PART VII GENERAL PROVISIONS RELATING TO TAXATION OF INCOME OF INDIVIDUALS
C4CHAPTER IIIF1ENTERPRISE INVESTMENT SCHEME
Pt. 7 Ch. 3 applied (with effect in accordance with Sch. 13 para. 4(4) of the 1995 amending Act) by Taxation of Chargeable Gains Act 1992 (c. 12), Sch. 5B para. 6(4) (as inserted by Finance Act 1995 (c. 4), Sch. 13 para. 4(3))
C2293 Qualifying companies.
F41
Subject to section 294, a company is a qualifying company (whether it is resident in the United Kingdom or elsewhere) if it complies with the requirements of this section.
F181A
At the beginning of the relevant period, the company must be—
a
an unquoted company, and
b
a company to which subsection (1B) below does not apply.
1B
This subsection applies to a company—
a
if arrangements are in existence for it to cease to be an unquoted company; or
b
if—
i
arrangements are in existence for it to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, in relation to which section 304A (certain exchanges resulting in acquisition of share capital by new company) applies, and
ii
arrangements have been made with a view to the new company ceasing to be an unquoted company.
2
The company must, throughout the relevant period, F19. . . be—
a
a company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities, or
F8aa
the parent company of a trading group.
3
In this section “qualifying subsidiary”, in relation to a company, means a subsidiary of a kind which that company may hold by virtue of section 308.
F93A
For the purposes of this section a company is the parent company of a trading group if—
a
it has one or more subsidiaries;
b
each of its subsidiaries is a qualifying subsidiary of the company; and
c
the requirements of subsection (3B) below are fulfilled by what would be the business of the company and its subsidiaries if all the activities, taken together, of the company and its subsidiaries were regarded as one business.
3B
A business fulfils the requirements of this subsection if neither the business nor a substantial part of it consists in, or in either of, the following, that is to say—
a
activities falling within section 297(2)(a) to (g) but not within subsection (3C) below; and
3C
The activities falling within this subsection are—
a
b
the letting of ships, other than F22offshore installations or pleasure craft, on charter in circumstances where the requirements mentioned in paragraphs (a) to (d) of section 297(6) are satisfied in relation to the company so letting them.
3D
Activities of a company or of any of its subsidiaries shall be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in—
a
the holding of shares in or securities of, or the making of loans to, one or more of the company’s subsidiaries; or
b
the holding and managing of property used by the company or any of its subsidiaries for the purposes of—
i
research and development from which it is intended that a qualifying trade to be carried on by the company or any of its subsidiaries will be derived; or
ii
one or more qualifying trades so carried on.
3E
Activities of a subsidiary of a company shall also be disregarded for the purposes of subsections (3A) to (3C) above to the extent that they consist in—
a
the making of loans to the company; or
b
in the case of a mainly trading subsidiary, activities carried on otherwise than in pursuance of its main purpose.
3F
For the purposes of subsection (3E) above—
a
“mainly trading subsidiary” means a subsidiary which, apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, exists wholly for the purpose of carrying on one or more qualifying trades; and
b
that purpose shall be taken to be its main purpose.
F24
F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F154A
A company F23. . . shall not be regarded as ceasing to comply with subsection (2) above by reason F24only of anything done as a consequence of F25the company, or any of its subsidiaries, being in administration or receivership.
This subsection has effect subject to subsection (4B) and subsection (5) below.
4B
Subsection (4A) applies only if—
a
F21the entry into administration or receivership, and
b
everything done as a consequence of the company F26concerned being in administration or receivership,
is for bona fide 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.
C15
M1Without prejudice to the generality of subsection (2) above, but subject to subsection (6) below, a company ceases to comply with that subsection if before the end of the relevant period a resolution is passed, or an order is made, for the winding up of the company F27or any of its subsidiaries (or, in the case of a winding up otherwise than under the M2Insolvency Act 1986 or the M3Companies (Northern Ireland) Order 1986, any other act is done for the like purpose) or the company F28or any of its subsidiaries is dissolved without winding up.
6
A company shall not be regarded as ceasing to comply with subsection (2) above if it does so F29by reason only of the company or any of its subsidiaries being wound up or dissolved without winding up and—
a
b
F16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F316ZA
The company must not at any time in the relevant period have a property managing subsidiary which is not a qualifying 90% subsidiary of the company.
6ZB
“Property managing subsidiary” means a subsidiary of the company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.
6ZC
In subsection (6ZB) above, “land” and “property deriving its value from land” have the same meaning as in section 776.
F136A
The value of the relevant assets—
a
must not exceed £15 million immediately before the issue of the eligible shares; and
b
must not exceed £16 million immediately afterwards.
6B
Subject to subsection (6C) below, the reference in subsection (6A) above to the value of the relevant assets is a reference—
a
in relation to a time when the company did not have any qualifying subsidiaries, to the value of the gross assets of the company at that time; and
b
in relation to any other time, to the aggregate value at that time of the gross assets of all the companies in the company’s group.
6C
For the purposes of subsection (6B) above assets of any member of the company’s group that consist in rights against, or in shares in or securities of, another member of the group shall be disregarded.
6D
In subsections (6B) and (6C) above references, in relation to any time, to the company’s group are references to the company and its qualifying subsidiaries at that time.
7
F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F6F17C38
Subject to section 304A, the company must not at any time in the relevant period—
a
control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary, or
b
be—
i
a 51% subsidiary of another company, or
ii
under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company,
and no arrangements must be in existence at any time in that period by virtue of which the company could fall within paragraph (a) or (b) above (whether during that period or otherwise).
8AA
In subsection (8)(b) above “control” has the meaning given by section 840.
8A
Section 312(1A)(b) applies to determine the relevant period for the purposes of this section and sections 294, 295 and 296.
F78B
In arriving at the relevant period for the purposes of sections 294 to 296 any time falling on or after 29th November 1994 shall be ignored; and subsection (8A) above shall have effect subject to the preceding provisions of this subsection.
F39
F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F310
F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F311
F5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pt. 7 Ch. 3 heading substituted (with effect in accordance with s. 137(2) of the amending Act) by Finance Act 1994 (c. 9), s. 137(1), Sch. 15 para. 2