F6PART 5BTax relief for social investments
CHAPTER 4Eligibility: conditions relating to the social enterprise
Conditions relating to the social enterpriseF3: general
Word in s. 257M cross-heading inserted (with effect in accordance with Sch. 1 para. 14(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 1 para. 6(1)
257MThe continuing to be a social enterprise requirement
The social enterprise must be a social enterprise throughout the shorter applicable period.
F5257MAThe amount raised from investments potentially eligible for relief
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F2257MBPower to amend limits on amounts raised
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257MCThe gross assets requirement
1
If the social enterprise is a single company, the value of its assets—
a
must not exceed £15 million immediately before the investment is made, and
b
must not exceed £16 million immediately after the investment is made.
2
If the social enterprise is a parent company, the value of the group assets—
a
must not exceed £15 million immediately before the investment is made, and
b
must not exceed £16 million immediately after the investment is made.
3
For the purposes of subsection (2), the value of the group assets is the sum of the values of the gross assets of each of the members of the group, ignoring any assets that consist in rights against, or shares in or securities of, another member of the group.
257MDThe unquoted status requirement
1
At the beginning of the shorter applicable period—
a
the social enterprise must not be a quoted company,
b
there must be no arrangements in existence for the social enterprise to become a quoted company, and
c
there must be no arrangements in existence for the social enterprise to become a subsidiary of a company (“the new company”) by virtue of an exchange of shares, or shares and securities, if arrangements have been made with a view to the new company becoming a quoted company.
2
For the purpose of this section, a company is a “quoted company” if any shares, stocks, debentures or other securities of the company are—
a
listed on a recognised stock exchange,
b
listed on a designated exchange in a country outside the United Kingdom, or
c
dealt in outside the United Kingdom by such means as may be designated.
3
In subsection (2)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty's Revenue and Customs for the purposes of that provision.
4
An order made for the purposes of subsection (2)(b) may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.
5
The arrangements referred to in subsection (1)(b), and the second arrangements referred to in subsection (1)(c), do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the social enterprise or the new company (as the case may be) are at any subsequent time—
a
listed on a stock exchange that is a recognised stock exchange by virtue of an order under section 1005(1)(b), or
b
listed on an exchange, or dealt in by any means, designated by an order made for the purposes of subsection (2)(b) or (c),
if the order was made after the beginning of the shorter applicable period.
257METhe control and independence requirements
1
The social enterprise must not at any time in the shorter applicable period control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the social enterprise.
2
The social enterprise must not at any time in the shorter applicable period—
a
be a 51% subsidiary of a company, or
b
be under the control of a company, or under the control of a company and a person connected with that company, without being a 51% subsidiary of the company.
3
No arrangements must be in existence at any time in the shorter applicable period by virtue of which the social enterprise could fail to meet either or both of subsections (1) and (2) (whether during that period or otherwise).
257MFThe qualifying subsidiaries requirement
Any subsidiary that the social enterprise has at any time in the shorter applicable period must be a qualifying subsidiary of the social enterprise.
257MGThe property-managing subsidiaries requirement
1
Any property-managing subsidiary that the social enterprise has at any time in the shorter applicable period must be a 90% social subsidiary of the social enterprise.
2
In subsection (1) “property-managing subsidiary” means a subsidiary of the social enterprise whose business consists wholly or mainly in the holding or managing of land or any property deriving its value (directly or indirectly) from land.
257MHThe number of employees requirement
1
If the social enterprise is a single company, the full-time equivalent employee number for it must be less than F8250 when the investment is made.
2
If the social enterprise is a parent company, the sum of—
a
the full-time equivalent employee number for it, and
b
the full-time equivalent employee number for each of its qualifying subsidiaries,
must be less than F8250 when the investment is made.
3
The full-time equivalent employee number for a company is calculated by taking the number of full-time employees of the company and adding, for each employee of the company who is not a full-time employee, such fraction as is just and reasonable.
4
In this section “employee”—
a
includes a director, but
b
does not include—
i
an employee on maternity F7, paternity or parental bereavement leave, or
ii
a student on vocational training.
257MIThe no partnership requirement
1
The requirements in this section apply during the shorter applicable period.
2
The social enterprise must not be a member of any partnership.
3
Each 90% social subsidiary of the social enterprise must not be a member of a partnership.
257MIAF1The financial health requirement
1
The social enterprise must meet the financial health requirement at the beginning of the shorter applicable period.
2
The financial health requirement is that the social enterprise is not in difficulty.
3
The social enterprise is “in difficulty” if it is reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02).
257MJThe trading requirement
1
The social enterprise must meet the trading requirement throughout the shorter applicable period, but this does not apply if the social enterprise is an accredited social impact contractor.
2
The trading requirement is that—
a
the social enterprise is a charity,
b
the social enterprise is a single company that is not a charity, and its business—
i
does not, if things done for incidental purposes are ignored, consist to any extent in the carrying-on of non-trade activities, and
ii
does not consist wholly, or as to a substantial part, in the carrying-on of excluded activities, or
c
the social enterprise is a parent company that is not a charity, and the business of the group does not consist wholly, or as to a substantial part, in the carrying-on of non-qualifying activities.
3
If the social enterprise intends that one or more companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—
a
the social enterprise is treated as a parent company for the purposes of subsection (2)(b) and (c), and
b
the reference in subsection (2)(c) to the group includes the social enterprise and any existing or future company that will be its qualifying subsidiary after the intention in question is carried out,
but this subsection does not apply at any time after the abandonment of that intention.
4
For the purposes of subsection (2)(c) “the business of the group” means what would be the business of the group if the activities of the group companies taken together were regarded as one business.
5
For the purposes of determining the business of a group, activities of a group company are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.
6
For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—
a
the holding of shares in or securities of a qualifying subsidiary of the parent company,
b
the making of loans to another group company, or
c
the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company.
7
In this section—
“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the body in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly,
“non-qualifying activities” means—
- a
excluded activities, and
- b
activities, other than activities carried on by a charity, that are carried on otherwise than in the course of a trade, and
- a
“non-trade activities” means activities which are neither of the following—
- a
activities carried on in the course of a trade, and
- b
activities carried on in the course of preparing to carry on a trade.
- a
257MKCeasing to meet trading requirement: administration or receivership
1
The social enterprise is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the social enterprise or any of its subsidiaries being in administration or receivership, but this is subject to subsections (2) and (3).
2
Subsection (1) applies only if—
a
the entry into administration or receivership, and
b
everything done as a result of the company concerned being in administration or receivership,
is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
3
The social enterprise ceases to meet the trading requirement if before the end of the shorter applicable period—
a
a resolution is passed, or an order is made, for the winding-up of the social enterprise or any of its subsidiaries (or, in the case of a winding-up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), any other act is done for the like purpose), or
b
the company or any of its subsidiaries is dissolved without winding-up,
but this is subject to subsection (4).
4
Subsection (3) does not apply if the winding-up or dissolution is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
257MLThe issue must be to raise money for chosen trade or preparing for it
1
The social enterprise must be a party to the making of the investment (so far as not in bonus shares) in order to raise money for the carrying-on, by the social enterprise or a 90% social subsidiary of the social enterprise, of—
a
a qualifying trade which on the investment date is carried on by the social enterprise or a 90% social subsidiary of the social enterprise, or
b
the activity of preparing to carry on (or preparing to carry on and then carrying on) a qualifying trade—
i
which on the investment date is intended to be carried on by the social enterprise or a 90% social subsidiary of the social enterprise, and
ii
which is begun to be carried by the social enterprise or such a subsidiary within 2 years after that date.
2
In this Chapter—
a
the purpose within subsection (1) for which money is raised is referred to as “the funded purpose”,
b
the qualifying trade mentioned in subsection (1)(a) or (b) is referred to as “the chosen trade”, and
c
if the funded purpose is the carrying-on of the activity mentioned in subsection (1)(b), “relevant preparation work” means preparations that form the whole or part of the activity.
3
In determining for the purposes of subsection (1)(b) when a qualifying trade is begun to be carried on by a 90% social subsidiary of the social enterprise, any carrying-on of the trade by it before it became such a subsidiary is ignored.
4
The reference in subsection (1)(b)(i) to a 90% social subsidiary of the social enterprise includes a reference to any existing or future body which will be such a subsidiary at any future time.
5
This section does not apply if the social enterprise is an accredited social impact contractor.
257MMRequirement to use money raised and to trade for minimum period
1
All of the money raised by the social enterprise from the making of the investment must, no later than the end of 28 months beginning with the investment date, be employed wholly for the funded purpose.
2
The chosen trade must have been carried on for a period of at least 4 months ending at or after the time the investment is made and, throughout that period, the trade—
a
must have been carried on by the social enterprise or a 90% social subsidiary of the social enterprise, and
b
must not have been carried on by any other person.
3
Employing money on the acquisition of shares or stock in a body does not of itself amount to employing the money for the funded purpose.
F93A
Employing money on the repayment of a loan does not amount to employing the money for the funded purpose.
4
Subsection (1) does not fail to be met merely because an amount of money which is not significant is employed for other purposes.
5
If—
a
merely because of the social enterprise or any other company being wound up, or dissolved without winding-up, the qualifying trade is carried on as mentioned in subsection (2) for a period shorter than 4 months, and
b
the winding-up or dissolution—
i
is for genuine commercial reasons, and
ii
is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax,
subsection (2) has effect as if it referred to that shorter period.
6
If—
a
merely because of anything done as a result of the social enterprise or any other company being in administration or receivership, the chosen trade is carried on as mentioned in subsection (2) for a period shorter than 4 months, and
b
the entry into administration or receivership, and everything done as a result of the company concerned being in administration or receivership—
i
is for genuine commercial reasons, and
ii
is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax,
subsection (2) has effect as if it referred to that shorter period.
7
If the social enterprise is an accredited social impact contractor, the preceding provisions of this section apply with the following modifications—
a
in subsection (1), for “28 months” substitute “ 24 months ”
,
b
in that subsection, for “the funded purpose” substitute “ the carrying out of the social impact contract concerned ”
, and
c
omit subsections (2), (3), F4(3A), (5) and (6).
257MNThe social enterprise must carry on the chosen trade
1
There must not be a time in the shorter applicable period when—
a
the chosen trade, or
b
relevant preparation work,
is carried on by a person who is neither the social enterprise nor a 90% social subsidiary of the social enterprise.
2
If relevant preparation work is carried out in the shorter applicable period by the social enterprise or a 90% social subsidiary of the social enterprise then, for the purposes of determining whether the requirement in subsection (1) is met, ignore any carrying-on of the chosen trade that takes place in that period before the trade begins to be carried on by a person who is the social enterprise or a 90% social subsidiary of the social enterprise.
3
The requirement in subsection (1) is not regarded as failing to be met if, merely because of any act or event within subsection (4), the chosen trade—
a
ceases to be carried on in the shorter applicable period by the social enterprise or any 90% social subsidiary of the social enterprise, and
b
it is subsequently carried on in that period by a person who is not any time in the longer applicable period connected with the social enterprise.
4
The acts and events within this subsection are—
a
anything done as a consequence of the social enterprise or any other company being in administration or receivership, and
b
the social enterprise or any other company being wound up, or dissolved without being wound up.
5
Subsection (4) applies only if—
a
the entry into administration or receivership, and everything done as a consequence of the company concerned being in administration or receivership, or
b
the winding-up or dissolution,
is for genuine commercial reasons, and is not part of any arrangements the main purpose or one of the main purposes of which is the avoidance of tax.
6
This section does not apply if the social enterprise is an accredited social impact contractor.
Pt. 5B inserted (17.7.2014) by Finance Act 2014 (c. 26), Sch. 11 para. 1