Finance Act 2000

• (4) Sub-paragraph (1) does not apply if, at a relevant time, arrangements are in existence that provide—

• (a) for a repayment by the issuing company or any subsidiary of that company (whether or not it is such a subsidiary at the time the arrangements are made), or

• (b) for anyone to be entitled to such a repayment,

at any time in the period of restriction relating to the shares.

• (5) For the purposes of sub-paragraph (4) “a relevant time” means 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.

Provision supplementary to paragraph 56 and 57

58

• (1) Any repayment shall be disregarded for the purposes of paragraph 56(1) (repayments etc. which cause withdrawal of investment relief) to the extent to which investment relief attributable to any shares has already been reduced or withdrawn on its account.

• (2) In any case where—

• (a) investment relief is attributable to such of the relevant shares as are held by the investing company;

• (b) the issuing company has made one or more other issues of shares each of which includes shares (“designated shares”) to which investment relief is attributable, and

• (c) the repayment falls—

• (i) within the period of restriction relating to the relevant shares, and

• (ii) within one or more of the equivalent periods relating to any of the designated shares,

paragraph 56(4) shall have effect in relation to each of the issues of shares as if the amount received by the member, or (as the case may be) the appropriate fraction of that amount, were reduced by multiplying it by the relevant fraction.

• (3) For the purposes of sub-paragraph (2) “the equivalent period”, in relation to any designated 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.

For the purposes of determining the qualification period relating to any designated shares, the references in paragraph 3 to the relevant shares shall be read as references to those designated shares.

• (4) In sub-paragraph (2)—

• (a) “the appropriate fraction” has the meaning given by paragraph 56(5), and

• (b) “the relevant fraction” means—

$$EF$Where—E is the amount subscribed by companies for shares which are included in the issue in question and to which investment relief is or, but for paragraph 56(2)(b), would be attributable; andF is the aggregate of that amount and the corresponding amount or amounts for the other issue or issues.$

• (5) Where—

• (a) a company issues share capital of nominal value equal to the authorised minimum (within the meaning of the Companies Act 2006) for the purposes of complying with the requirements of section 761 of that Act (public company not to do business unless requirements as to share capital complied with), and

• (b) the registrar of companies issues the company with a certificate under section 761,

paragraph 56(1) shall not apply in relation to any redemption of those shares within 12 months of the date on which they were issued.

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) References in paragraphs 56 and 57 and this paragraph to a subsidiary of the issuing company are references to any company which at any time in the period of restriction relating to the relevant shares is a 51% subsidiary of the issuing company whether or not it is such a subsidiary at the time of the repayment in question.

• (8) For the purposes of this paragraph “repayment” has the meaning given in paragraph 57(2).

Put options and call options

59

• (1) Sub-paragraph (2) applies where—

• (a) an option, the exercise of which would bind the grantor to purchase any of the relevant shares, is granted to the investing company during the qualification period relating to those shares; or

• (b) an option, the exercise of which would bind the investing company to sell such shares, is granted by the investing company during that period.

• (2) Any investment relief attributable to the shares to which the option relates must be withdrawn.

• (3) The shares to which the 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 investing company after the grant were disposed of immediately after being acquired,

would be treated for the purposes of this Schedule as disposed of in pursuance of the option.

• (4) Nothing in this paragraph prejudices the operation of paragraph 37 (pre-arranged exits).

Withdrawal of relief

60

• (1) Where any investment relief has been obtained which—

• (a) is subsequently found not to have been due, or

• (b) falls to be withdrawn under this Part,

it shall be withdrawn by making an assessment to corporation tax ... for the accounting period for which the relief was obtained.

• (2) Investment relief obtained by the investing company in respect of the relevant shares may not be withdrawn on the ground—

• (a) that the issuing company is not a qualifying issuing company in relation to those shares,

• (b) that the requirements of Part IV of this Schedule are not met in respect of the shares,

• (c) by virtue of paragraph 47 (value received by investing company), or

• (d) by virtue of paragraph 56 (value received by other persons),

unless sub-paragraph (3) is satisfied.

• (3) This sub-paragraph is satisfied if—

• (a) either—

• (i) the issuing company has given notice under paragraph 65 (information to be provided by issuing company etc.) in relation to those shares, or

• (ii) the Inland Revenue have given notice to that company stating that, by reason of the ground in question, the whole or any part of the investment relief obtained by any company or companies in respect of shares included in the relevant issue of shares was not in their opinion due,

and

• (b) in the case of a withdrawal within sub-paragraph (2)(c) or (d), the Inland Revenue have given notice to the investing company stating the matters mentioned in paragraph (a)(ii) above.

• (4) In this paragraph—

• (a) references to the withdrawal of investment relief include its reduction; and

• (b) “the relevant issue of shares” means the issue of shares in the issuing company which includes the relevant shares.

Appeals against withdrawal of relief

61

For the purposes of the provisions of the Taxes Management Act 1970 relating to appeals, the giving of notice by the Inland Revenue under paragraph 60(3)(a)(ii) 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.

Time limits

62

• (1) The Inland Revenue may not—

• (a) make an assessment for withdrawing or reducing the investment relief attributable to any of the relevant shares, or

• (b) give a notice under paragraph 60(3)(a)(ii) or (b),

more than six years after the end of the relevant accounting period.

• (2) In sub-paragraph (1) “the relevant accounting period” means—

• (a) the accounting period in which the time mentioned in paragraph 36(1) (time limit for employing money raised) falls, or

• (b) the accounting period in which the event which causes the investment relief to be withdrawn or reduced occurs,

whichever is later.

• (3) This paragraph is subject to sub-paragraphs (2) and (3) of paragraph 46 of Schedule 18 to the Finance Act 1998 (fraud or negligence).

Those sub-paragraphs shall apply in relation to any notice under paragraph 60(3)(a)(ii) or (b) as if it were an assessment relating to the accounting period to which any assessment made by virtue of the notice would relate.

Interest

63

• (1) This paragraph applies where—

• (a) investment relief is withdrawn or reduced by virtue of—

• (i) a failure to meet any of the requirements of paragraphs 5 to 10 or of Part III of this Schedule (requirements to be met in relation to investing company or issuing company);

• (ia) paragraph 35A (maximum amount raised annually through risk capital schemes);

• (ii) paragraph 46 (disposal of shares);

• (iii) paragraph 47 (value received by investing company);

• (iv) paragraph 56 (value received by other persons); or

• (v) paragraph 59 (put options and call options);

• (b) as a result, an assessment to corporation tax is made by virtue of paragraph 60; and

• (c) the relevant event occurs after the date when the tax assessed became due and payable or, if there is more than one such date, the latest of them.

• (2) Section 87A of the Taxes Management Act 1970 (interest on overdue corporation tax etc.) has effect in relation to the tax assessed as if it became due and payable on the date the relevant event occurred.

• (3) In this paragraph references to “the relevant event" are to the event by virtue of which the relief is withdrawn or reduced as mentioned in sub-paragraph (1)(a).

Information to be provided by the investing company

64

• (1) This paragraph applies where—

• (a) the investing company has obtained investment relief in respect of the relevant shares, and

• (b) an event occurs by reason of which—

• (i) the company is not a qualifying investing company in relation to those shares,

• (ii) the investment relief falls to be withdrawn or reduced by virtue of paragraph 47 (receipt of value by investing company), or

• (iii) the investment relief falls to be withdrawn or reduced by virtue of paragraph 59 (put options and call options).

• (2) Where this paragraph applies the investing company must give the Inland Revenue a notice containing particulars of the event.

• (3) Where the investing company—

• (a) is required under this paragraph to give notice of a receipt of value (within paragraph 49(1)), and

• (b) has knowledge of any replacement value received (or expected to be received) from the original recipient by the original supplier by reason of a qualifying receipt,

the notice shall include particulars of that receipt of replacement value (or expected receipt).

In this paragraph “replacement value”, “original recipient”, “original supplier” and “qualifying receipt” shall be construed in accordance with paragraph 54.

• (4) Subject to sub-paragraph (5), any notice required to be given by the company under sub-paragraph (2) must be given—

• (a) within 60 days after the event, or

• (b) where the event is the receipt of value by a person connected with the company (see paragraph 53), within 60 days after the company’s coming to know of the event.

• (5) In a case within sub-paragraph (1)(b)(ii), where the event occurred before the issue of the relevant shares, any notice required to be given by the investing company under sub-paragraph (2) must be given—

• (a) within 60 days after the issue of the shares, or

• (b) where—

• (i) the event is the receipt of value by a person connected with the company (see paragraph 53), and

• (ii) the company comes to know of the event on or after the issue of the shares,

within 60 days after the company’s coming to know of the event.

Information to be provided by the issuing company etc.

65

• (1) This paragraph applies where—

• (a) the issuing company has provided the Inland Revenue with a compliance statement in respect of an issue of shares, and

• (b) an event occurs by reason of which—

• (i) the issuing company is not a qualifying issuing company in relation to any of the shares included in that issue, or would not be such a company if investment relief had been obtained in respect of the shares in question,

• (ii) the requirements of Part IV of this Schedule are not met in respect of any of the shares included in that issue, or would not be met if investment relief had been obtained in respect of the shares in question, or

• (iii) paragraph 47 (value received by investing company) or 56 (value received by other persons) has effect to cause any investment relief attributable to any of the shares included in that issue to be withdrawn or reduced, or would have such an effect if investment relief had been obtained in respect of the shares in question.

• (2) Where this paragraph applies—

• (a) the company, and

• (b) any person connected with the company who has knowledge of the matters mentioned in sub-paragraph (1),

must give the Inland Revenue a notice containing particulars of the event.

• (3) Sub-paragraph (3) of paragraph 64 shall apply in relation to a person required to give notice under this paragraph of a receipt of value within paragraph 49(1) as it applies to a company required to give such a notice under paragraph 64.

• (4) Subject to sub-paragraph (6) any notice required to be given by a company under sub-paragraph (2)(a) must be given—

• (a) within 60 days after the event, or

• (b) where the event is—

• (i) a failure by the company to meet the requirement of paragraph 18 (the “individual-owners requirement”) in respect of any of those shares; or

• (ii) a receipt of value within paragraph 49(1) from a person connected with the company (see paragraph 53),

within 60 days after the company’s coming to know of the event.

• (5) Subject to sub-paragraph (6) any notice required to be given by a person within sub-paragraph (2)(b) must be given within 60 days after the person’s coming to know of the event.

• (6) In a case within sub-paragraph (1)(b)(iii), any notice required to be given by a person under sub-paragraph (2) must be given within 60 days after the issue of the shares if—

• (a) the event occurred, and

• (b) the person came to know of it,

before those shares were issued.

Power of Inland Revenue to obtain information

66

• (1) This paragraph applies where the Inland Revenue have reason to believe that a company or other person—

• (a) has not given a notice which it is required to give under paragraph 64 or 65 in respect of any event, or

• (b) has given or received value (within the meaning of paragraph 49(1)) which, but for the fact that the amount given or received was an amount of insignificant value, would have triggered a requirement to give such a notice.

• (2) The Inland Revenue may by notice require the person concerned to furnish them, within such time as the Inland Revenue may direct (not being less than 60 days), with such information relating to the event as the Inland Revenue may reasonably require for the purposes of this Schedule.

• (3) In sub-paragraph (1)(b) the reference to an amount of insignificant value shall be construed in accordance with paragraph 47(7)(b).

Part VII — Relief for losses on disposals of shares

Eligibility for relief against income

67

• (1) The investing company is eligible for relief under this Part (“loss relief”) if—

• (a) it incurs an allowable loss on the disposal of shares to which investment relief is attributable (and not withdrawn in full as a result of the disposal), and

• (b) the requirements of sub-paragraphs (2) and (3) are met.

• (2) The first requirement is that the shares must have been held continuously by the investing company from the time they were issued until the disposal.

• (3) The second requirement is that the disposal on which the loss is incurred must be a disposal of the kind described in paragraph (a), (b), (c) or (d) of paragraph 46(2).

Entitlement to claim

68

• (1) Where the investing company is eligible for loss relief it may make a claim requiring that the loss be set off for the purposes of corporation tax against income—

• (a) of the accounting period in which the loss is incurred, and

• (b) if the claim so requires, of accounting periods ending within the preceding 12 month period.

• (2) A claim under sub-paragraph (1) must be made within two years after the end of the accounting period in which the loss is incurred.

• (3) In this paragraph “the preceding 12 month period” means the 12 months ending immediately before the accounting period in which the loss is incurred.

Form of loss relief

69

• (1) Where a claim is made under sub-paragraph (1) of paragraph 68, the income of any of the accounting periods mentioned in that sub-paragraph shall then be treated as reduced by the amount of the loss or by so much of it as cannot be relieved under this sub-paragraph against income of a later accounting period.

This is subject to loss relief first being obtained for any earlier loss.

• (2) The amount of the reduction which may be made under this paragraph in the income of an accounting period beginning before the preceding 12 month period (within the meaning of paragraph 68(3)) shall not exceed a part of that income proportionate to the part of the accounting period falling within that period.

Priority of loss relief

70

• (1) Where loss relief is claimed by the investing company it must be claimed—

• (a) in priority to any relief claimed by that company under Chapter 5 of Part 4 of CTA 2010 (relief for loss on disposal of shares in certain trading companies by investment companies), ...

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) Where loss relief is obtained for an amount of a loss no deduction shall be made in respect of that amount—

• (a) by virtue of section 70 of CTA 2010 (relief for loss on disposal of shares in certain trading companies by investment companies), or

• (b) for the purposes of corporation tax on chargeable gains.

Tax avoidance

71

• (1) Sub-paragraph (2) applies where shares would, in the absence of paragraph 82 (which disapplies sections 135 and 136 of the 1992 Act in respect of shares to which investment relief is attributable), be the subject of an exchange or arrangement which—

• (a) is of the kind mentioned in section 135 or 136 of the 1992 Act (company reconstructions etc.), and

• (b) would involve a disposal of shares, by reason of—

• (i) section 137(1) of that Act (schemes with tax avoidance purpose), or

• (ii) paragraph 96(2)(b) (company treated as disposing of shares in the case of certain schemes of reconstruction involving tax avoidance).

• (2) Where this sub-paragraph applies no loss relief may be obtained in respect of any allowable loss incurred on the disposal.

• (3) Where a claim is made under this Part in respect of a loss accruing on the disposal of shares, section 30 of the 1992 Act (value-shifting) shall have effect in relation to the disposal as if for the references in subsections (1)(b) and (5) of that section to a tax-free benefit there were substituted references to any benefit whether tax-free or not.

Adjustment of corporation tax

72

The Inland Revenue shall make any adjustment of corporation tax required as a result of—

• (a) loss relief being obtained in respect of an allowable loss, or

• (b) loss relief not being obtained for the whole or part of a loss in respect of which a claim is made under this Part,

whether by way of assessment, discharge or repayment of tax.

Part VIII — Deferral relief

Introduction

73

• (1) This Part applies where—

• (a) a chargeable gain (“the original gain”) accrues to the investing company at any time (“the accrual time”),

• (b) the gain is one accruing either—

• (i) on a disposal of shares to which investment relief was attributable immediately before the disposal, or

• (ii) by virtue of paragraph 79 on the occurrence of a chargeable event in relation to shares to which deferral relief is attributable immediately before the event,

and

• (c) the investing company makes a qualifying investment.

• (2) In determining for the purposes of sub-paragraph (1)(a) whether or not a chargeable gain accrues at any time paragraph 76 (postponement of original gain) shall be disregarded.

• (3) Sub-paragraph (1)(b)(i) does not apply to a disposal of shares unless the shares were held by the investing company continuously from the time they were issued until the disposal.

Meaning of “qualifying investment"

74

• (1) For the purposes of this Part the investing company makes a qualifying investment if—

• (a) it subscribes for any shares to which investment relief is attributable,

• (b) the shares are not issued by a prohibited company,

• (c) the shares are issued to the investing company at a qualifying time, and

• (d) where the shares were issued before the accrual time—

• (i) they have been held continuously by the investment company from the time they were issued until that time, and

• (ii) investment relief is attributable to the shares at that time.

• (2) For the purposes of sub-paragraph (1)—

• “a prohibited company” means—the company whose shares comprised the original holding, ora company that was, at the accrual time or the time of the issue of the qualifying shares (or both), a member of the same group as that company; and

• “a qualifying time” means any time in the period of four years beginning one year before the accrual time.

• (3) For the purposes of the definition of “a prohibited company” in sub-paragraph (2), “the original holding” means—

• (a) where the original gain accrued as mentioned in sub-paragraph (i) of paragraph 73(1)(b), the shares disposed of, and

• (b) where the original gain accrued as mentioned in sub-paragraph (ii) of paragraph 73(1)(b), the shares in relation to which the chargeable event occurred.

Meaning of “the qualifying shares"

75

• (1) For the purposes of this Part “the qualifying shares”, in relation to a case where this Part applies, means the shares which are acquired by the investing company in making the qualifying investment.

This is subject to sub-paragraphs (2) and (4).

• (2) If any corresponding bonus shares are issued to the investing company, this Part shall apply as if references to the qualifying shares were to all the shares comprising the qualifying shares and the bonus shares so issued.

• (3) In sub-paragraph (2) “corresponding bonus shares” means bonus shares which—

• (a) are issued in respect of the qualifying shares, and

• (b) are in the same company, of the same class and carry the same rights as those shares.

• (4) If in circumstances where paragraph 83 (certain exchanges resulting in acquisition of share capital by new company) applies new shares are issued in exchange for old shares, references in this Part to the qualifying shares, so far as they relate to the old shares, shall be construed as references to the new shares.

For this purpose “old shares” and “new shares” have the same meaning as in that paragraph.

Postponement of original gain

76

• (1) On the making of a claim by the investing company for the purposes of this Part, so much of the investing company’s unused qualifying expenditure on the qualifying shares as—

• (a) is specified in the claim, and

• (b) does not exceed so much of the original gain as is unmatched,

shall be set against a corresponding amount of the original gain.

• (2) Where an amount of qualifying expenditure on the qualifying shares is set under this paragraph against the whole or part of the original gain, then for the purposes of corporation tax on chargeable gains—

• (a) so much of that gain as is equal to that amount shall be treated as not having accrued at the accrual time, but

• (b) paragraph 79 applies for determining the gain that is to be treated as accruing on the occurrence of any chargeable event in relation to any of the qualifying shares.

• (3) For the purposes of this Part—

• (a) the investing company’s qualifying expenditure on the qualifying shares is the amount subscribed by it for the shares, and

• (b) that expenditure is unused to the extent that it has not already been set under this paragraph against the whole or any part of a chargeable gain.

• (4) For the purposes of this paragraph the original gain is unmatched in relation to any qualifying expenditure on the qualifying shares to the extent that it has not had any other expenditure set against it under this paragraph.

Meaning of “deferral relief"

77

For the purposes of this Schedule “deferral relief” is attributable to any shares if—

• (a) expenditure on the shares has been set under paragraph 76 against the whole or part of any gain, and

• (b) there has been no chargeable event for the purposes of this Part in relation to the shares.

Chargeable events

78

• (1) There is, for the purposes of this Part, a chargeable event in relation to any of the qualifying shares if—

• (a) the investing company disposes of those shares, or

• (b) any other event occurs by reason of which the investment relief attributable to those shares is reduced or withdrawn otherwise than by virtue of paragraph 46(2) or (3) (withdrawal of investment relief on disposal of shares).

• (2) For the purposes of sub-paragraph (1)(b), where the qualifying investment is made before the time at which the original gain accrues, any reduction of the investment relief attributable to the qualifying shares that is made by reason of an event that occurs before the accrual time shall be disregarded.

Gain accruing on chargeable event

79

• (1) This paragraph applies where a chargeable event occurs in relation to any of the qualifying shares in relation to which there has not been a previous chargeable event.

• (2) Where this paragraph applies, then for the purposes of corporation tax on chargeable gains—

• (a) a chargeable gain shall be treated as accruing to the investing company at the time of the event, and

• (b) the amount of the gain shall be equal to so much of the deferred gain as is attributable to the shares in relation to which the chargeable event occurs.

• (3) In order to determine, for this purpose, the amount of the deferred gain attributable to any shares, a proportionate part of the amount of the gain shall be attributed to each of the qualifying shares held immediately before the occurrence of the chargeable event in question by the investing company.

• (4) In this paragraph “the deferred gain” means—

• (a) the amount of the original gain against which expenditure has been set under paragraph 76, less

• (b) the amount of any gain treated as accruing under this paragraph previously in consequence of a chargeable event in relation to any of the qualifying shares.

• (5) For the purposes of section 10B of the 1992 Act (taxation of chargeable gains accruing to non-resident with UK branch or agency) a chargeable gain treated as accruing by virtue of this paragraph shall be treated as a chargeable gain accruing on the disposal of an asset to which subsection (3) of that section applies.

Part IX — Company restructuring

Share reorganisations

80

• (1) Where a company (“the company”) holds shares which—

• (a) form part of the ordinary share capital of another company,

• (b) are of the same class and held in the same capacity, and

• (c) include shares falling within two or more of the categories in sub-paragraph (2),

then, where there is a reorganisation affecting those shares to which section 116 or section 127 of the 1992 Act applies, section 116 or (as the case may be) section 127 shall apply separately to shares falling within each of those categories.

• (2) The categories referred to in sub-paragraph (1)(c) are—

• (a) shares to which deferral relief is attributable;

• (b) shares—

• (i) to which investment relief but not deferral relief is attributable, and

• (ii) which have been held continuously by the company since the time they were issued until the reorganisation; and

• (c) shares not within paragraph (a) or (b) above.

• (3) In this paragraph “reorganisation” has the meaning given in section 126 of the 1992 Act.

Rights issues etc.

81

• (1) Where—

• (a) a company (“the company”) holds shares (“the existing holding”) which—

• (i) form part of the ordinary share capital of another company, and

• (ii) are of the same class and held in the same capacity,

• (b) there is by virtue of such an allotment as is mentioned in section 126(2)(a) of the 1992 Act (an allotment of shares or debentures in respect of and in proportion to an original holding), other than an allotment of corresponding bonus shares, a reorganisation affecting the existing holding,

• (c) immediately following the reorganisation, investment relief is attributable to the shares comprised in the existing holding or the shares allotted in respect of those shares, and

• (d) if investment relief is attributable to the shares comprised in the existing holding at that time, those shares have been held by the company continuously from the time they were issued until the reorganisation,

sections 127 to 130 of that Act (treatment of share capital following a reorganisation) shall not apply in relation to the existing holding.

• (2) Subsection (10) of section 116 of that Act (reorganisations, conversions and reconstructions) shall not apply in any case where the old asset consists of shares held (in the same capacity) by a company—

• (a) that have been held by it continuously from the time they were issued until the relevant transaction, and

• (b) to which investment relief is attributable immediately before that transaction.

In this sub-paragraph “old asset” and “the relevant transaction” have the meanings given in section 116 of that Act.

• (3) For the purposes of sub-paragraph (1)—

• “corresponding bonus shares” means bonus shares that—are issued in respect of shares comprised in the existing holding, andare of the same class, and carry the same rights, as those shares;

• “reorganisation” has the meaning given in section 126 of that Act.

Company reconstructions and amalgamations

82

• (1) Where—

• (a) a company (“the company”) holds shares (“the existing holding”) in a company (“company A”),

• (b) there is a reconstruction or amalgamation affecting the existing holding,

• (c) immediately before the reconstruction or amalgamation, investment relief is attributable to the shares comprised in the existing holding, and

• (d) the shares comprised in the existing holding have been held by the company continuously from the time they were issued until the reconstruction or amalgamation,

sections 135 and 136 of the 1992 Act (share exchanges and company reconstructions) shall not apply in respect of the existing holding.

This is subject to paragraph 84 (no disposal on certain exchanges of shares).

• (2) Sub-paragraph (1)(a) applies only where the shares are held by the company in the same capacity.

• (3) For the purposes of sub-paragraph (1) a “reconstruction or amalgamation” means an issue by a company (“company B”) of shares in or debentures of that company in exchange for or in respect of shares in or debentures of company A.

Certain exchanges resulting in acquisition of share capital by new company

83

• (1) Paragraphs 84 and 85 apply where—

• (a) arrangements are made in accordance with which a company (“the new company”) acquires all the shares (“old shares”) in another company (“the old company”);

• (b) the acquisition provided for by the arrangements falls within sub-paragraph (2); and

• (c) the Inland Revenue have, before any exchange of shares takes place under the arrangements, given an approval notification.

• (2) An acquisition of shares falls within this sub-paragraph if—

• (a) the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company;

• (b) new shares are issued in consideration of old shares only at times when there are no issued shares in the new company other than—

• (i) subscriber shares, and

• (ii) new shares previously issued in consideration of old shares;

• (c) the consideration for new shares of each description consists wholly of old shares of the corresponding description; and

• (d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of, and in proportion to, their holdings.

• (3) For the purposes of sub-paragraph (1)(c) an approval notification is one which, on an application by either the old company or the new company, is given to the applicant company and states that the Inland Revenue are satisfied that the exchange of shares under the arrangements—

• (a) will be effected for commercial reasons, and

• (b) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of the 1992 Act (schemes with tax avoidance purpose).

• (4) For the purposes of this paragraph old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.

• (5) In this paragraph references to “shares", except in the expression “subscriber shares", include securities.

• (6) References in paragraphs 84 to 87 to “shares”, “old shares”, “new shares”, “the old company” and “the new company” shall be construed in accordance with this paragraph.

No disposal on certain exchanges of shares

84

• (1) Where this paragraph applies (see paragraph 83 and paragraph 4 of Schedule 7AC to the Taxation of Chargeable Gains Act 1992), nothing in paragraph 82 has effect to disapply section 135 of the 1992 Act (exchange of shares etc. for those in another company).

Accordingly, by virtue of section 127 of that Act (as applied by section 135(3)), the exchange of shares is not treated as involving a disposal of the old shares or an acquisition of the new shares.

• (2) In its application by virtue of sub-paragraph (1), section 127 of the 1992 Act shall have effect subject to paragraph 80 (shares to which investment relief or investment and deferral relief is attributable treated as separate holdings).

Attribution of relief to new shares

85

• (1) Where this paragraph applies (see paragraph 83 and paragraph 4 of Schedule 7AC to the Taxation of Chargeable Gains Act 1992), any investment relief or deferral relief which is attributable to any old shares shall be attributable instead to the new shares for which they are exchanged.

• (2) Where investment relief becomes so attributable to any new shares—

• (a) this Schedule shall have effect as if anything which under paragraph 41, 42, 60 or 65 has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company; and

• (b) any appeal brought by the old company against—

• (i) the refusal of the Inland Revenue to authorise the issue of a compliance certificate, or

• (ii) a notice under paragraph 60(3)(b),

may be prosecuted by the new company as if it had been brought by that company.

Substitution of new shares for old shares

86

• (1) This paragraph applies where—

• (a) relief becomes attributable, by virtue of paragraph 85, to any new shares held by a company (“the company”), and

• (b) the old shares for which those shares were exchanged (“the relevant old shares”) were—

• (i) subscribed for by and issued to the company, and

• (ii) held by it continuously from the time they were issued until the exchange.

• (2) Where this paragraph applies this Schedule (except paragraph 29(7)) shall have effect as if—

• (a) the matching new shares had been subscribed for by the company at the time when, and for the amount for which, the relevant old shares were subscribed for,

• (b) the matching new shares had—

• (i) been issued at the time when the relevant old shares were issued, and

• (ii) been held continuously by the company from that time until the exchange,

• (c) any claim for relief under Part V (investment relief), or Part VIII (deferral relief), of this Schedule made in respect of the relevant old shares had been made in respect of the matching new shares, and

• (d) the company’s liability to corporation tax had been reduced under Part V of this Schedule in respect of the matching new shares for the same accounting period as that for which its liability was so reduced in respect of the relevant old shares.

• (3) For the purposes of this paragraph old shares and new shares are matching shares in relation to each other if the old shares are the shares for which those new shares are exchanged under the arrangements.

Operation of requirements of Parts II and III in relation to new shares

87

• (1) This paragraph applies where paragraph 86 (substitution of new shares for old shares) applies in relation to any new shares held by a company.

• (2) If, immediately before the exchange, any of the requirements of paragraphs 5, 8 and 13 (requirements to be met by a qualifying investing company in relation to the relevant shares) was (or was deemed to be) met to any extent by the company in relation to the matching old shares, the requirement shall be deemed to be met by the company to the same extent in relation to the new shares.

• (3) If, immediately before the exchange, any of the requirements of paragraphs 16 to 22 (requirements to be met by a qualifying issuing company) was (or was deemed to be) met to any extent by the old company in relation to the matching old shares, it shall be deemed to be met to the same extent by the new company in relation to the new shares.

• (4) In determining whether the requirements of paragraphs 17 (the independence requirement) and 20 (the qualifying subsidiaries requirement) are met in relation to the old company or the new company at a time in the period for giving effect to the arrangements, both—

• (a) the arrangements themselves, and

• (b) any exchange of new shares for old shares that has already taken place under the arrangements,

shall be disregarded.

• (5) If, immediately before the period for giving effect to the arrangements, the requirement of paragraph 23(1) (the trading activities requirement) was (or was deemed to be) met to any extent by the old company in relation to the matching old shares—

• (a) it shall be deemed to be met to the same extent by the new company in relation to the new shares, and

• (b) to the extent that it would not otherwise be the case, it shall also be deemed to be met by that company in relation to those shares at all times which—

• (i) fall in the period for giving effect to the arrangements, and

• (ii) do not fall after a time when (apart from the arrangements) the requirement would have ceased to have been met by the old company in relation to the matching old shares.

• (6) For the purposes of this paragraph—

• (a) “the period for giving effect to the arrangements” means the period which—

• (i) begins when those arrangements first come into existence; and

• (ii) ends when the new company completes its acquisition under the arrangements of all the old shares;

and

• (b) references to matching shares shall be construed in accordance with paragraph 86(3).

Relationship between this Part and the 1992 Act

88

The following provisions of the 1992 Act have effect subject to paragraphs 80, 81, 82 and 84 (which make special provision in respect of company reorganisations etc. involving shares to which investment relief is attributable)—

Part X — Advance clearance

Application for advance clearance notice

89

• (1) A company (“the applicant”) may, before issuing any shares, make an application to the Board for an advance clearance notice in respect of that issue.

• (2) An advance clearance notice is a notice issued by the Board in respect of an issue of shares which states that, on the basis of the particulars, declarations and undertakings provided by the applicant, the Board are satisfied that, at the time the shares are issued, the requirements of Parts III and IV of this Schedule will be met (or, in the case of any requirement that cannot be met until a future date, will be met for the time being) in relation to the shares.

• (3) For the purposes of determining whether they are satisfied as mentioned in sub-paragraph (2) the Inland Revenue shall assume that the shares included in the issue of shares are “the relevant shares”.

• (4) An application under this paragraph must—

• (a) contain the particulars, declarations and undertakings required by the Board, and

• (b) disclose all facts and circumstances material for the decision of the Board.

• (5) In this Part references to an “application" are to an application under this paragraph.

Provision of further information

90

• (1) On receiving an application for an advance clearance notice, the Board may by notice (“an information notice”) require the applicant to provide them, within such time as the Board may direct (not being less than 30 days), with such further particulars as the Board deem necessary to enable them to decide whether or not to issue an advance clearance notice.

• (2) An information notice must be given—

• (a) within 30 days after the receipt of the application, or

• (b) if further particulars have already been provided in response to an earlier information notice, within 30 days after the receipt of those particulars.

• (3) If the applicant does not comply with an information notice within the period specified in the notice, the Board need not proceed further on the application.

Decision on application and review procedure

91

• (1) The Board must within 30 days after receiving an application or, where an information notice is given in relation to the application, within 30 days after that notice being complied with—

• (a) issue an advance clearance notice in respect of the shares to which the application relates, or

• (b) notify the applicant that the Board are not satisfied as mentioned in paragraph 89(2) in respect of those shares.

This is subject to sub-paragraph (3) and to paragraph 90(3) (circumstances in which Board need not proceed on application).

• (2) In a case where two or more information notices are given in relation to the application, the time limit in sub-paragraph (1) is calculated by reference to the time when the later (or last) of the notices is complied with.

• (3) If before the Board issue an advance clearance notice in respect of the issue of shares to which the application relates, or notify the applicant under sub-paragraph (1), the applicant issues the shares in question, the Board need not proceed further on the application.

• (4) If the Board—

• (a) notify the applicant that they are not satisfied as mentioned in paragraph 89(2), or

• (b) in a case to which sub-paragraph (3) does not apply, fail to notify their decision to the applicant in accordance with sub-paragraph (1),

the applicant may, within 30 days after the notification or failure, require the Board to transmit the application, together with any information notices given and further particulars provided under paragraph 90, to the tribunal.

• (5) Where sub-paragraph (4) applies any notification by the tribunal that it is satisfied as mentioned in paragraph 89(2) shall have effect as if it were an advance clearance notice issued by the Board in respect of the issue of shares in question.

Effect of advance clearance notice

92

• (1) For the purposes of this Schedule, where an advance clearance notice is issued in respect of an issue of shares before the shares are issued, the requirements of Parts III and IV of this Schedule shall be treated as met (or, in the case of any requirement that cannot be met until a future date, as met for the time being) in relation to those shares at the time they are issued.

• (2) If—

• (a) any particulars provided in the application for the notice, or in response to any information notice relating to the application, do not fully and accurately disclose all facts and circumstances material for the decision of the Board or the tribunal, or

• (b) the applicant or any of its subsidiaries fails to act in accordance with any declaration or undertaking which was given in, or in connection with, the application,

any resulting advance clearance notice shall be void.

• (3) Sub-paragraph (2)(b) applies in relation to a subsidiary of the applicant whether or not it was such a subsidiary at the time the declaration or undertaking in question was given.

Part XI — Supplementary and general

Identification of shares on a disposal

93

• (1) In any case where—

• (a) a company (“the company”) disposes of part of a holding of shares (“the holding”), and

• (b) the holding includes shares to which investment relief is attributable that have been held continuously by the company from the time they were issued until the disposal,

this paragraph applies for the purpose of identifying the shares disposed of.

• (2) For the purposes of this paragraph “holding” means any number of shares of the same class in another company held by the company in the same capacity, growing or diminishing as shares of that class are acquired or disposed of.

• (3) Where shares included in the holding have been acquired by the company on different days, then, for the purposes of corporation tax on chargeable gains and of this Schedule, any disposal by the company of any of those shares shall be treated as relating to those acquired on an earlier day rather than to those acquired on a later day.

• (4) Where shares included in the holding have been acquired by the company on the same day, then, for the purposes of corporation tax on chargeable gains and of this Schedule, if there is a disposal by the company of any of those shares, any shares—

• (a) to which investment relief is attributable, and

• (b) which have been held by the company continuously from the time they were issued until the time of disposal,

shall be treated as disposed of after any other shares included in the holding which were acquired by the company on that day.

• (5) Chapter I of Part IV of the 1992 Act (share pooling, etc.) shall have effect subject to this paragraph.

• (6) Sections 104, 105 and 107 of that Act (which make provision for the purposes of corporation tax on chargeable gains for the identification of shares on a disposal) shall not apply to shares to which investment relief is attributable.

• (7) In a case to which section 127 of that Act (equation of original shares and new holding) applies (including a case where that section applies by virtue of any enactment relating to chargeable gains), shares comprised in the new holding shall be treated for the purposes of sub-paragraphs (3) and (4) as acquired when the original shares were acquired.

In this sub-paragraph “new holding” and “original shares” have the same meaning as in section 127 of the 1992 Act (or, as the case may be, that section as applied by virtue of the enactment concerned).

Determination of loss where investment relief is attributable to shares

94

• (1) This paragraph applies for the purposes of corporation tax on chargeable gains where—

• (a) a company disposes of shares which were held by it continuously from the time they were issued until the disposal,

• (b) investment relief is attributable to the shares (and not withdrawn in full as a result of the disposal), and

• (c) apart from sub-paragraph (2), there would be a loss on the disposal.

• (2) For the purpose of determining the gain or loss on the disposal the consideration given by the company for the shares is treated as reduced by the amount of the investment relief attributable to the shares immediately after the disposal.

• (3) Any gain which accrues by virtue of sub-paragraph (2) is not a chargeable gain.

• (4) Notwithstanding the definition of “allowable loss" in section 1119 of CTA 2010 (interpretation of the Corporation Tax Acts), nothing in sub-paragraph (3) has effect in relation to any loss determined in accordance with sub-paragraph (2) to prevent it being an allowable loss.

Nominees

95

Shares subscribed for by, issued to, acquired or held by or disposed of by a nominee for any person shall be treated for the purposes of this Schedule as subscribed for by, issued to, acquired or held by or disposed of by that person.

Meaning of “disposal"

96

• (1) Subject to sub-paragraph (2), in this Schedule “disposal” shall be construed in accordance with the 1992 Act, and cognate expressions shall be construed accordingly.

• (2) A company shall be treated for the purposes of this Schedule, and for the purposes of corporation tax on chargeable gains, as disposing of any shares which but for paragraph 82 (company reconstructions and amalgamations) it—

• (a) would be treated as exchanging for other shares by virtue of section 136 of the 1992 Act, or

• (b) would be so treated but for section 137(1) of the 1992 Act (which restricts section 136 of that Act to bona fide schemes of reconstruction).

Construction of references to shares being “held continuously"

97

• (1) This paragraph applies where for the purposes of this Schedule it falls to be determined whether a company has held shares continuously throughout any period.

• (2) The company shall not be treated as having held shares continuously throughout a period if—

• (a) it is deemed, under any provision of the 1992 Act, to have disposed of and immediately reacquired the shares at any time during the period, or

• (b) it is treated as having disposed of the shares at any such time, by virtue of paragraph 96(2) (on reconstruction or amalgamation company treated as disposing of shares continuously held by it to which investment relief is attributable).

Meaning of “issue of shares"

98

In this Schedule—

• (a) references (however expressed) to an issue of shares in any company are to such of the shares in the company as are of the same class and issued on the same day; and

• (b) references (however expressed) to an issue of shares in a company to a person are references to such of the shares in an issue of shares in that company as are issued to that person in one capacity.

Meaning of “associate"

99

• (1) In this Schedule “associate”, in relation to a person, means—

• (a) any relative or partner of that person,

• (b) the trustee or trustees of any settlement in relation to which that person, or any relative of his (living or dead), is or was a settlor, and

• (c) where that person is interested in any shares or obligations of a company which are subject to any trust, or are part of the estate of a deceased person—

• (i) the trustee or trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased, and

• (ii) if that person is a company, any other company interested in those shares or obligations.

• (2) In sub-paragraph (1)(a) and (b) “relative” means spouse or civil partner, parent or remoter forebear or child or remoter issue.

• (3) In sub-paragraph (1)(b) “settlor” and “settlement” have the same meaning as in Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act).

“The Board" and “the Inland Revenue"

100

In this Schedule—

• (a) “the Board” means the Commissioners of Inland Revenue; and

• (b) references to “the Inland Revenue" are to any officer of the Board.

Power to amend by Treasury order

101

The Treasury may by order amend this Schedule—

• (a) to make such amendments of—

• (i) paragraphs 10 to 12 (the non-financial activities requirement), or

• (ii) paragraphs 23 to 33 (the trading activities requirement),

as they consider expedient;

• (b) to substitute different sums of money for those for the time being specified in paragraph 22 (gross assets requirement).

Minor definitions etc.

102

• (1) In this Schedule—

• “allowable loss” means an allowable loss for the purposes of corporation tax on chargeable gains;

• “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable;

• “chargeable gain” means a chargeable gain for the purposes of corporation tax on chargeable gains;

• “class”, in relation to shares or securities, means a class of shares in or securities of any one company (see sub-paragraph (2));

• “CTA 2010” means the Corporation Tax Act 2010;

• “director” shall be construed in accordance with section 452 of CTA 2010;

• “group” means a parent company and its 51% subsidiaries;

• “group company”, in relation to a group, means the parent company and any of its 51% subsidiaries;

• “ordinary share capital”, except in paragraph 7 (meaning of “material interest”), has the meaning given in section 1119 of CTA 2010;

• “ordinary shares” means shares forming part of a company’s ordinary share capital;

• “parent company” means a company that—has one or more 51% subsidiaries, butis not itself a 51% subsidiary of another company;

• “research and development” has the meaning given by section 1138 of CTA 2010;

• “single company” means a company that is not a parent company or a 51% subsidiary of a parent company;

• “the 1992 Act” means the Taxation of Chargeable Gains Act 1992.

• (2) For the purposes of this Schedule shares in or securities of a company shall not be treated as being of the same class unless they would be so treated if dealt with on the Stock Exchange.

• (3) Section 1122 of CTA 2010 (connected persons) applies for the purposes of this Schedule.

• (4) References in this Schedule to a company being in administration or receivership shall be construed as follows—

• (a) references to a company being “in administration” are to the company being in administration within the meaning of Schedule B1 to the Insolvency Act 1986, or to there being in force in relation to it—

• (i) an administration order under Part III of the Insolvency (Northern Ireland) Order 1989, or

• (ii) any corresponding order under the law of a country or territory outside the United Kingdom;

• (b) references to a company being “in receivership" are to there being in force in relation to it—

• (i) an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter I or II of Part III of the Insolvency Act 1986 or Part IV of the Insolvency (Northern Ireland) Order 1989, or

• (ii) any corresponding order under the law of a country or territory outside the United Kingdom.

• (5) For the purposes of this Schedule the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.

• (6) In this Schedule—

• (a) references to investment relief obtained by a company in respect of any shares include references to investment relief obtained by it in respect of those shares at any time after it has disposed of them, and

• (b) references to the withdrawal or reduction of investment relief obtained by a company in respect of any shares include references to the withdrawal or reduction of investment relief obtained in respect of those shares at any such time.

• (7) In the case of a requirement that cannot be met until a future date—

• (a) references in this Schedule to a requirement being met for the time being are to nothing having occurred to prevent its being met, and

• (b) references to its continuing to be met are to nothing occurring to prevent its being met.

• (8) In determining for the purposes of paragraph 3(2), 23(5) or 36(1B) when a trade is begun to be carried on by a qualifying 90% subsidiary of the issuing company there shall be disregarded any carrying on of the trade by it before it became such a subsidiary.

• (9) References in this Schedule to Part 5 of ITA 2007 or any provision of that Part are to a Part or provision that applies only in relation to shares issued after 5 April 2007.

Index of defined expressions

103

In this Schedule the following expressions are defined or otherwise explained by the provisions indicated:

SCHEDULE 16

Penalties in connection with returns etc.

1

• (1) In section 98 of the Taxes Management Act 1970, the Table is amended as follows.

• (2) In the second column after the final entry insert—

paragraph 64 or 65 of Schedule 15 to the Finance Act 2000

.

• (3) In the first column after the final entry insert—

paragraph 66 of Schedule 15 to the Finance Act 2000

.

Enterprise investment scheme

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss relief

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EIS: deferral relief

4

• (1) The Taxation of Chargeable Gains Act 1992 is amended as follows.

• (2) In paragraph 14 of Schedule 5B (value received by persons other than claimants)—

• (a) in sub-paragraph (1) (repayments etc. which cause revival of a deferred gain under EIS), in paragraph (a) for “an individual" substitute “ a person ”;

• (b) at the end of that sub-paragraph insert—

This is subject to paragraph 14A below.

;

• (c) in sub-paragraph (3) (exception where repayment etc. causes withdrawal of income tax relief or revival of a deferred gain under the EIS), for “An individual" substitute “ A person ”; and

• (d) in that sub-paragraph, after paragraph (b) insert

; or (c) causes any investment relief (within the meaning of Schedule 15 to the Finance Act 2000) to be withdrawn or reduced by virtue of paragraph 46 (disposal of shares) or 49(1)(a) (repayment etc. of share capital or securities) of that Schedule.

• (3) After that paragraph insert—

(14A) (1) Sub-paragraph (4) below applies where, by reason of a repayment, any investment relief which is attributable under Schedule 15 to the Finance Act 2000 to any shares is withdrawn under paragraph 56(2) of that Schedule. (2) For the purposes of this paragraph “repayment” means a repayment, redemption, repurchase or payment mentioned in paragraph 56(1) of that Schedule (repayments etc. which cause withdrawal of investment relief). (3) For the purposes of sub-paragraph (4) below “the relevant amount” is the amount determined by the formula— $$X-5Y$Where—X is the amount of the repayment, andY is the aggregate amount of the investment relief withdrawn by reason of the repayment.$ (4) Where the relevant amount does not exceed £1,000, the repayment shall be disregarded for the purposes of paragraph 14 above, unless repayment arrangements are in existence at any time in the period— (a) beginning one year before the shares mentioned in sub-paragraph (1) above are issued, and (b) expiring at the end of the issue date of those shares. (5) For this purpose “repayment arrangements” means arrangements which provide— (a) for a repayment by the company that issued the shares (“the issuing company”) or any subsidiary of that company, or (b) for anyone to be entitled to such a repayment, at any time. (6) Sub-paragraph (5)(a) above applies in relation to a subsidiary of the issuing company whether or not it was such a subsidiary— (a) at the time of the repayment mentioned in sub-paragraph (1) above, or (b) when the arrangements were made. (7) Where, but for the existence of paragraph 57(1) of Schedule 15 to the Finance Act 2000 (receipts causing insignificant changes to share capital to be disregarded), any investment relief would be withdrawn by reason of a repayment, the repayment shall be disregarded for the purposes of paragraph 14 above. (8) In this paragraph— (a) “investment relief” has the same meaning as in that Schedule; and (b) references to the withdrawal of investment relief include its reduction.

Company tax returns, assessments etc.

5

• (1) Schedule 18 to the Finance Act 1998 is amended as follows.

• (2) In paragraph 8 (calculation of tax payable), in sub-paragraph (1) after paragraph number 1 of the second step insert—

(1A) Any relief under Part V of Schedule 15 to the Finance Act 2000 (corporate venturing scheme: investment relief).

• (3) In paragraph 9 (claims that cannot be made without a return), after sub-paragraph (3) insert—

(4) This paragraph applies to a claim by a company for relief under Part V of Schedule 15 to the Finance Act 2000 (corporate venturing scheme: investment relief).

SCHEDULE 17

Part I — Reduction of applicable periods

Meaning of “eligible shares"

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conditions relating to individuals

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conditions relating to further investment by connected person

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Value received from company

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Value received by persons other than claimants

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “termination date" and “relevant period"

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Postponement of chargeable gains on reinvestment

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commencement

8

The amendments in this Part of this Schedule have effect in relation to shares issued on or after 6th April 2000.

Part II — Qualifying companies

Company in administration or receivership

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Company in liquidation

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Independence of qualifying company

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commencement

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part III — Other amendments

Qualifying trades

13

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “arrangements"

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “research and development"

15

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) Nothing in this paragraph affects the operation of any of the following provisions in relation to shares issued before 6th April 2000—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 18

Part I — Reduction of applicable periods

Relief from income tax

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred CGT charge on reinvestment

2

In Schedule 5C to the Taxation of Chargeable Gains Act 1992 (venture capital trusts: deferred charge on re-investment), in paragraph 3(2), in the definition of “the relevant period" for “five" substitute “ three ”.

Commencement

3

The amendments made by this Part of this Schedule have effect in relation to shares issued on or after 6th April 2000.

Part II — Qualifying holdings

Introductory

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying trade: receipt of royalties or licence fees

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “research and development"

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Company in administration or receivership

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Company reorganisations et ceteralaetc. involving exchange of shares

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 19

Part I — The new definition

Research and development

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oil and gas exploration and appraisal

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II — Consequential amendments

Income and Corporation Taxes Act 1988 (c. 1)

3

The Income and Corporation Taxes Act 1988 is amended as follows.

4

In section 495 (regional development grants), in subsection (1)(b) for “scientific research" substitute “ research and development ”.

5

• (1) In Part IV (provisions relating to the Schedule D charge), after section 82 insert—

(82A) (1) Notwithstanding anything in section 74, where a person carrying on a trade incurs expenditure not of a capital nature on research and development— (a) related to that trade, and (b) directly undertaken by him or on his behalf, the expenditure incurred may be deducted as an expense in computing the profits of the trade for the purposes of tax. (2) For this purpose expenditure on research and development does not include expenditure incurred in the acquisition of rights in, or arising out of, research and development. Subject to that, it includes all expenditure incurred in carrying out, or providing facilities for carrying out, research and development. (3) The reference in subsection (1) above to research and development related to a trade includes— (a) research and development which may lead to or facilitate an extension of that trade; (b) research and development of a medical nature which has a special relation to the welfare of workers employed in that trade. (4) The same expenditure may not be taken into account under this section in relation to more than one trade. (5) In this section “research and development” has the meaning given by section 837A and includes oil and gas exploration and appraisal. (82B) (1) Notwithstanding anything in section 74, where a person carrying on a trade— (a) pays any sum to a scientific research association that— (i) has as its object the undertaking of scientific research related to the class of trade to which the trade he is carrying on belongs, and (ii) is for the time being approved for the purposes of this section by the Secretary of State, or (b) pays any sum to be used for such scientific research as is mentioned in paragraph (a) above to any such university, college research institute or other similar institution as is for the time being approved for the purposes of this section by the Secretary of State, the sum paid may be deducted as an expense in computing the profits of the trade for the purposes of tax. (2) In this section “scientific research” means any activities in the fields of natural or applied science for the extension of knowledge. (3) The reference in this section to scientific research related to a class of trade includes— (a) scientific research which may lead to or facilitate an extension of trades of that class; (b) scientific research of a medical nature which has a special relation to the welfare of workers employed in trades of that class. (4) If a question arises under this section whether, or to what extent, any activities constitute or constituted scientific research, the Board shall refer the question for decision to the Secretary of State. The decision of the Secretary of State is final. (5) The same expenditure may not be taken into account under this section in relation to more than one trade.

.

• (2) Any approval given by the Secretary of State for the purposes of section 136(b) or (c) of the Capital Allowances Act 1990 and in force immediately before the commencement of this paragraph has effect as if given under section 82B(1)(a) or (b) of the Taxes Act 1988 as inserted by sub-paragraph (1) above.

• (3) So far as is necessary for continuing its effect, any decision made by the Secretary of State under section 139(3) of the Capital Allowances Act 1990 before the commencement of this paragraph has effect as if given under section 82B(4) of the Taxes Act 1988 as inserted by sub-paragraph (1) above.

6

In Schedule 18 (group relief: equity holders and profits or assets available for distribution), in paragraph 1(6)(b)(iii) for “scientific research" substitute “ research and development (within the meaning of Part VII of that Act) ”.

Capital Allowances Act 1990 (c. 1)

7

The Capital Allowances Act 1990 is amended as follows.

8

For “scientific research", wherever occurring, substitute “ research and development ”.

9

In section 137(1)(b) after “that research" insert “ and development ”.

10

In section 139 (supplementary provisions), in subsection (1) for paragraph (a) substitute—

(a) “research and development” has the meaning given by section 837A of the principal Act and includes oil and gas exploration and appraisal;

.

11

In section 161 after “other than an allowance under section 136" insert “ (as that section had effect before it was repealed by the Finance Act 2000) ”.

Taxation of Chargeable Gains Act 1992 (c. 12)

12

• (1) Section 195 of the Taxation of Chargeable Gains Act 1992 (allowance of certain drilling expenditure) is amended as follows.

• (2) In subsections (2) and (3) for “scientific research" in each place substitute “ research and development ”.

• (3) In subsection (3) after “that research" insert “ and development ”.

• (4) After subsection (7) insert—

(8) In this section “research and development” has the same meaning as in Part VII of the Capital Allowances Act 1990 (allowances for research and development expenditure).

SCHEDULE 20

Part I — Entitlement to relief

Entitlement to R&D tax relief

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “small or medium-sized enterprise".

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying R&D expenditure

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relevant research and development

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Staffing costs

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expenditure on software or consumable items

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “intellectual property"

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subsidised expenditure

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Qualifying expenditure on sub-contracted research and development

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treatment of expenditure where company and sub-contractor are connected persons

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Election for connected persons treatment

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treatment of sub-contractor payment in other cases

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part II — Manner of giving effect to relief

Deduction in computing profits of trade

13

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Alternative treatment of pre-trading expenditure

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Entitlement to R&D tax credit

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount of credit

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total amount of company’s Pay As You EarnPAYE and NICs liabilities

17

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payment in respect of R&D tax credit

18

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restriction on losses carried forward

19

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payment in respect of R&D tax credit not income

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part III — Supplementary provisions

Artificially inflated claims for deduction or R&D tax credit

21

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restriction on consortium relief

22

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treatment of deemed trading loss

23

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Funding of R&D tax credits

24

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interpretation

25

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transitional provisions

26

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 21

Interest

1

• (1) Section 826 of the Taxes Act 1988 (interest on tax overpaid) is amended as follows.

• (2) In subsection (1) (payments which carry interest) after paragraph (c) insert

; or (d) a payment of R&D tax credit falls to be made to a company under Schedule 20 to the Finance Act 2000 in respect of an accounting period,

.

• (3) After subsection (3) (material date for repayments of income tax etc.) insert—

(3A) In relation to a payment of R&D tax credit falling within subsection (1)(d) above the material date is whichever is the later of— (a) the filing date for the company’s company tax return for the accounting period for which the R&D tax credit is claimed, and (b) the date on which the company tax return or amended company tax return containing the claim for payment of the R&D tax credit is delivered to the Inland Revenue. For this purpose “the filing date”, in relation to a company tax return, has the same meaning as in Schedule 18 to the Finance Act 1998.

.

• (4) In subsection (8A) (recovery of overpaid interest)—

• (a) in paragraph (a), after “subsection (1)(a)" insert “ or (d) ”,

• (b) for paragraph (b) substitute—

(b) there is— (i) a change in the company’s assessed liability to corporation tax, or (ii) a change in the amount of the R&D tax credit payable to the company (which does not result in a change falling within sub-paragraph (i)), other than a change which in whole or in part corrects an error made by the Board or an officer of the Board, and

.

• (5) After subsection (8B) insert—

(8BA) For the purposes of subsection (8A)(b) above, the cases where there is a change in the amount of the R&D tax credit payable to the company are those cases where an assessment, or an amendment to an assessment, is made to recover an amount of R&D tax credit paid to the company for the accounting period in question.

.

Claim must be made in tax return

2

In Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters), in paragraph 10 (other claims and elections to be included in return), for sub-paragraph (2) substitute—

(2) A claim to which Part VIII, IX or IXA of this Schedule applies (claims for group relief, capital allowances or R&D tax credit) can only be made by being included in a company tax return (see paragraphs 67, 79 and 83B).

.

Recovery of excessive R&D tax credit

3

In paragraph 52 of that Schedule (recovery of excessive repayments, etc.)—

• (a) in sub-paragraph (2) (excessive repayments to which paragraphs 41 to 48 apply), before “or" at the end of paragraph (b) insert—

(ba) R&D tax credit under Schedule 20 to the Finance Act 2000,

;

and

• (b) in sub-paragraph (5) (connection of assessment for excessive payment to an accounting period), before “or" at the end of paragraph (a) insert—

(ab) an amount of R&D tax credit paid to a company for an accounting period,

;

and

• (c) at the end of that sub-paragraph after “(a)" insert “ , (ab) ”.

Claims for R&D tax credits

4

After Part IX of that Schedule (claims for capital allowances) insert—

(83A) This Part of this Schedule applies to claims for R&D tax credits under Schedule 20 to the Finance Act 2000. (83B) (1) A claim for an R&D tax credit must be made by being included in the claimant company’s company tax return for the accounting period for which the claim is made. (2) It may be included in the return originally made or by amendment. (83C) A claim for an R&D tax credit must specify the amount of the relief claimed, which must be an amount quantified at the time the claim is made. (83D) A claim for an R&D tax credit may be amended or withdrawn by the claimant company only by amending its company tax return. (83E) (1) A claim for an R&D tax credit may be made, amended or withdrawn at any time up to the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made. (2) The claim may be made, amended or withdrawn at a later date if the Inland Revenue allow it. (83F) (1) The company is liable to a penalty where it— (a) fraudulently or negligently makes a claim for an R&D tax credit which is incorrect, or (b) discovers that a claim for an R&D tax credit made by it (neither fraudulently or negligently) is incorrect and does not remedy the error without unreasonable delay. (2) The penalty is an amount not exceeding the excess R&D tax credit claimed, that is, the difference between— (a) the amount of the R&D tax credit to which the company is entitled for the accounting period to which the claim relates, and (b) the amount of the R&D tax credit claimed by the company for that period.

.

SCHEDULE 22

Part I — Introductory

Tonnage tax

1

• (1) This Schedule provides an alternative regime (“tonnage tax”) for calculating the profits of a shipping company for the purposes of corporation tax.

• (2) The regime applies only if an election to that effect (a “tonnage tax election”) is made (see Part II of this Schedule).

Companies that are members of a group must join in a group election.

• (3) A tonnage tax election may only be made if—

• (a) the company or group is a qualifying company or group (see Part III of this Schedule), and

• (b) certain requirements are met as to training (see Part IV of this Schedule) and other matters (see Part V of this Schedule).

Tonnage tax companies and groups

2

• (1) In this Schedule a “tonnage tax company” or “tonnage tax group” means a company or group in relation to which a tonnage tax election has effect.

• (2) References in this Schedule to a company entering or leaving tonnage tax are to its becoming or ceasing to be a tonnage tax company.

References to a company being subject to tonnage tax have a corresponding meaning.

Profits of tonnage tax company

3

• (1) In the case of a tonnage tax company, its tonnage tax profits are brought into charge to corporation tax in place of its relevant shipping profits (see Part VI of this Schedule).

• (2) Where profits would be relevant shipping income, any loss accruing to the company is similarly left out of account for the purposes of corporation tax.

Tonnage tax profits: method of calculation

4

• (1) A company’s tonnage tax profits for an accounting period are calculated in accordance with this paragraph by reference to the net tonnage of the qualifying ships operated or managed by the company.

For the purposes of the calculation the net tonnage of a ship is rounded down (if necessary) to the nearest multiple of 100 tons.

• (2) The calculation is as follows:

Step One

Determine the daily profit for each qualifying ship operated by the company and each qualifying ship managed by the company by reference to the following table and the net tonnage of the ship—

Net tonnage	Daily Profit	Daily Profit
	Operated ship	Managed ship
For each 100 tons up to 1,000 tons	£0.60	£0.12
For each 100 tons between 1,000 and 10,000 tons	£0.45	£0.09
For each 100 tons between 10,000 and 25,000 tons	£0.30	£0.06
For each 100 tons above 25,000 tons	£0.15	£0.03

Step Two

Work out the ship’s profit for the accounting period by multiplying the daily profit by—

(a) the number of days in the accounting period, or

(b) if the ship was operated by the company as a qualifying ship for only part of the period, by the number of days in that part.

Step Three

Follow Steps One and Two for each of the qualifying ships operated by the company in the accounting period.

Step Four

Add together the resulting amounts and the total is the amount of the company’s tonnage tax profits for that accounting period.

Tonnage tax profits: calculation in case of joint operation etc.

5

• (1) If two or more companies fall to be regarded as operators of a ship by virtue of a joint interest in the ship, or in an agreement for the use of the ship, the tonnage tax profits of each are calculated as if each were entitled to a share of the profits proportionate to its share of that interest.

• (2) If two or more companies fall to be treated as the operator of a ship otherwise than as mentioned in sub-paragraph (1), the tonnage tax profits of each are computed as if each were the only operator.

Measurement of tonnage of ship

6