Seed Enterprise Investment Scheme

May 16, 2012 | Publisher: edocr | Category: Business & Economics |  | Collection: Migrated Docs | Views: 0 | Likes: 1

Seed Enterprise Investment Scheme Who is likely to be affected? Smaller, early stage companies raising equity, and individuals investing in such companies. General description of the measure This measure introduces a new tax-advantaged venture capital scheme, similar to the Enterprise Investment Scheme (EIS). The new scheme – the Seed Enterprise Investment Scheme (SEIS) – will be focused on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade. The scheme will make available tax relief to investors who subscribe for shares and have a stake of less than 30 per cent in the company. The relief will apply to investments made on or after 6 April 2012. For the first year of the new scheme, the Government will offer a capital gains tax (CGT) holiday – gains realised on the disposal of assets in 2012-13 that are invested through SEIS in the same year will be exempt from CGT. Policy objective The measure will support the Government's growth agenda by helping smaller, riskier, early stage UK companies, which may face barriers in raising external finance, to attract investment, making it easier for these companies to be established and to grow. Background to the measure The Government announced at Budget 2011 that it would bring forward proposals to support investment in smaller, early stage companies. A consultation document, Tax-advantaged venture capital schemes: a consultation was published on the Treasury website on 6 July 2011 setting out in detail a number of design issues concerning the new scheme. The Government's consultation response document was published on 6 December 2011. Detailed proposal Operative date The relief will apply to shares issued on or after 6 April 2012. Current law The EIS legislation is in Part 5 of the Income Tax Act (ITA) 2007. Sections 150A and 150B of the Taxation of Chargeable Gains Act 1992 make provision for exemption from capital gains tax of gains on disposals of shares in companies within the scope of the EIS. Schedule 5B of that Act provides for deferral of gains on disposals of assets where those gains are reinvested in shares under the EIS. Proposed changes Legislation will be included in Finance Bill 2012 to provide for a new tax advantaged venture capital scheme. This will: • apply to smaller companies, those with 25 or fewer employees and assets of up to £200,000, which are carrying on or preparing to carry on a new business; • give income tax relief worth 50 per cent of the amount invested to individual investors with a stake of less than 30 per cent in such companies, including directors who invest in their companies; • apply to subscriptions for shares, using the same definition of eligible shares as EIS (which it is proposed will be widened in Finance Bill 2012); • apply to an annual amount of investment of £100,000 per investor, with unused annual amounts able to be carried back to the previous year, as under EIS; • provide for relief within an overall tax favoured investment limit of £150,000 for the company. To give the greatest degree of flexibility, this will be a cumulative limit, not an annual limit; • provide for an exemption from CGT on gains on shares within the scope of the SEIS; and, • provide for an exemption from CGT on gains realised from disposals of assets in 2012-13, where the gains are reinvested through the new SEIS in the same year. Summary of impacts Exchequer impact (£m) 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 - nil -50 -25 -20 -20 These figures are set out in Table 2.1 of the Autumn Statement and have been certified by the Office of Budget Responsibility. More detail can be found in the policy costings document published alongside the Autumn Statement. Economic impact Tax relief is provided to incentivise investment in companies that may face barriers in raising equity finance, including seed level companies. This relief will provide a more generous rate of relief than offered under EIS and will increase the incentive for individuals to invest in small companies and help new businesses to establish. This is likely to increase investment in these companies, which will contribute to wider economic growth. Impact on individuals and households Individual investors will be able to access a higher rate of relief than they would if they invested in qualifying companies under EIS or VCTs from April 2012. The scheme will also encourage individuals to become entrepreneurs with the backing of SEIS investors. Equalities impacts Compared to the self-assessment population, EIS and Venture Capital Trust (VCT) investors tend to be male, located in the south of England and have higher overall income levels; users of SEIS are likely to share these characteristics. No further data is available to suggest that there will be impacts on other groups. From the data available it is therefore envisaged that these changes will not have any further impact on those groups affected by equality legislation. Impact on business including civil society organisations The change should increase the amount of equity investment available to smaller companies (including potentially some in civil society organisations). The relief is claimed by investors rather than the investee companies, therefore there is unlikely to be any additional administrative burden on companies. It is estimated that 300 or more companies will benefit from investment under the scheme in its first year. Operational impact (£m) (HMRC or other) It is currently proposed that the scheme will be administered in a similar way to the EIS. There will therefore be a small increase in the work done by the offices that currently administer EIS and VCT work. There will also be some small costs in updating computer systems, forms and guidance. Other impacts Competition assessment: There will be a positive impact for small early stage companies receiving investment under SEIS, as more individuals will look to invest in such companies. It should not have any impact on competition as it will not affect or limit suppliers’ ability to compete. Small firms impact test: the proposed reforms are beneficial and will help to increase the provision of equity available to invest in small businesses. Monitoring and evaluation Uptake of the reliefs in terms of numbers of investors and investees, amounts of investment and the distribution of levels of investment will be regularly monitored and published. The Government will evaluate the scheme in 2016 to determine whether or not it should continue. Further advice If you have any questions about this change, please contact Kathryn Robertson on 020 7147 2589 (email: kathryn.robertson@hmrc.gsi.gov.uk) or Des Ryan on 020 7147 0818 (email: des.ryan@ hmrc.gsi.gov.uk). 54/1 Consultation draft 1 1 Seed enterprise investment scheme Schedule 1 contains provision about the seed enterprise investment scheme. Consultation draft Part 1 — The scheme 2 SCHEDULE 1 Section 1 SEED ENTERPRISE INVESTMENT SCHEME PART 1 THE SCHEME 1 In ITA 2007, after Part 5 (enterprise investment scheme) insert— “PART 5A SEED ENTERPRISE INVESTMENT SCHEME CHAPTER 1 INTRODUCTION SEIS relief 257A Meaning of “SEIS relief” and commencement (1) This Part provides for SEIS income tax relief (“SEIS relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares in companies carrying on new businesses. (2) In this Part “SEIS” stands for the seed enterprise investment scheme. (3) This Part has effect only in relation to shares issued— (a) on or after 6 April 2012, but (b) before 6 April 2017. (4) The Treasury may by order substitute a later date for the date for the time being specified in subsection (3)(b). 257AA Eligibility for SEIS relief An individual (“the investor”) is eligible for SEIS relief in respect of an amount subscribed by the investor on the investor’s own behalf for an issue of shares in a company (“the issuing company”) if— (a) the shares (“the relevant shares”) are issued to the investor, (b) the investor is a qualifying investor in relation to the relevant shares (see Chapter 2), (c) the general requirements (including requirements as to the purpose of the issue of shares and the use of money raised) are met in respect of the relevant shares (see Chapter 3), and (d) the issuing company is a qualifying company in relation to the relevant shares (see Chapter 4). Consultation draft Part 1 — The scheme 3 257AB Form and amount of SEIS relief (1) If an individual— (a) is eligible for SEIS relief in respect of any amount subscribed for shares, and (b) makes a claim in respect of all or some of the shares included in the issue, the individual is entitled to a tax reduction for the tax year in which the shares were issued (“the current tax year��). This is subject to the provisions of this Part. (2) The amount of the tax reduction to which the individual is entitled is the amount equal to tax at the SEIS rate for the current year on— (a) the amount or, as the case may be, the sum of the amounts subscribed for shares issued in that year in respect of which the individual is eligible for and claims SEIS relief, or (b) if less, £100,000. (3) In this Part “the SEIS rate” means 50%. (4) The tax reduction is given effect at Step 6 of the calculation in section 23. (5) If in the case of any issue of shares— (a) which are issued in the current year, and (b) in respect of the amount subscribed for which the individual is eligible for SEIS relief, the individual so claims, subsections (1) and (2) apply as if, in respect of such part of that issue as may be specified in the claim, the shares had been issued in the preceding tax year, and the individual’s liability to tax for both tax years is determined accordingly. Miscellaneous 257AC Meaning of “period A” and “period B” (1) This section applies for the purposes of this Part in relation to any shares issued by a company. (2) “Period A” means the period— (a) beginning with the incorporation of the company, and (b) ending immediately before the termination date relating to the shares. (3) “Period B” means the period— (a) beginning with the issue of the shares, and (b) ending immediately before the termination date relating to the shares. (4) In this section “the termination date”, in relation to the shares, means the third anniversary of the date on which the shares are issued. 257AD Overview of other Chapters of Part In this Part— Consultation draft Part 1 — The scheme 4 (a) Chapter 5 provides for the attribution of SEIS relief to shares and the making of claims for such relief, (b) Chapter 6 provides for SEIS relief to be withdrawn or reduced in the circumstances mentioned in that Chapter, (c) Chapter 7 makes provision with respect to the procedure for the withdrawal or reduction of SEIS relief, and (d) Chapter 8 contains supplementary and general provisions. 257AE CGT reliefs relating to SEIS Section 150E of TCGA 1992 makes provision about gains or losses on the disposal of shares to which SEIS relief is attributable. CHAPTER 2 THE INVESTOR Introduction 257B Overview of Chapter The investor is a qualifying investor in relation to the relevant shares if the requirements of this Chapter are met as to— (a) no employee investors (see section 257BA), (b) no substantial interest in the issuing company (see section 257BB), (c) no related investment arrangements (see section 257BC), (d) no linked loans (see section 257BD), and (e) no tax avoidance (see section 257BE). The requirements 257BA The no employee investors requirement (1) Neither the investor nor an associate of the investor may, at any time during period A, be an employee of the issuing company. (2) For this purpose a person is not to be treated as an employee of the issuing company at any time when the person is a director of that company. 257BB The no substantial interest in the issuing company requirement The investor must not have a substantial interest in the issuing company at any time during period A. 257BC The no related investment arrangements requirement The investor (“P”) must not subscribe for the relevant shares as part of an arrangement which provides for another person to subscribe for shares in another company in which P, or any other individual who is party to the arrangement, has a substantial interest. 257BD The no linked loan requirement (1) No linked loan is to be made by any person, at any time in period A, to the investor or an associate of the investor. Consultation draft Part 1 — The scheme 5 (2) In this section “linked loan” means any loan which— (a) would not have been made, or (b) would not have been made on the same terms, if the investor had not subscribed for the relevant shares, or had not been proposing to do so. (3) References in this section to the making by any person of a loan to the investor or an associate of the investor include a reference— (a) to the giving by that person of any credit to the investor or any associate of the investor, and (b) to the assignment to that person of a debt due from the investor or any associate of the investor. 257BE The no tax avoidance requirement The relevant shares must be subscribed for by the investor for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax. Meaning of substantial interest in a company 257BF Persons with a substantial interest in a company (1) An individual has a substantial interest in a company if the individual directly or indirectly possesses or is entitled to acquire more than 30% of— (a) the ordinary share capital of the company or any subsidiary of the company, (b) the issued share capital of the company or any such subsidiary, or (c) the voting power in the company or any such subsidiary. (2) An individual has a substantial interest in a company if the individual directly or indirectly possesses or is entitled to acquire such rights as would— (a) in the event of the winding up of the company or any subsidiary of the company, or (b) in any other circumstances, entitle the individual to receive more than 30% of the assets of the company or subsidiary (“the company in question”) which would then be available for distribution to equity holders of the company in question. (3) For the purposes of subsection (2)— (a) the persons who are equity holders of the company in question, and (b) the percentage of the assets of the company in question to which the individual would be entitled, are determined in accordance with Chapter 6 of Part 5 of CTA 2010. (4) In making that determination— (a) references in section 166 of that Act to company A are to be read as references to an equity holder, and Consultation draft Part 1 — The scheme 6 (b) references in that section to a winding up are to be read as including a reference to any other circumstances in which assets of the company in question are available for distribution to its equity holders. (5) An individual does not have a substantial interest in a company merely because one or more shares in the company are held by the individual or by an associate of the individual, at a time when the company— (a) has not issued any shares other than subscriber shares, and (b) has not begun to carry on, or make preparations for carrying on, any trade or business. (6) An individual has a substantial interest in a company if the individual has control of the company or any subsidiary of that company. (7) In this section “subsidiary”, in relation to a company, means a company which at any time in period A is a 51% subsidiary of the company, whether or not it is such a subsidiary while the individual concerned has, or is entitled to acquire, such capital, voting power, rights or control as are mentioned in this section. CHAPTER 3 GENERAL REQUIREMENTS Introduction 257C Overview of Chapter The general requirements are met in respect of the relevant shares if the requirements of this Chapter are met as to— (a) the shares (see section 257CA), (b) the purpose of the issue (see section 257CB), (c) the spending of the money raised (see section 257CC), (d) no pre-arranged exits (see section 257CD), (e) no tax avoidance (see section 257CE), and (f) no disqualifying arrangements (see section 257CF). The requirements 257CA The shares requirement (1) The relevant shares must meet— (a) the requirements of subsection (2), and (b) unless they are bonus shares, the requirements of subsection (4). (2) Shares meet the requirements of this subsection if they are ordinary shares which do not, at any time during period B, carry— (a) any present or future preferential right to dividends that is within subsection (3), Consultation draft Part 1 — The scheme 7 (b) any present or future preferential right to a company’s assets on its winding up, or (c) any present or future right to be redeemed. (3) A preferential right to dividends carried by a share in a company is within this subsection if— (a) the amount of any dividends payable pursuant to the right, or the date or dates on which they are payable, depend to any extent on a decision of the company, the holder of the share or any other person, or (b) the amount of any dividends that become payable at any time pursuant to the right includes any amount that became payable at any earlier time pursuant to the right but has not been paid. (4) Shares meet the requirements of this subsection if they— (a) are subscribed for wholly in cash, (b) are fully paid up at the time they are issued, and (c) are held by the investor throughout period B. (5) For the purposes of subsection (4)(c), any part of period B which falls after the investor’s death or during which the investor is incapacitated by infirmity or other cause is to be ignored. 257CB The purpose of the issue requirement (1) The relevant shares (other than any of them which are bonus shares) must be issued in order to raise money for the purposes of a qualifying business activity carried on, or to be carried on, by the issuing company. (2) For the meaning of “qualifying business activity” see section 257HD. 257CC The spending of the money raised requirement (1) The requirement of this section is that before the end of period B all of the money raised by the issue of the relevant shares (other than any of them which are bonus shares) is spent by the issuing company for the purposes of the qualifying business activity for which it was raised. (2) This requirement does not fail to be met merely because an amount of money which is not significant is spent for another purpose. 257CD The no pre-arranged exits requirement (1) The issuing arrangements for the relevant shares must not include— (a) arrangements with a view to the subsequent repurchase, exchange or other disposal of those shares or of other shares in or securities of the issuing company, (b) arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the issuing company or a person connected with that company, (c) arrangements for the disposal of, or of a substantial amount (in terms of value) of, the assets of the issuing company or of a person connected with that company, or Consultation draft Part 1 — The scheme 8 (d) arrangements the main purpose of which, or one of the main purposes of which, is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for persons investing in shares in the issuing company against what would otherwise be the risks attached to making the investment. (2) The arrangements referred to in subsection (1)(b) and (c) do not include any arrangements applicable only on the winding up of a company except in a case where— (a) the issuing arrangements include arrangements for the company to be wound up, or (b) the arrangements are applicable to the winding up of the company otherwise than for genuine commercial reasons. (3) The arrangements referred to in subsection (1)(d) do not include any arrangements which are confined to the provision for the issuing company of any such protection against risks arising in the course of carrying on its business as might reasonably be expected to be provided in normal commercial circumstances. (4) In this section “the issuing arrangements” means— (a) the arrangements under which the shares are issued to the individual, (b) any arrangements made, before the shares were issued, in relation to or in connection with the issue, and (c) if before the shares were issued information on pre-arranged exits was made available to any prospective subscribers for shares in the issuing company, any arrangements made during period B. (5) For the purposes of subsection (4)(c) “information on pre-arranged exits” means any information indicating the possibility of making, during period B, arrangements of the kind described in paragraph (a), (b), (c) or (d) of subsection (1). 257CE The no tax avoidance requirement The relevant shares must be issued for genuine commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax. 257CF The no disqualifying arrangements requirement (1) The relevant shares must not be issued in consequence of, or otherwise in connection with, disqualifying arrangements. (2) Arrangements are “disqualifying arrangements” if— (a) the main purpose, or one of the main purposes, of any person (“P”) in being a party to them is to secure— (i) that the issuing company carries on a business which consists of or includes the relevant qualifying business activity, and (ii) that one or more persons (whether or not including P) may obtain relevant tax relief in respect of shares issued by the issuing company which raise money for the purposes of that activity or that such shares may Consultation draft Part 1 — The scheme 9 comprise part of the qualifying holdings of a VCT, and (b) one or both of conditions A and B are met. (3) Condition A is that, as a (direct or indirect) result of the money raised by the issue of the relevant shares being spent as required by section 257CC, an amount representing the whole or the majority of the amount raised is paid to or for the benefit of a party to the arrangements or a person connected with such a party. (4) Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the component activities of the relevant qualifying business activity would have been carried on as part of another business (whether by P or any other person). (5) For the purposes of this section it is immaterial whether the issuing company is a party to the arrangements. (6) In this section— “component activities” means— (a) if the relevant qualifying business activity is activity A (see section 257HD(2)), the carrying on of a new qualifying trade, or preparing to carry on such a trade, which constitutes that activity, and (b) if the relevant qualifying business activity is activity B (see section 257HD(4)), the carrying on of research and development which constitutes that activity; “qualifying holdings”, in relation to the issuing company, is to be construed in accordance with section 286 (VCTs: qualifying holdings); “relevant qualifying business activity” means the activity for the purposes of which the issue of the relevant shares raised money; “relevant tax relief”, in respect of shares, means one or more of the following— (a) SEIS relief in respect of the shares; (b) EIS relief in respect of the shares; (c) relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares; (d) relief under section 150A or 150E of TCGA 1992 (enterprise investment scheme) in respect of the shares; (e) relief under Schedule 5B to that Act (enterprise investment scheme: reinvestment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule). Consultation draft Part 1 — The scheme 10 CHAPTER 4 THE ISSUING COMPANY Introduction 257D Overview of Chapter The issuing company is a qualifying company in relation to the relevant shares if the requirements of this Chapter are met as to— (a) the timing of incorporation (see section 257DA), (b) the purpose of existence (see section 257DB), (c) the issuing company to carry on the qualifying business activity (see section 257DD), (d) UK permanent establishment (see section 257DE), (e) financial health (see section 257DF), (f) unquoted status (see section 257DG), (g) control and independence (see 257DH), (h) no partnerships (see section 257DI), (i) gross assets (see section 257DJ), (j) number of employees (see section 257DK), (k) no previous other risk capital scheme investments (see section 257DL), and (l) the maximum amount raised through the SEIS (see section 257DM) The requirements 257DA The timing of incorporation requirement The issuing company must have been incorporated within the period of two years ending with the day on which the relevant shares are issued. 257DB The purpose of existence requirement (1) The issuing company must meet the purpose of existence requirement throughout period B. (2) The purpose of existence requirement is that the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more new qualifying trades (see section 257HC). (3) Where period B begins after the incorporation of the company, the requirement of subsection (2) must have been complied with since its incorporation; but for the purposes of that subsection any interval between the incorporation of the company and the time when it commenced business is to be ignored. (4) 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 company in question. Consultation draft Part 1 — The scheme 11 257DC Ceasing to meet purpose of existence requirement: administration etc (1) A company is not regarded as ceasing to meet the purpose of existence requirement merely because of anything done in consequence of the company being in administration or receivership. 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 being in administration or receivership, is for genuine 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. (3) A company ceases to meet the purpose of existence requirement if before the end of period B— (a) a resolution is passed, or an order is made, for the winding up of the company (or, in the case of a winding up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, any other act is done for the like purpose), or (b) the company is dissolved without winding up. 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 a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax. 257DD The issuing company to carry on the qualifying business activity (1) The requirement of this section is met in relation to the issuing company if, at no time in period B, is any of the following— (a) the relevant new qualifying trade, (b) relevant preparation work (if any), and (c) relevant research and development (if any), carried on by a person other than the issuing company. (2) The requirement of this section is not regarded as failing to be met in relation to the issuing company if, merely because of any act or event within subsection (3), the relevant new qualifying trade— (a) ceases to be carried on in period B by the issuing company, and (b) is subsequently carried on in that period by a person who is not at any time in period A connected with the issuing company. (3) The following are acts and events within this subsection— (a) anything done as a consequence of the issuing company being in administration or receivership, and (b) the issuing company being wound up, or dissolved without being wound up. (4) Subsection (2) applies only if— Consultation draft Part 1 — The scheme 12 (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 a scheme or arrangement the main purpose of or one of the main purposes of which is the avoidance of tax. (5) In this section— “relevant preparation work” means preparations within section 257HD(2)(b) which are the subject of the qualifying business activity mentioned in section 257CB; “the relevant new qualifying trade” means the new qualifying trade which is the subject of that qualifying business activity; “relevant research and development” means— (a) research and development within section 257HD(4) which is the subject of that qualifying business activity, and (b) any other preparations for the carrying on of the new qualifying trade which is the subject of that activity. 257DE The UK permanent establishment requirement (1) The issuing company must meet the UK permanent establishment requirement throughout period B. (2) The UK permanent establishment requirement is that the issuing company has a permanent establishment in the United Kingdom. 257DF The financial health requirement (1) The issuing company must meet the financial health requirement at the beginning of period B. (2) The financial health requirement is that the issuing company is not in difficulty. (3) The issuing company 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). 257DG The unquoted status requirement (1) At the beginning of period B— (a) the issuing company must be an unquoted company, and (b) there must be no arrangements in existence for the issuing company to cease to be an unquoted company. (2) In this section “unquoted company” means a company none of whose shares, stocks, debentures or other securities are marketed to the general public. (3) For the purposes of subsection (2), shares, stock, debentures or other securities are marketed to the general public if they are— (a) listed on a recognised stock exchange, Consultation draft Part 1 — The scheme 13 (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. (4) In subsection (3)(b) or (c) “designated” means designated by an order made by the Commissioners for Her Majesty’s Revenue and Customs for the purposes of that provision. (5) An order made for the purposes of subsection (3)(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. (6) The arrangements referred to in subsection (1)(b) do not include arrangements in consequence of which any shares, stocks, debentures or other securities of the company are at any subsequent time— (a) listed on a stock exchange that is a recognised stock exchange by virtue of an order made 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 (3)(b) or (c), if the order was made after the beginning of period B. 257DH The control and independence requirement (1) The control element of the requirement is that— (a) the issuing company must not at any time in period A control (whether on its own or together with any person connected with it) any company, and (b) no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise). (2) The independence element of the requirement is that— (a) the issuing company must not at any time in period A be under the control of any other company (whether on its own or together with any person connected with it), and (b) no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise). 257DIThe no partnerships requirement (1) The issuing company must not, at any time during period A, be a member of a partnership. (2) “Partnership” includes— (a) a limited liability partnership, and (b) an entity established under the law of a territory outside the United Kingdom of a similar character to a partnership, and “member”, in relation to a partnership, is to be read accordingly. Consultation draft Part 1 — The scheme 14 257DJ The gross assets requirement (1) The total of— (a) the value of the issuing company’s assets, and (b) the appropriate proportion of the value of the assets of each entity related to that company (if any), must not exceed £200,000 immediately before the relevant shares are issued. (2) In subsection (1)— (a) an entity is related to the issuing company if the entity and company are partner enterprises by reason of the entity holding 25% or more of the capital or voting rights of the issuing company, and (b) “the appropriate proportion”, in relation to a related entity, means whichever is the greater of— (i) the proportion of capital of the issuing company held by that entity, and (ii) the proportion of voting rights in the issuing company held by that entity. (3) In this section “partner enterprises” has the meaning given by Annex 1 to the Commission Regulation (EC) No 800/2008 (General block exemption Regulation). 257DK The number of employees requirement (1) The total of— (a) the full-time equivalent employee number for the issuing company, and (b) the appropriate proportion of the full-time equivalent employee number for each entity related to that company (if any), must be less than 25 when the relevant shares are issued. (2) Subsections (2) and (3) of section 257DJ apply for the purposes of subsection (1) of this section. (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 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 (b) do not include— (i) an employee on maternity or paternity leave, or (ii) a student on vocational training. Consultation draft Part 1 — The scheme 15 257DL No previous other risk capital scheme investments (1) The requirement of this section is that no EIS investment or VCT investment is or has been made in the issuing company on or before the day on which the relevant shares are issued. (2) An “EIS investment” is made in the company if the company— (a) issues shares (money having been subscribed for them), and (b) (at any time) provides a compliance statement under section 205 in respect of the shares; and the EIS investment is regarded as made when the shares are issued. (3) A “VCT investment” is made in the company if an investment (of any kind) in the company is made by a VCT. 257DM The maximum amount raised through SEIS (1) The total amount of SEIS investments made in the issuing company must not exceed £150,000. (2) An “SEIS investment” is made in a company if— (a) the company issues shares (money having been subscribed for them), and (b) (at any time) the company provides a compliance statement under section 257ED in respect of the shares; and the SEIS investment is made when the shares are issued. (3) Subsection (4) applies where— (a) an issue of shares is made by the issuing company, or two or more such issues are made on the same day, (b) ignoring the issue or issues mentioned in paragraph (a), the total amount of the SEIS investments previously made in the issuing company is less than £150,000 and (c) the sum of that total amount and the total amount subscribed for the shares in the issue or issues mentioned in paragraph (a) exceeds £150,000. (4) In the case of the issue or each of the issues mentioned in subsection (3)(a)— (a) the appropriate proportion of the shares in the issue and the remainder are to be treated as two separate issues for the purposes of this Part, and (b) the requirement in subsection (1) is met in respect of the issue comprised of the appropriate proportion of the shares in the issue, but not in respect of the issue comprised of the remaining shares. (5) “The appropriate proportion” of the shares is— Where— A B – C ------------- Consultation draft Part 1 — The scheme 16 “A” is £150,000, “B” is the total amount of the SEIS investments previously made in the issuing company (as mentioned in subsection (3)(b)), and “C” is the total amount subscribed for the issue or issues mentioned in subsection (3)(a). CHAPTER 5 ATTRIBUTION AND CLAIMS FOR SEIS RELIEF Attribution 257E Attribution of SEIS relief to shares (1) References in this Part, in relation to any individual, to the SEIS relief attributable to any shares or issue of shares are to be read as references to any reduction made in the individual’s liability to income tax that is attributed to those shares or that issue in accordance with this section. This is subject to the provisions of Chapters 6 and 7 providing for the withdrawal or reduction of SEIS relief. (2) If an individual’s liability to income tax is reduced in any tax year, then— (a) if the reduction is obtained because of one issue of shares, the amount of the tax reduction is attributed to that issue, and (b) if the reduction is obtained because of two or more issues of shares, the amount of the reduction— (i) is apportioned between those issues in the same proportions as the amounts claimed by the individual in respect of each issue, and (ii) is attributed to those issues accordingly. (3) If under this section an amount of any reduction of income tax is attributed to an issue of shares (“the original issue”), a proportionate part of that amount is attributed to each share in respect of which the claim is made. (4) If corresponding bonus shares are issued to the individual in respect of any shares (“the original shares”) to which SEIS relief is attributed— (a) a proportionate part of the total amount attributed to the original shares immediately before the bonus shares are issued is 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 Part applies as if the original issue had included those shares. (5) In subsection (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 section 257AB(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, this Consultation draft Part 1 — The scheme 17 section has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year). (7) If, at a time when SEIS relief is attributable to, or to any part of, any issue of shares, the relief falls to be withdrawn or reduced under Chapters 6 and 7— (a) if it falls to be withdrawn, the relief attributable to each of the shares in question is reduced to nil, and (b) if it falls to be reduced by any amount, the relief attributable to each of the shares in question is reduced by a proportionate part of that amount. Claims: general 257EA Time for making claims for SEIS relief (1) A claim for SEIS relief in respect of shares issued by a company in any tax year— (a) may not be made until at least 70% of the money raised by the issue has been spent by the issuing company for the purposes of the qualifying business activity for which it was raised, and (b) may not be made later than the fifth anniversary of the normal self-assessment filing date for the tax year. (2) If section 257AB(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, this section has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year). 257EB Entitlement to claim (1) The investor is entitled to make a claim for SEIS relief in respect of the amount subscribed by the investor for the relevant shares if the investor has received from the issuing company a compliance certificate in respect of those shares. (2) For the purposes of PAYE regulations no regard is to be had to SEIS relief unless a claim for it has been duly made. (3) No application may be made under section 55(3) or (4) of TMA 1970 (application for postponement of payment of tax pending appeal) on the ground that the investor is eligible for SEIS relief unless a claim for the relief has been duly made by the investor. Claims: supporting documents 257EC Compliance certificates (1) A “compliance certificate” is a certificate which— (a) is issued by the issuing company in respect of the relevant shares, Consultation draft Part 1 — The scheme 18 (b) states that, except so far as they fall to be met by or in relation to the investor, the requirements for SEIS relief are for the time being met in relation to those shares, and (c) is in such form as the Commissioners for Her Majesty’s Revenue and Customs may direct. (2) The issuing company must not issue a compliance certificate until it has spent at least 70% of the money raised by the issue of shares which includes the relevant shares for the purposes of the qualifying business activity for which it was raised (3) Before issuing a compliance certificate in respect of the relevant shares, the issuing company must provide an officer of Revenue and Customs with a compliance statement in respect of the issue of shares which includes the relevant shares. (4) The issuing company must not issue a compliance certificate without the authority of an officer of Revenue and Customs. (5) If the issuing company, or a person connected with the issuing company, has given notice to an officer of Revenue and Customs under section 257GF, a compliance certificate must not be issued unless the authority is given or renewed after the receipt of the notice. (6) If an officer of Revenue and Customs— (a) has been requested to give or renew an authority to issue a compliance certificate, and (b) has decided whether or not to do so, the officer must give notice of the officer’s decision to the issuing company. 257ED Compliance statements (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 met by or in relation to the individuals to whom shares included in that issue have been issued, the requirements for SEIS relief (see section 257AA)— (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. (2) In determining for the purposes of subsection (1) whether the requirements for SEIS relief are met at any time in relation to the issue of shares, references in this Part to the relevant shares are read as references to the shares included in the issue. (3) A compliance statement must be in such form as the Commissioners for Her Majesty’s Revenue and Customs direct and must contain— (a) such additional information as the Commissioners reasonably require, including in particular information relating to the persons who have requested the issue of compliance certificates, (b) a declaration that the statement is correct to the best of the issuing company’s knowledge and belief, and Consultation draft Part 1 — The scheme 19 (c) such other declarations as the Commissioners may reasonably require. 257EE Appeal against refusal to authorise compliance certificate For the purposes of the provisions of TMA 1970 relating to appeals, the refusal of an officer of Revenue and Customs to authorise the issue of a compliance certificate is taken to be a decision disallowing a claim by the issuing company. 257EF Penalties for fraudulent certificate or statement etc 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 section 257EC(2), (4) or (5). 257EG Power to amend sections 257EC and 257ED by Treasury order (1) The Treasury may by order make such amendments of sections 257EC and 257ED as they consider appropriate. (2) An order under this section may include incidental, supplemental, consequential and transitional provision and savings. CHAPTER 6 WITHDRAWAL OR REDUCTION OF SEIS RELIEF Introduction 257F Overview of Chapter This Chapter provides for SEIS relief to be withdrawn or reduced under— (a) section 257FA (disposal of shares), (b) section 257FC (call options), (c) section 257FD (put options), (d) section 257FE (value received by the investor), (e) section 257FP (acquisition of a trading asset), (f) section 257FQ (relief subsequently found not to have been due). 257FA Disposal of shares (1) This section applies if— (a) the investor disposes of any of the relevant shares, (b) the disposal takes place before period B ends, and (c) SEIS relief is attributable to the shares. (2) If the disposal is not made by way of a bargain made at arm’s length, the SEIS relief attributable to the shares must be withdrawn. (3) If the disposal is made by way of a bargain made at arm’s length, the SEIS relief attributable to the shares must— Consultation draft Part 1 — The scheme 20 (a) if it is greater than the amount given by the formula set out below, be reduced by that amount, and (b) in any other case, be withdrawn. The formula is— where— R is the amount or value of the consideration received by the investor for the shares, and SEISR is the SEIS rate. (4) This section does not apply to a disposal of shares to which an amount of SEIS relief is attributable if— (a) the disposal was made by an individual (“A”) to another individual (“B”), and (b) A and B were married to, or were civil partners of, each other and living together at the time of the disposal. (5) Section 257HA contains rules for determining which shares of any class are treated as disposed of for the purposes of this section if the investor disposes of some but not all the shares of that class which are held by the investor. 257FB Cases where maximum SEIS relief not obtained (1) If the investor’s liability to income tax is reduced for any tax year in respect of any issue of shares and— (a) the amount of the reduction (“A”), is less than (b) the amount (“B”) which is equal to tax at the SEIS rate on the amount on which the investor claims SEIS relief in respect of the shares, section 257FA(3) has effect in relation to a disposal of any of the shares as if the amount or value referred to as “R” were reduced by multiplying it by the fraction— (2) If section 257AB(1) and (2) applies in the case of any issue of shares as if part of the issue had been issued in a previous tax year, subsection (1) has effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous tax year). (3) If the amount of SEIS relief attributable to any of the relevant shares has been reduced before the SEIS relief was obtained, the amount referred to in subsection (1) as A is to be treated for the purposes of R SEISR × A B --- Consultation draft Part 1 — The scheme 21 that subsection as the amount that it would have been without that reduction. (4) Subsection (3) does not apply to a reduction of SEIS relief by virtue of section 257E(4) (attribution of SEIS relief if there is a corresponding issue of bonus shares). 257FC Call options (1) This section applies if the investor grants an option which, if exercised, would bind the investor to sell any of the relevant shares. (2) The grant of the option is treated for the purposes of section 257FA as a disposal of the shares to which the option relates. (3) Nothing in this section prejudices section 257CD (no pre-arranged exits). 257FD Put options (1) This section applies if, at any time in period A, a person grants the investor an option which, if exercised, would bind the grantor to purchase any of the relevant shares. (2) Any SEIS relief attributable to the shares to which the option relates must be withdrawn. (3) For the purposes of subsection (2) the shares to which an option relates are those which, if— (a) the option were exercised immediately after the grant, and (b) any shares in the issuing company acquired by the investor after the grant were disposed of immediately after being acquired, would be treated for the purposes of section 257FA as disposed of in pursuance of the option. Value received by investor 257FE Value received by the investor (1) This section applies if the investor receives any value from the issuing company at any time in period A relating to the relevant shares. (2) Any SEIS relief attributable to the shares must— (a) if it is greater than the amount given by the formula set out below, be reduced by that amount, and (b) in any other case, be withdrawn. The formula

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