable to a penalty not exceeding £3,000 if--

(a) it issues a compliance certificate, or provides a compliance statement, which is made fraudulently or negligently, or

(b) it issues a compliance certificate in contravention of paragraph 41(3) or (4) (no certificate to be issued without Inland Revenue approval).

Attribution of relief to shares

45 (1) References in this Schedule, in relation to a company, to the investment relief attributable to any shares or issue of shares shall be read as references to any reduction made in the company's liability to corporation tax that is attributed to those shares or that issue in accordance with this paragraph.

This is subject to the provisions of Part VI of this Schedule providing for the reduction or withdrawal of investment relief.

(2) Where a company's liability to corporation tax is reduced for an accounting period under paragraph 39 (form of investment relief), then--

(a) where the reduction is obtained by reason of one issue of shares, the amount of the reduction shall be attributed to that issue, and

(b) where the reduction is obtained by reason of two or more issues of shares, the reduction--

(i) shall be apportioned between those issues in the same proportions as the amounts subscribed by the company for each issue, and

(ii) shall be attributed to those issues accordingly.

(3) Where under this paragraph an amount of any reduction of corporation tax is attributed to an issue of shares ("the original issue") to a company a proportionate part of that amount shall be attributed to each share comprised in the original issue.

(4) If corresponding bonus shares are issued to the company in respect of any shares ("the original shares") comprised in the original issue that have been continuously held by the company from the time they were issued until the issue of the bonus shares--

(a) a proportionate part of the total amount attributed to the original shares immediately before the bonus shares are issued shall be attributed to each of the shares in the holding comprising the original shares and the bonus shares, and

(b) after the issue of the bonus shares, this Schedule shall apply as if--

(i) the original issue had included the bonus shares, and

(ii) the bonus shares had been held by the company continuously from the time the original shares were issued until the bonus shares were issued.

(5) In sub-paragraph (4) "corresponding bonus shares" means bonus shares which are in the same company, of the same class, and carry the same rights as the original shares.

(6) If investment relief attributable to any shares falls to be withdrawn under Part VI of this Schedule the relief attributable to each of the shares shall be reduced to nil.

(7) If investment relief attributable to any shares falls to be reduced under Part VI of this Schedule by any amount the relief attributable to each of the shares shall be reduced by a proportionate part of that amount.

Part VI Withdrawal of investment relief

Disposal of shares

46 (1) This paragraph applies where--

(a) the investing company disposes of any of the relevant shares which have been held by it continuously from the time they were issued until the disposal,

(b) the disposal takes place during the qualification period relating to the relevant shares, and

(2) If the disposal is not--

(a) by way of a bargain made at arm's length for full consideration,

(b) by way of a distribution in the course of dissolving or winding up the issuing company,

(d) a deemed disposal under section 24(2) of that Act (claim that value of asset has become negligible),

the investment relief attributable to those shares must be withdrawn.

(3) If the disposal is within paragraph (a), (b), (c) or (d) of sub-paragraph (2) the investment relief attributable to those shares must--

(a) if it is greater than an amount equal to 20% of the amount or value of the consideration (if any) which the company receives for the shares, be reduced by that amount, and

(b) in any other case, be withdrawn.

(4) Where--

(a) the amount of the reduction ("A") in the investing company's liability to corporation tax obtained under paragraph 39 (form of investment relief) in respect of the relevant shares, is less than

(b) the amount ("B") which is equal to 20% of the amount subscribed by the investing company for those shares,

sub-paragraph (3)(a) shall have effect in relation to a disposal of any of those shares as if the amount or value referred to in that sub-paragraph were reduced by multiplying it by the fraction--

---

(5) Where the amount of investment relief attributable to any of the relevant shares has been reduced before the investment relief was obtained, the amount of the corporation tax reduction obtained in respect of those shares shall be deemed for the purposes of sub-paragraph (4) to be the amount of the corporation tax reduction that would have been obtained had no such reduction of relief been made before the relief was obtained.

(6) Sub-paragraph (5) does not apply to a reduction by virtue of paragraph 45(4) (attribution of investment relief where there is a corresponding issue of bonus shares).

Value received by investing company

47 (1) Sub-paragraph (2) applies where the investing company receives any value (other than insignificant value) from the issuing company during the period of restriction relating to the relevant shares.

(2) Any investment relief attributable to the shares shall--

(a) if it exceeds the amount mentioned in sub-paragraph (3), be reduced by that amount, and

(b) in any other case, be withdrawn.

(3) The amount referred to in sub-paragraph (2)(a) is an amount equal to 20% of the amount of the value received.

(4) This paragraph is subject to the following paragraphs--

paragraph 51 (value received where there is more than one issue of shares);

paragraph 52 (cases where maximum investment relief not obtained); and

paragraph 54 (receipt of replacement value).

(5) Where--

(a) value is received ("the relevant receipt") by the investing company from the issuing company at any time during the period of restriction relating to the relevant shares,

(b) the investing company has received from the issuing company one or more receipts of insignificant value at a time or times--

(i) during that period, but

(ii) not later than the time of the relevant receipt, and

(c) the aggregate amount of the value of the receipts within paragraph (a) and (b) is not an amount of insignificant value,

the investing company shall be treated for the purposes of this Part as if the relevant receipt had been a receipt of an amount of value equal to that aggregate amount.

For this purpose a receipt does not fall within paragraph (b) if it has been previously aggregated under this sub-paragraph.

(6) If, at any time in the period--

(a) beginning one year before the relevant shares are issued, and

(b) expiring at the end of the issue date,

arrangements are in existence which provide for the investing company to receive, or to be entitled to receive, any value from the issuing company at any time in the period of restriction relating to those shares, no amount of value received by the investing company shall be treated as a receipt of insignificant value for the purposes of this paragraph.

(7) For the purposes of this paragraph--

(a) references to a receipt of insignificant value (however expressed) are references to a receipt of an amount of insignificant value;

(b) "an amount of insignificant value" means an amount of value which--

(i) does not exceed £1,000, or

(ii) if it exceeds that amount, is insignificant in relation to the amount subscribed by the investing company for the shares.

This is subject to sub-paragraph (6).

(8) Where by reason of the investing company's disposal of any shares any investment relief attributable to those shares is withdrawn or reduced, the investing company shall not be treated for the purposes of this paragraph as receiving value from the issuing company in respect of the disposal.

(9) Value received shall be disregarded, for the purposes of this paragraph, to the extent to which investment relief attributable to any shares has already been reduced or withdrawn on its account.

Meaning of "the period of restriction"

48 For the purposes of this Schedule "the period of restriction" relating to the relevant shares means the period--

(a) beginning one year before the shares are issued, and

(b) ending at the end of the qualification period relating to the shares.

When value is received

49 (1) For the purposes of paragraphs 47 (value received by investing company) and 51 (value received where there is more than one issue of shares) the investing company receives value from the issuing company at any time when the issuing company--

(a) repays, redeems or repurchases any of its share capital or securities which belong to the investing company or makes any payment to that company for giving up its right to any of the issuing company's share capital or any security on its cancellation or extinguishment;

(b) repays, in pursuance of any arrangements for or in connection with the acquisition of the relevant shares, any debt owed to the investing company other than a debt which was incurred by the issuing company--

(i) on or after the date of issue of those shares; and

(ii) otherwise than in consideration of the extinguishment of a debt incurred before that date;

(d) releases or waives any liability of the investing company to the issuing company or discharges, or undertakes to discharge, any liability of the investing company to a third person;

(e) makes a loan or advance to the investing company which has not been repaid in full before the issue of the relevant shares;

(f) provides a benefit or facility for the directors or employees of the investing company or any of their associates;

(g) disposes of an asset to the investing company for no consideration or for a consideration which is or the value of which is less than the market value of the asset;

(h) acquires an asset from the investing company for a consideration which is or the value of which is more than the market value of the asset; or

(i) makes a payment to the investing company other than a qualifying payment.

(2) For the purposes of sub-paragraph (1)(e) there shall be treated as if it were a loan made by the issuing company to the investing company--

(a) the amount of any debt (other than an ordinary trade debt) incurred by the investing company to the issuing company, and

(b) the amount of any debt due from the investing company to a third person which has been assigned to the issuing company.

(3) For the purposes of sub-paragraph (1)(d) the issuing company shall be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged.

(4) For the purposes of this paragraph--

(a) references to a debt or liability do not, in relation to a person, include references to any debt or liability which would be discharged by the making by that person of a qualifying payment;

(b) references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would be a qualifying payment; and

(c) any reference to a payment or disposal to a person includes a reference to a payment or disposal made to that person indirectly or to his order or for his benefit.

In paragraphs (a) to (c) references to "a person" include references to any person who, at any time in the period of restriction in question, is connected with that person, whether or not he is so connected at the material time.

(5) In this paragraph--

"ordinary trade debt" means any debt for goods or services supplied in the ordinary course of a trade or business where any credit given--
(a)
does not exceed six months, and
(b)
is not longer than that normally given to customers of the person carrying on the trade or business; and
"qualifying payment" means--
(a)
any payment by any person for any goods, services or facilities provided by the investing company (in the course of its trade or otherwise) which is reasonable in relation to the market value of those goods, services or facilities;
(b)
the payment by any person of any interest which represents no more than a reasonable commercial return on money lent to that person;
(c)
the payment by any company of any dividend or other distribution which does not exceed a normal return on any investment in shares in or other securities of that company;
(d)
any payment for the acquisition of an asset which does not exceed its market value;
(e)
the payment by any person, as rent for any property occupied by the person, of an amount not exceeding a reasonable and commercial rent for the property; and
(f)
a payment in discharge of an ordinary trade debt.

The amount of value received

50 For the purposes of paragraph 47 the amount of the value received is--

(a) in a case within paragraph 49(1)(a), (b) or (c)--

(i) the amount received by the investing company, or

(ii) the market value of the shares, securities or debt in question,

whichever is greater;

(b) in a case within paragraph 49(1)(d), the amount of the liability;

(i) the amount of the loan or advance, less

(ii) the amount of any repayment made before the issue of the relevant shares;

(d) in a case within paragraph 49(1)(f)--

(i) the cost to the issuing company of providing the benefit or facility, less

(ii) any consideration given for it by the recipient or any associate of his;

(e) in a case within paragraph 49(1)(g) or (h), the difference between the market value of the asset and the consideration (if any) received for it; and

(f) in a case within paragraph 49(1)(i), the amount of the payment.

Value received where there is more than one issue of shares

51 (1) This paragraph applies where--

(a) two or more issues of shares in the issuing company have been made to the investing company (being issues in relation to which the investing company is eligible for and claims investment relief), and

(b) the value received falls within the periods of restriction relating to two or more of those issues.

(2) Where this paragraph applies paragraph 47 has effect in relation to the shares comprised in each of the issues referred to in sub-paragraph (1)(b) as if the amount of the value received were reduced by multiplying it by the fraction--

---

Where--

A is the amount subscribed by the investing company for the shares comprised in the issue in question to which investment relief is (or, but for paragraph 47 would be) attributable; and
B is the aggregate of that amount and the corresponding amount or amounts for the other issue or issues.

Cases where maximum investment relief not obtained

52 (1) Where--

(a) the amount of the reduction ("C") in the investing company's liability to corporation tax obtained in respect of the relevant shares, is less than

(b) the amount ("D") which is equal to 20% of the amount subscribed by the investing company for those shares,

paragraph 47 has effect as if the amount of the value received were reduced by multiplying it by the fraction--

---

(2) Where the amount of investment relief attributable to any of the relevant shares has been reduced before the investment relief was obtained, the amount of the corporation tax reduction obtained in respect of those shares shall be deemed for the purposes of sub-paragraph (1) to be the amount of the corporation tax reduction that would have been obtained had no such reduction of relief been made before the relief was obtained.

(3) Sub-paragraph (2) does not apply to a reduction of investment relief by virtue of paragraph 45(4) (attribution of investment relief where there is a corresponding issue of bonus shares).

Receipts of value by and from connected persons

53 In paragraphs 47, 49 and 50 references to the investing company or the issuing company include references to any person who at any time in the period of restriction relating to the relevant shares is connected with the company concerned, whether or not he is connected at the material time.

Receipt of replacement value

54 (1) Where--

(a) any investment relief attributable to the relevant shares would, in the absence of this paragraph, be reduced or withdrawn under paragraph 47 by reason of a receipt of value within paragraph 49(1) ("the original value"),

(b) the original supplier receives value ("the replacement value") from the original recipient by reason of a qualifying receipt, and

paragraph 47 shall not, by reason of the receipt of the original value, have effect to reduce or withdraw the investment relief.

(2) For the purposes of this paragraph and paragraph 55--

"the original recipient" means the person who receives the original value; and
"the original supplier" means the person from whom that value was received.

(3) A receipt of the replacement value is a qualifying receipt for the purposes of sub-paragraph (1) if it arises--

(a) by reason of the original recipient making a payment to the original supplier other than--

(i) a qualifying payment (within the meaning of paragraph 49(5)), or

(ii) a payment for shares in or securities of any company in circumstances that do not fall within paragraph (c) below;

(b) where the receipt of the original value was within paragraph 49(1)(d), by reason of an event the effect of which is to reverse the event which constituted the receipt of the original value; or

(i) the original recipient acquiring any asset from the original supplier for a consideration which is or the value of which is more than the market value of the asset, or

(ii) the original recipient disposing of any asset to the original supplier for no consideration or for a consideration which is, or the value of which is, less than the market value of the asset.

(4) For the purposes of this paragraph--

(a) paragraph 50 shall apply for the purposes of determining the amount of the original value; and

(b) the amount of the replacement value is--

(i) in a case within sub-paragraph (3)(a), the amount of the payment,

(ii) in a case within sub-paragraph (3)(b), the same as the amount of the original value, and

(iii) in a case within sub-paragraph (3)(c), the difference between the market value of the asset and the consideration (if any) received for it.

Provision supplementary to paragraph 54

55 (1) The receipt of the replacement value shall be disregarded for the purposes of sub-paragraph (1) of paragraph 54 to the extent to which it has previously been set (under that paragraph) against a receipt of value to prevent any reduction or withdrawal of investment relief under paragraph 47.

(2) The receipt of the replacement value by the original supplier ("the event") shall be disregarded for the purposes of paragraph 54(1) if--

(a) the event occurs before the start of the period of restriction relating to the relevant shares,

(b) there was an unreasonable delay in the event occurring, or

(c) where an appeal has been brought by the investing company against an assessment to withdraw or reduce any investment relief attributable to the relevant shares by reason of the receipt of the original value, the event occurs more than 60 days after the amount of relief which falls to be withdrawn has been finally determined.

But nothing in paragraph 54 or this paragraph requires the replacement value to be received after the original value.

(3) Sub-paragraph (4) applies where--

(a) the receipt of the replacement value is a qualifying receipt for the purposes of paragraph 54(1) (receipt of replacement value which prevents loss of investment relief), and

(b) the event which gives rise to the receipt is (or includes) a subscription for shares by--

(i) the investing company, or

(ii) any person who at any time in the period of restriction relating to the relevant shares is connected with the investing company, whether or not he is connected at the material time.

(4) Where this sub-paragraph applies the person who subscribes for the shares shall not--

(a) be eligible for--

(i) any investment relief, or

(ii) any relief under Chapter III of Part VII of the Taxes Act 1988 (EIS income tax relief),

in relation to those shares or any other shares in the same issue; or

(b) by virtue of his subscription for those shares or any other shares in the same issue, be treated as making a qualifying investment for the purposes of Schedule 5B to the 1992 Act (EIS: deferral relief).

Value received by other persons

56 (1) Where any investment relief is attributable to such of the relevant shares as are held by the investing company, sub-paragraph (2) shall apply if at any time in the period of restriction relating to the relevant shares the issuing company or any subsidiary--

(a) repays, redeems or repurchases any of its share capital which belongs to any member other than--

-- Back --

Stat