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Income Tax Act 2007

Type Public General Act

Publication 2007-03-20

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(5) A loss, expense or debit is only within subsection (3) if incurred—

(a) after the start of the winding up proceedings or, if later, the permanent cessation of the deposit-taking trade, or

(b) in the case of a loss, at or before the permanent cessation of the deposit-taking trade.

(6) No deduction for an amount is allowed under this section if the amount has already been allowed (whether under this section or under any other provision of the Tax Acts).

837F

(1) This section applies if a winding up receipt arising from the deposit-taking trade is received in a tax year beginning no later than 6 years after the company permanently ceased to carry on the trade.

(2) The company or its liquidator may elect that the income tax chargeable under this Chapter in respect of the receipt is to be charged as if the receipt has been received on the date of the cessation.

(3) The election must be made before the end of the period of two years beginning immediately after the end of the tax year in which the receipt is received.

(4) If an election is made under this section an assessment to income tax must be made accordingly (regardless of anything in the Income Tax Acts).

837G

If a winding up receipt arising from the deposit-taking trade is chargeable to income tax under this Chapter it is not chargeable to income tax under any other provision.

837H

(1) This section applies for the purposes of this Chapter.

(2) There is the permanent cessation of a company's trade if—

(a) the company ceases to carry on the trade, or

(b) the company ceases to be within the charge to corporation tax in respect of the trade,

whether or not the trade is in fact ceased.

(3) A company is insolvent at any time if at that time—

(a) it is unable to pay its debts as they fall due, or

(b) the value of its assets is less than the amount of its liabilities (including its contingent and prospective liabilities).

(4) “Company” means—

(a) a company as defined in section 1(1) of the Companies Act 2006, or

(b) an unregistered company as defined in section 220 of the Insolvency Act 1986 or Article 184 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)).

(5) For the meaning of “deposit-taking trade” and “winding up receipt”, see sections 837B(3) and 837C(3) respectively.

Repos

925A

(1) Subsection (2) applies if a company (“the lender”) has a creditor repo for the purposes of Chapter 10 of Part 6 of CTA 2009 (see section 543 of that Act).

(2) Sections 918 , 919 and 921 have effect in relation to the lender while the arrangement is in force as if—

(a) the lender paid the borrower amounts which are representative of the income payable on the securities that are initially sold,

(b) the payments were made under requirements of the arrangement, and

(3) For the purposes of subsection (2), an arrangement is in force from the time when the securities are initially sold until the earlier of—

(a) the time when the subsequent sale of the securities, or similar securities, takes place, and

(b) the time when it becomes apparent that that sale will not take place.

925B

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925C

If section 925A(2) ... applies, any payment actually made under an arrangement which is representative of any income payable on any securities is to be treated for the purposes of sections 918 , 919 and 921 as if it had not been made.

925D

(1) The Treasury may by regulations provide for all or any of the provisions of sections 925A to 925F to apply with modifications in relation to—

(a) cases to which section 925E (non-standard repo cases) applies, or

(b) cases involving redemption arrangements, or

(2) A case involves redemption arrangements if—

(a) arrangements, corresponding to those made in cases where a company has a repo, are made in relation to securities that are to be redeemed in the period after their sale, and

(b) the arrangements are such that a person (instead of having the right or obligation to buy those securities, or similar or other securities, at any subsequent time) has a right or obligation in respect of the benefits which will result from the redemption.

(3) The regulations may make incidental, supplemental, consequential and transitional provision and savings.

(4) In this section “modifications” includes exceptions and omissions.

(5) For the purposes of subsection (2)(a) and section 925E(1), a company has a repo if—

(a) for the purposes of Chapter 10 of Part 6 of CTA 2009—

(i) it has a creditor repo (see section 543 of that Act),

(ii) it has a creditor quasi-repo (see section 544 of that Act),

(iii) it has a debtor repo (see section 548 of that Act), or

(iv) it has a debtor quasi-repo (see section 549 of that Act), or

(b) as a result of section 547 of that Act, the company has a creditor repo for the purposes of section 546 of that Act.

925E

(1) This section applies to a case if—

(a) a company has a repo,

(b) there has been a sale of the securities under the arrangement or arrangements by reference to which the company has the repo, and

(2) Condition A is that those securities, or similar or other securities, are not subsequently bought under the arrangement or arrangements.

(3) Condition B is that provision is made by or under an arrangement for different or additional securities to be treated as, or as included with, securities which, for the purposes of the subsequent purchase, are to represent those initially sold.

(4) Condition C is that provision is made by or under an arrangement for securities to be treated as not so included.

(5) Section 925D(5) interprets references in subsection (1) to a company having a repo.

925F

(1) This section applies for the purposes of sections 925A to 925E and this section.

(2) “Arrangement” includes any agreement or understanding (whether or not legally enforceable).

(3) It does not matter whether or not provision of any arrangement conferring a right or imposing an obligation on any person to buy any securities is subject to any conditions.

(4) “Securities” means shares, stock or other securities issued by—

(a) the government of the United Kingdom,

(b) any public or local authority in the United Kingdom,

(d) a government or public or local authority of a territory outside the United Kingdom, or

(e) any other body of persons not resident in the United Kingdom.

(5) Securities are similar if they give their holders—

(a) the same rights against the same persons as to capital, interest and dividends, and

(b) the same remedies to enforce those rights.

(6) Subsection (5) applies even if there is a difference in—

(a) the total nominal amounts of the securities,

(b) the form in which they are held, or

(7) If—

(a) a person (“A”) buys securities (or has a right or obligation to buy securities), but

(b) the securities are (or are to be) held for the benefit of another person (“B”),

B (not A) is treated as buying (or having the right or obligation to buy) the securities.

(8) If—

(a) a person (“C”) sells securities, but

(b) the proceeds of the sale are held for the benefit of another person (“D”),

D (not C) is treated as selling the securities.

998A

(1) This section applies for the purposes of the provisions of the Income Tax Acts which apply this section.

(2) A hire-purchase agreement is an agreement in whose case each of conditions A to C is met.

(3) Condition A is that under the agreement goods are bailed (or in Scotland hired) in return for periodical payments by the person to whom they are bailed (or hired).

(4) Condition B is that under the agreement the property in the goods will pass to the person to whom they are bailed (or hired) if the terms of the agreement are complied with and one or more of the following events occurs—

(a) the exercise of an option to purchase by that person,

(b) the doing of another specified act by any party to the agreement,

(5) Condition C is that the agreement is not a conditional sale agreement.

(6) In subsection (5) “conditional sale agreement” means an agreement for the sale of goods under which—

(a) the purchase price or part of it is payable by instalments, and

(b) the property in the goods is to remain in the seller (even though they are to be in the possession of the buyer) until conditions specified in the agreement are met (whether as to the payment of instalments or otherwise).

Application in relation to corresponding bonus shares

57A

(1) For the purposes of this Part of this Schedule, if—

(a) any shares (“the original shares”) have been issued to an individual before a particular date, or are treated under this paragraph as having been issued to the individual before a particular date, and

(b) any corresponding bonus shares are issued to the individual on or after that date,

the bonus shares are treated as having been issued at the time the original shares were issued to the individual or are treated as having been so issued.

(2) In this paragraph “bonus shares” and “corresponding bonus shares” have the same meaning as in Chapter 6 of Part 4.

Maximum amount for cases outside section 257MNA

74ZA

(1) This section applies if—

(a) during a tax year a person carries on (alone or in partnership) a trade, profession or vocation (“the relevant activity”),

(b) the person makes a loss in the relevant activity in that tax year, and

(c) the loss arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements.

(2) No sideways relief or capital gains relief may be given to the person for the loss (but subject to subsection (5)).

(3) In subsection (1) “relevant tax avoidance arrangements” means arrangements—

(a) to which the person is a party, and

(b) the main purpose, or one of the main purposes, of which is the obtaining of a reduction in tax liability by means of sideways relief or capital gains relief.

(4) In subsection (3) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(5) This section has no effect in relation to any loss that derives wholly from qualifying film expenditure (see section 74D).

(6) For the purposes of this section—

(a) capital gains relief is, in relation to a loss, the treatment of a loss as an allowable loss by virtue of section 261B of TCGA 1992 (use of trading loss as a CGT loss), and

(b) capital gains relief is given for a loss when it is so treated.

Restrictions on relief

127A

(1) This section applies if—

(a) in a tax year a person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership),

(b) the loss has a capital allowances connection (see section 123(2)), and

(c) the loss arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements.

(2) No property loss relief against general income may be given to the person for so much of the applicable amount of the loss as is attributable to an annual investment allowance.

(3) For the purposes of subsection (2), the applicable amount of the loss is to be treated as attributable to capital allowances before anything else and to an annual investment allowance before any other capital allowance.

(4) In subsection (1) “relevant tax avoidance arrangements” means arrangements—

(a) to which the person is a party, and

(b) the main purpose, or one of the main purposes, of which is being in a position to make use of an annual investment allowance in the obtaining of a reduction in tax liability by means of property loss relief against general income.

(5) In subsection (4) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(6) In this section “the applicable amount of the loss” has the meaning given by section 122.

438A

(1) For the purposes of this Chapter the acquisition value of a qualifying investment disposed of by an individual is—

(a) where the qualifying investment was acquired by the individual within the period of 4 years ending with the day on which the disposal is made, the cost to the individual of acquiring it, or

(b) where something from which the qualifying investment derives or which it represents was so acquired, such proportion of the cost to the individual of acquiring that thing as is just and reasonable to attribute to the qualifying investment.

(2) A reference in subsection (1) to the cost to the individual of an acquisition is to—

(a) the consideration given by the individual for the acquisition, less

(b) any amount that is received in connection with the acquisition, by the individual or a person connected with the individual, as part of the scheme in question.

521A

(1) This section applies if gifts are made to charitable trusts by individuals and the gifts are donations for the purposes of Part 12 of ITEPA 2003 (payroll giving).

(2) Income tax is charged on the gifts under this section.

(3) It is charged on the full amount of the gifts arising in the tax year.

(4) But a gift is not taken into account in calculating total income so far as it is applied to charitable purposes only.

(5) The trustees of the charitable trust are liable for any tax charged under this section.

538A

(A1) This section applies to claims for—

(a) repayment of income tax treated as having been paid by virtue of section 520(4) (gift aid relief: income tax treated as paid by trustees of charitable trust), or

(b) repayment of income tax deducted at source from income to which any of the following applies—

(i) section 532 (exemption for savings and investment income),

(ii) section 533 (exemption for public revenue dividends),

(iii) section 536 (exemption for certain miscellaneous income), or

(iv) section 537 (exemption for income from estates in administration).

(1) This section also applies to claims for amounts to be exempt from tax by virtue of—

(a) section 521(4) (gifts entitling donor to gift aid relief: charitable trusts), or

(b) any of the provisions mentioned in subsection (A1)(b).

(2) A claim to which this section applies may be made—

(a) to an officer of Revenue and Customs, or

(b) by being included in a return under section 8A of TMA 1970 (trustee's self-assessment return).

(3) In this section—

“free-standing claim” means a claim made as mentioned in subsection (2)(a), and

“tax return claim” means a claim made as mentioned in subsection (2)(b).

(4) The Commissioners for Her Majesty's Revenue and Customs may by regulations make provision—

(a) limiting the number of free-standing claims that may be made by a person in a tax year, or

(b) requiring a claim for an amount below an amount specified in the regulations to be made as a tax return claim.

(5) The regulations may make different provision for different cases or purposes.

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943B

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943C

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943D

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180A

(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.

180B

(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) as those guidelines had effect in the United Kingdom immediately before IP completion day.

191A

(1) This section applies for the purposes of this Part.

(2) A company has a “permanent establishment” in the United Kingdom if (and only if)—

(a) it has a fixed place of business there through which the business of the company is wholly or partly carried on, or

(b) an agent acting on behalf of the company has and habitually exercises there authority to enter into contracts on behalf of the company.

(3) For the purposes of this section “fixed place of business” includes (without prejudice to the generality of that expression)—

(a) a place of management,

(b) a branch,

(d) a factory,

(e) a workshop,

(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, and

(g) a building site or construction or installation project.

(4) If the condition in subsection (5) is met, a company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that—

(a) a fixed place of business is maintained there for the purpose of carrying on activities for the company, or

(b) an agent carries on activities there for and on behalf of the company.

(5) The condition is that, in relation to the business of the company as a whole, the activities carried on are only of a preparatory or auxiliary character.

(6) For this purpose “activities of a preparatory or auxiliary character” include (without prejudice to the generality of that expression)—

(a) the use of facilities for the purpose of storage, display or delivery of goods or merchandise belonging to the company,

(b) the maintenance of a stock of goods or merchandise belonging to the company for the purpose of storage, display or delivery,

(c) the maintenance of a stock of goods or merchandise belonging to the company for the purpose of processing by another person, and

(d) purchasing goods or merchandise, or collecting information, for the company.

(7) A company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that it carries on business there through an agent of independent status (including a broker or a general commission agent) acting in the ordinary course of the agent's business.

(8) A company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that it controls a company that—

(a) is resident there, or

(b) carries on business there (whether through a permanent establishment or otherwise).

(9) The Treasury may by regulations amend this section.

286A

The requirement of this section, at any time on or after the issue of the relevant holding, is that the relevant company has a permanent establishment in the United Kingdom at all times from the issue of the holding to the time in question.

286B

(1) The requirement of this section is that the relevant company is not, at the time of the issue of the relevant holding, in difficulty.

(2) The relevant 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) as those guidelines had effect in the United Kingdom immediately before IP completion day.

Time as from which VCT approval has effect

302A

(1) This section applies for the purposes of this Chapter.

(2) A company has a “permanent establishment” in the United Kingdom if (and only if)—

(a) it has a fixed place of business there through which the business of the company is wholly or partly carried on, or

(b) an agent acting on behalf of the company has and habitually exercises there authority to enter into contracts on behalf of the company.

(3) For the purposes of this section “fixed place of business” includes (without prejudice to the generality of that expression)—

(a) a place of management,

(b) a branch,

(d) a factory,

(e) a workshop,

(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources, and

(g) a building site or construction or installation project.

(4) If the condition in subsection (5) is met, a company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that—

(a) a fixed place of business is maintained there for the purpose of carrying on activities for the company, or

(b) an agent carries on activities there for and on behalf of the company.

(5) The condition is that, in relation to the business of the company as a whole, the activities carried on are only of a preparatory or auxiliary character.

(6) For this purpose “activities of a preparatory or auxiliary character” include (without prejudice to the generality of that expression)—

(a) the use of facilities for the purpose of storage, display or delivery of goods or merchandise belonging to the company,

(b) the maintenance of a stock of goods or merchandise belonging to the company for the purpose of storage, display or delivery,

(c) the maintenance of a stock of goods or merchandise belonging to the company for the purpose of processing by another person, and

(d) purchasing goods or merchandise, or collecting information, for the company.

(7) A company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that it carries on business there through an agent of independent status (including a broker or a general commission agent) acting in the ordinary course of the agent's business.

(8) A company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that it controls a company that—

(a) is resident there, or

(b) carries on business there (whether through a permanent establishment or otherwise).

(9) The Treasury may by regulations amend this section.

838A

(1) The trustees of an asbestos compensation settlement are not liable to income tax in respect of the income of the trustees.

(2) In this section “asbestos compensation settlement” means a settlement—

(a) the sole or main purpose of which is making compensation payments to or in respect of individuals who have, or had before their death, an asbestos-related condition, and

(b) which is made before 24 March 2010 in pursuance of an arrangement within subsection (3).

(3) An arrangement is within this subsection if it is—

(a) a voluntary arrangement that has taken effect under Part 1 of the Insolvency Act 1986 or Part 2 of the Insolvency (Northern Ireland) Order 1989,

(b) a compromise or arrangement that has taken effect under section 425 of the Companies Act 1985, Article 418 of the Companies (Northern Ireland) Order 1986 or Part 26 of the Companies Act 2006, or

(c) an arrangement or compromise of a kind corresponding to any of those mentioned in paragraph (a) or (b) that has taken effect under, or as a result of, the law of a country or territory outside the United Kingdom.

963A

(1) The Commissioners for Her Majesty's Revenue and Customs may by regulations modify, replace or supplement any provision of section 963(2) to (4).

(2) Regulations under this section may only be made for the purpose of regulating the time at and manner in which persons making payments within section 963(1)(a) or (b) are to account for and pay income tax which is to be collected from them in respect of those payments.

(3) In particular, regulations under this section may, in relation to income tax for which a person is liable to account—

(a) modify any provision of Parts 2 to 6 of TMA 1970, or

(b) apply any such provision with or without modifications.

(4) Regulations under this section may—

(a) make different provision for different kinds of payer,

(b) make different provision for different circumstances, and

(c) authorise the Commissioners for Her Majesty's Revenue and Customs, if they think there are special circumstances justifying it, to make special arrangements in relation to income tax for which a person is liable to account.

(5) Regulations under this section may contain incidental, supplemental, consequential and transitional provision and savings.

(6) The Commissioners for Her Majesty's Revenue and Customs must not make any regulations under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons.

(7) References in this Act and in any other enactment to any of the provisions of section 963(2) to (4) are to be read as references to those provisions as modified, replaced or supplemented by provision made by regulations under this section.

The unquoted status requirement

1007A

(1) In the Income Tax Acts “permanent establishment”, in relation to a company, is to be read in accordance with Chapter 2 of Part 24 of CTA 2010.

(2) This section does not apply for the purposes of—

(a) Part 5 of this Act (see instead section 191A), or

(b) Chapter 4 of Part 6 of this Act (see instead section 302A).

127ZA

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Put options

CHAPTER 8 — Tainted charity donations

Introduction

809ZH

(1) This Chapter makes provision for removing entitlement to income tax reliefs, and counteracting income tax advantages, where a person makes a relievable charity donation which is a tainted donation.

(2) See section 257A of TCGA 1992 and Part 21C of CTA 2010 for the removal of entitlement to other reliefs where a person makes a relievable charity donation which is a tainted donation.

809ZI

(1) In this Chapter “relievable charity donation” means a gift or other disposal which—

(a) is made by a person to a charity, and

(b) is eligible for tax relief.

(2) A gift or other disposal is eligible for tax relief if one or both of the following apply—

(a) (ignoring the tainted donation provisions) tax relief would be available in respect of it under a relevant relieving provision;

(b) the charity is entitled to claim a repayment of tax in respect of it.

(3) “The tainted donation provisions” are—

(a) this Chapter,

(b) section 257A of TCGA 1992 (tainted charity donations: disapplication of section 257), and

(4) The following are “relevant relieving provisions”—

(a) section 257 of TCGA 1992 (gifts of chargeable assets),

(b) section 63(2)(a), (aa) and (ab) of CAA 2001 (gifts of plant and machinery),

(d) section 108 of ITTOIA 2005 (gifts of trading stock),

(e) Chapters 2 and 3 of Part 8 of this Act (gift aid and gifts of shares),

(f) section 105 of CTA 2009 (gifts of trading stock), and

(g) Part 6 of CTA 2010 (charitable donations relief).

(5) For the purposes of this Chapter, an amount of income which arises under a UK settlement and to which a charity is entitled under the terms of the settlement is to be regarded as an amount gifted to the charity by the trustees of the settlement.

“UK settlement” has the same meaning as in section 628 of ITTOIA 2005.

Tainted donations

809ZJ

(1) For the purposes of this Chapter, a relievable charity donation is a tainted donation if (and only if) Conditions A, B and C are met.

(2) Condition A is that—

(a) a linked person enters into arrangements (whether before or after the donation is made), and

(b) it is reasonable to assume from either or both of—

(i) the likely effects of the donation and the arrangements, and

(ii) the circumstances in which the donation is made and the circumstances in which the arrangements are entered into,

that the donation would not have been made and the arrangements would not have been entered into independently of one another.

(3) “Linked person” means—

(a) the person who made the donation (“the donor”), or

(b) a person connected with the donor at a relevant time.

(4) In subsection (3) “relevant time” means a time during the period which begins with the earliest, and ends with the latest, of the following times—

(a) the time when the arrangements are entered into as mentioned in subsection (2);

(b) the time when the relievable charity donation is made;

(5) Condition B is that the main purpose, or one of the main purposes, of the linked person in entering into the arrangements is to obtain a financial advantage—

(a) directly or indirectly from the charity to which the donation is made or a connected charity,

(b) for one or more linked persons who are not charities (each of whom is referred to in this Chapter as “a potentially advantaged person”).

(6) Condition C is that the donor is not—

(a) a qualifying charity-owned company, or

(b) a relevant housing provider linked with the charity to which the donation is made.

(7) For the purposes of subsection (6)(b) a relevant housing provider is linked with the charity if (and only if)—

(a) one is wholly owned, or subject to control, by the other, or

(b) both are wholly owned, or subject to control, by the same person.

(8) In this section—

“qualifying charity-owned company”, in relation to a relievable charity donation, means a company which—is wholly owned by one or more charities, at least one of which is the charity to which the donation is made or a connected charity, andhas not previously been under the control of, and does not carry on a trade or business previously carried on by, one or more of the following—a potentially advantaged person;a person (other than a charity) who, at any time within the period of 4 years ending with the day on which paragraph (a) was first satisfied, was connected with a person who is a potentially advantaged person;

“relevant housing provider” means a body which is—a non-profit registered provider of social housing, orentered on a register maintained under section 1 of the Housing Act 1996, section 20 of the Housing (Scotland) Act 2010 (asp 17) or Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15)).

(9) Section 200 of CTA 2010 (company wholly owned by a charity) applies for the purposes of subsection (8), and for those purposes references in that section to “charity” include a registered club within the meaning of section 658(6) of that Act.

(10) This section is subject to section 809ZL (certain financial advantages to be ignored).

809ZK

(1) This section applies for the purposes of Condition B.

(2) Subsection (3) applies where the arrangements entered into by the linked person (as mentioned in Condition A) involve a transaction to which—

(a) that or any other linked person (“X”), and

(b) another person (“Y”),

are parties.

(3) X obtains a financial advantage from the charity to which the donation is made or a connected charity if—

(a) the terms of the transaction are less beneficial to Y or more beneficial to X (or both) than those which might reasonably be expected in a transaction concluded between parties dealing at arm's length, or

(b) the transaction is not of a kind which a person dealing at arm's length and in place of Y might reasonably be expected to make.

(4) Nothing in this section is intended to limit the circumstances in which a linked person may be regarded as obtaining a financial advantage for the purposes of section 809ZJ.

(5) In this section—

“Condition A” and “Condition B” have the same meaning as in section 809ZJ;

“linked person” has the meaning given by section 809ZJ(3);

“transaction” includes (for example)—the sale or letting of property,the provision of services,the exchange of property,the provision of a loan or any other form of financial assistance, andinvestment in a business.

809ZL

(1) When determining whether a relievable charity donation is a tainted donation, a financial advantage within subsection (2), (3), (4) or (5) is to be ignored.

(2) A financial advantage is within this subsection if the person for whom it is obtained applies the advantage for charitable purposes only.

(3) A financial advantage is within this subsection if (ignoring the tainted donation provisions) it is—

(a) a benefit associated with a gift which is a qualifying donation for the purposes of Chapter 2 of Part 8 (gift aid), or

(b) a benefit associated with a payment which is a qualifying payment for the purposes of Chapter 2 of Part 6 of CTA 2010 (charitable donations relief: payments to charity).

(4) A financial advantage is within this subsection if (ignoring the tainted donation provisions)—

(a) the relievable charity donation is a disposal in respect of which tax relief would be available under Chapter 3 of Part 8 of this Act (gifts of shares, securities and real property to charities etc) or Chapter 3 of Part 6 of CTA 2010 (charitable donations: certain disposals to charity), and

(b) the advantage is a benefit the value of which would be taken into account in determining the relievable amount in respect of the disposal for the purposes of the Chapter in question.

(5) A financial advantage is within this subsection if (ignoring the tainted donation provisions)—

(a) the relievable charity donation is a gift in respect of which tax relief would be available under section 108 of ITTOIA 2005 or section 105 of CTA 2009 (gifts of trading stock to charities etc), and

(b) the advantage is a benefit attributable to the making of the gift in respect of which an amount would be brought into account under section 109 of ITTOIA 2005 or section 108 of CTA 2009 (receipt of benefits by donor or connected person).

(6) In this section—

“benefit associated with a gift” has the meaning given by section 417;

“benefit associated with a payment” has the meaning given by section 196 of CTA 2010;

“the tainted donation provisions” has the meaning given by section 809ZI(3).

Removal of reliefs and imposition of charge to tax

809ZM

(1) This section applies where a tainted donation is made by a person.

(2) Where (ignoring this Chapter) income tax relief would be available in respect of the tainted donation, that relief is not available.

(3) Where—

(a) (ignoring this Chapter) income tax relief would be available in respect of an associated donation, and

(b) entitlement to that relief is not withdrawn by subsection (2),

that relief is not available.

(4) In this section—

“associated donation”, in relation to a tainted donation, means a relievable charity donation made—in accordance with the relevant arrangements, andby a person, other than—a qualifying charity-owned company in relation to that relievable charity donation, ora relevant housing provider linked (within the meaning of section 809ZJ(7)) with the charity to which that donation is made;

“income tax relief” means relief under—section 63(2)(a), (aa) or (ab) of CAA 2001 (gifts of plant and machinery), so far as it applies in relation to income tax,Part 12 of ITEPA 2003 (payroll giving),section 108 of ITTOIA 2005 (gifts of trading stock),Chapter 2 of Part 8 of this Act (gift aid), orChapter 3 of that Part (gifts of shares etc);

“qualifying charity-owned company” has the meaning given by section 809ZJ(8) (except that paragraph (b) of that definition does not apply);

“relevant housing provider” has the meaning given by section 809ZJ(8);

“the relevant arrangements”, in relation to a tainted donation, means the arrangements by reference to which Conditions A and B in section 809ZJ are met.

(5) Where entitlement to relief is withdrawn under this section in respect of a donation—

(a) subsections (6) and (7) apply if the relief is under Chapter 2 of Part 8 (gift aid), and

(b) subsection (8) applies if the relief is under Part 12 of ITEPA 2003 (payroll giving).

(6) For the purposes of Step 2 in section 58(1), the donation is not a qualifying donation for the purposes of Chapter 2 of Part 8.

(7) But—

(a) the donation remains a qualifying donation for the purposes of—

(i) Part 10 (special rules about charitable trusts etc),

(ii) section 899(5) (meaning of “qualifying annual payment”),

(iii) Chapter 2 of Part 11 of CTA 2010 (charitable companies: gifts and other payments),

(iv) section 664 of that Act (community amateur sports clubs: exemption for interest and gift aid income), and

(b) accordingly, section 414(2)(a) (donation treated as made after deduction of basic rate income tax) applies for the purposes of section 520(4) (income tax treated as deducted to be treated as income tax paid by charitable trust).

(8) The donation remains a donation for the purposes of Part 12 of ITEPA 2003 for the purposes of—

(a) section 521A (gifts under payroll deduction scheme: income tax liability and exemption), and

(b) section 472A of CTA 2010 (gifts under payroll reduction scheme: corporation tax liability and exemption).

809ZN

(1) Income tax is charged under this section if—

(a) a person makes a tainted donation in a tax year,

(b) (ignoring this Chapter) relief would have been available under Chapter 2 of Part 8 in respect of the tainted donation or an associated donation (“the gift aid donation”), and

(c) the charity to which the gift aid donation is made is entitled to claim a repayment of tax in respect of that donation.

(2) The amount of the tax charged under this section is equal to the amount of the repayment of tax which the charity is entitled to claim in respect of the gift aid donation (whether or not such a claim is made).

(3) Each of the persons mentioned in subsection (4) is liable for any tax charged under this section, and the liability of those persons is joint and several.

(4) The persons are—

(a) the donor in respect of the gift aid donation,

(b) if different, the donor in respect of the tainted donation,

(d) any charity to which the gift aid donation or (if different) the tainted donation is made, or any connected charity, which falls within subsection (5).

(5) A charity falls within this subsection if the charity—

(a) is or was party to the relevant arrangements relating to the tainted donation, and

(b) was aware, at the time it entered into those arrangements, that a linked person was entering (or had entered or was likely to enter) into the arrangements in circumstances falling within Condition B in section 809ZJ.

(6) No liability to income tax arises under this section in respect of a repayment of tax, if (and to the extent that) the repayment is itself repaid to the Commissioners for Her Majesty's Revenue and Customs under any other provision of the Tax Acts.

(7) In this section—

“associated donation” has the same meaning as in section 809ZM;

“linked person” has the same meaning as in section 809ZJ;

“the relevant arrangements” has the same meaning as in section 809ZM.

809ZO

(1) Income tax is charged under this section if—

(a) a person makes a tainted donation in a tax year,

(b) the tainted donation or an associated donation is a payment by the trustees of a settlement of income arising under the settlement (“the trust donation”), and

(2) The amount of the tax charged under this section is equal to the amount of the repayment of tax which the charity is entitled to claim in respect of the trust donation (whether or not such a claim is made).

(3) Each of the persons mentioned in subsection (4) is liable for any tax charged under this section, and the liability of those persons is joint and several.

(4) The persons are—

(a) the trustees of the settlement who made the trust donation,

(b) if different, the donor in respect of the tainted donation,

(c) if section 628 or 630 of ITTOIA 2005 (gifts from settlor-interested trusts etc) applies in relation to the income out of which the trust donation is made, the settlor in relation to the settlement,

(d) each potentially advantaged person under the relevant arrangements relating to the tainted donation,

(e) any beneficiary of the settlement who is party to those arrangements, and

(f) any charity to which the trust donation or (if different) the tainted donation is made, or any connected charity, which falls within subsection (5).

(5) A charity falls within this subsection if—

(a) the charity is or was party to the relevant arrangements relating to the tainted donation, and

(b) the charity was aware, at the time it entered into those arrangements, that a linked person was entering (or had entered or was likely to enter) into the arrangements in circumstances falling within Condition B in section 809ZJ.

(6) No liability to income tax arises under this section in respect of a repayment of tax if that repayment is itself repaid to the Commissioners for Her Majesty's Revenue and Customs under any other provision of the Tax Acts.

(7) In this section—

“associated donation” has the same meaning as in section 809ZM;

“linked person” has the same meaning as in section 809ZJ;

“the relevant arrangements” has the same meaning as in section 809ZM;

“settlement” and “settlor” have the same meaning as in Chapter 5 of Part 5 of ITTOIA 2005 (see section 620 of that Act).

Supplementary

809ZP

For the purposes of this Chapter, a “connected charity” in relation to another charity means a charity which is connected with that other charity in a matter relating to the structure, administration or control of either charity.

809ZQ

(1) Section 993 (meaning of “connected” persons) applies for the purposes of this Chapter—

(a) subject to section 809ZP, and

(b) as if, after subsection (7) there were inserted the provision in subsection (2).

(2) That provision is—

(8) A person who is a beneficiary of a settlement is connected with— (a) a person in the capacity as trustee of the settlement, and (b) the settlor in relation to the settlement. (9) For the purposes of this section— (a) two people living together as if they were a married couple or civil partners are treated as if they were spouses or civil partners of each other, and (c) “close company” includes a company that would be a close company if it were resident in the United Kingdom.

809ZR

(1) In this Chapter—

“arrangements” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions;

“charity” includes a registered club within the meaning of section 658(6) of CTA 2010 (meaning of “community amateur sports club” and “registered club”).

(2) In this Chapter, in the case of a charitable trust, references to a charity being entitled to a repayment of, or liable to pay, tax are to be read as references to the trustees of the trust being so entitled or liable.

256A

In this Part “the EIS original rate”, in relation to EIS relief, means the EIS rate for the tax year for which the EIS relief was obtained.

The default basic, higher and additional rates

Personal allowance

Meaning of “qualifying film expenditure”

Meaning of “qualifying 90% subsidiary”

Time as from which VCT approval has effect

98A

(1) Post-cessation trade relief is not available to a person in respect of a payment or an event which is made or occurs directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements (and, accordingly, no section 261D claim may be made in respect of the payment or event).

(2) For this purpose “relevant tax avoidance arrangements” means arrangements—

(a) to which the person is a party, and

(b) the main purpose, or one of the main purposes, of which is the obtaining of a reduction in tax liability as a result of the availability of post-cessation trade relief (whether by making a claim for that relief or a section 261D claim).

(3) In this section—

(a) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), and

(b) “section 261D claim” means a claim under section 261D of TCGA 1992.

127B

(1) This section applies if—

(a) in a tax year a person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership),

(b) the business has a relevant agricultural connection for the purposes of section 120 (see section 123(3) to (7)), and

(c) any allowable agricultural expenses deducted in calculating the loss arise directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements.

(2) No property loss relief against general income may be given to the person for so much of the applicable amount of the loss as is attributable to expenses falling within subsection (1)(c).

(3) For the purposes of subsection (2), the applicable amount of the loss is to be treated as attributable to expenses falling within subsection (1)(c) before anything else.

(4) In subsection (1) “relevant tax avoidance arrangements” means arrangements—

(a) to which the person is a party, and

(b) the main purpose, or one of the main purposes, of which is the obtaining of a reduction in tax liability by means of property loss relief against general income.

(5) In subsection (4) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(6) In this section “the applicable amount of the loss” has the meaning given by section 122 and “allowable agricultural expenses” has the meaning given by section 123.

173B

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

178A

(1) The relevant shares must not be issued, nor any money raised by the issue employed, in consequence or anticipation 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 the arrangements is to secure—

(i) that a qualifying business activity is or will be carried on by the issuing company or a qualifying 90% subsidiary of that company, and

(ii) that one or more persons (whether or not including any party to the arrangements) 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 comprise part of the qualifying holdings of a VCT,

(b) that activity is the relevant qualifying business activity, and

(3) Condition A is that, as a (direct or indirect) result of the money raised by the issue of the relevant shares being employed as required by section 175, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.

(4) Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying business activity would have been carried on as part of another business by a relevant person or relevant persons.

(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—if the relevant qualifying business activity is activity A (see section 179(2)), the carrying on of a qualifying trade or preparing to carry on such a trade, which constitutes that activity, andif the relevant qualifying business activity is activity B (see section 179(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 person” means a person who is a party to the arrangements or a person connected with such a party;

“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— EIS relief in respect of the shares;SEIS relief under Part 5A in respect of the shares; SI relief under Part 5B in respect of the shares; relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;relief under section 150A or 150E of TCGA 1992 (enterprise investment scheme) in respect of the shares;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);relief under Schedule 5BB to that Act (seed enterprise investment scheme: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).

198A

(1) This section supplements section 192(1)(ka).

(2) Electricity is exported if it is exported onto a distribution system or transmission system (within the meaning of section 4 of the Electricity Act 1989).

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The purpose of the issue requirement

PART 5A — Seed enterprise investment scheme

CHAPTER 1 — Introduction

SEIS relief

257A

(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 in relation to shares issued on or after 6 April 2012 only.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

257AA

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—

(za) the risk-to-capital condition is met (see section 257AAA),

(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).

257AB

(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 tax 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, £200,000.

(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 tax 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

(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

In this Part—

(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,

(d) Chapter 8 contains supplementary and general provisions.

257AE

(1) Section 150E of TCGA 1992 makes provision about gains or losses on the disposal of shares to which SEIS relief is attributable.

(2) Schedule 5BB to that Act provides relief in respect of the re-investment under SEIS of the proceeds of assets disposed of in circumstances where there would otherwise be a chargeable gain.

CHAPTER 2 — The investor

Introduction

257B

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),

(d) no linked loans (see section 257BD), and

(e) no tax avoidance (see section 257BE).

The requirements

257BA

(1) Neither the investor nor an associate of the investor may, at any time during period B, be an employee of the issuing company or of any qualifying subsidiary of that company.

(2) For this purpose a person is not to be treated as an employee of the issuing company, or of any qualifying subsidiary of that company, at any time when the person is a director of that company.

257BB

The investor must not have a substantial interest in the issuing company at any time during period A.

257BC

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

(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.

(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 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

(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

(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

(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) For the purposes of this section—

(a) an individual is treated as entitled to acquire anything which the individual is entitled to acquire at a future date or will at a future date be entitled to acquire, and

(b) there is attributed to any individual any rights or powers of any other person who is an associate of the individual.

(8) 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

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),

(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

(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),

(b) any present or future preferential right to a company's assets on its winding up, or

(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, and

(b) are fully paid up at the time they are issued.

(5) Shares are not fully paid up for the purposes of subsection (4)(b) if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares.

257CB

(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 or a qualifying 90% subsidiary of that company.

(2) For the meaning of “qualifying business activity” see section 257HG.

257CC

(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 for the purposes of the qualifying business activity for which it was raised.

(2) Spending money on the acquisition of shares or stock in a company does not of itself amount to spending the money for the purposes of a qualifying business activity.

(3) This requirement does not fail to be met merely because an amount of money which is not significant is spent for another purpose or remains unspent at the end of period B.

257CD

(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

(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)(a) do not include—

(a) any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in section 257HB(1), or

(b) any arrangements with a view to any shares in the issuing company being exchanged for, or converted into, shares in that company of a different class.

(3) 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.

(4) The arrangements referred to in subsection (1)(d) do not include any arrangements which are confined to the provision—

(a) for the issuing company itself, or

(b) if the issuing company is a parent company that meets the trading requirement in section 257DA(2)(b), for the issuing company itself, for the issuing company itself and one or more of its subsidiaries or for one or more of its subsidiaries,

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.

(5) 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.

(6) For the purposes of subsection (5)(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 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

(1) The relevant shares must not be issued, nor any money raised by the issue spent, in consequence or anticipation 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 the arrangements is to secure—

(i) that a qualifying business activity is or will be carried on by the issuing company or a qualifying 90% subsidiary of that company, and

(ii) that one or more persons (whether or not including any party to the arrangements) 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 comprise part of the qualifying holdings of a VCT,

(b) that activity is the relevant qualifying business activity, and

(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, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.

(4) Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying business activity would have been carried on as part of another business by a relevant person or relevant persons.

(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—if the relevant qualifying business activity is activity A (see section 257HG(2)), the carrying on of a qualifying trade, or preparing to carry on such a trade, which constitutes that activity, andif the relevant qualifying business activity is activity B (see section 257HG(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 person” means a person who is a party to the arrangements or a person connected with such a party;

“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—SEIS relief in respect of the shares; EIS relief in respect of the shares; SI relief under Part 5B in respect of the shares; relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;relief under section 150A or 150E of TCGA 1992 (enterprise investment scheme) in respect of the shares;relief under Schedule 5B to that Act (enterprise investment scheme: re-investment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule);relief under Schedule 5BB to that Act (seed enterprise investment scheme: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).

CHAPTER 4 — The issuing company

Introduction

257D

The issuing company is a qualifying company in relation to the relevant shares if the requirements of this Chapter are met as to—

(a) trading (see section 257DA),

(b) the issuing company's carrying on of the qualifying business activity (see section 257DC),

(d) financial health (see section 257DE),

(e) unquoted status (see section 257DF),

(f) control and independence (see 257DG),

(g) no partnerships (see section 257DH),

(h) gross assets (see section 257DI),

(i) number of employees (see section 257DJ),

(j) no previous other risk capital scheme investments (see section 257DK),

(k) the amount raised through the SEIS (see section 257DL),

(l) qualifying subsidiaries (see section 257DM), and

(m) property managing subsidiaries (see section 257DN).

The requirements

257DA

(1) The issuing company must meet the trading requirement throughout period B.

(2) The trading requirement is that—

(a) the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more new qualifying trades (see section 257HF), or

(b) the company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.

(3) If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more new qualifying trades—

(a) the company is treated as a parent company for the purposes of subsection (2)(b), and

(b) the reference in subsection (2)(b) to the group includes the company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.

This subsection does not apply at any time after the abandonment of that intention.

(4) For the purpose of subsection (2)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.

(5) For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.

(6) For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—

(a) the holding of shares in or securities of a qualifying subsidiary of the parent company,

(b) the making of loans to another group company,

(c) the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or

(d) the holding and managing of property used by a group company for the purpose of research and development from which it is intended—

(i) that a qualifying trade to be carried on by a group company will be derived, or

(ii) that a qualifying trade carried on or to be carried on by a group company will benefit.

(7) Any reference in subsection (6)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time.

(8) 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.

(9) 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;

“mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly;

“non-qualifying activities” means—excluded activities (within the meaning of sections 192 to 199), andactivities (other than research and development) carried on otherwise than in the course of a trade;

“qualifying trade” has the same meaning as in Part 5 (see sections 189 and 192 to 200).

257DB

(1) A company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries 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 concerned 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 trading 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 any of its subsidiaries (or, in the case of a winding up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, any other act is done for the like purpose), or

(b) the company or any of its subsidiaries 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.

257DC

(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

carried on by a person other than the issuing company or a qualifying 90% subsidiary of that company.

(2) Subsection (3) has effect for the purpose of determining whether the requirement of this section is met in relation to the issuing company in a case where relevant preparation work is carried out by that company or a qualifying 90% subsidiary of that company.

(3) The carrying on of the relevant new qualifying trade by a company other than the issuing company or a subsidiary of that company is to be ignored if it takes place at any time in period B before the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.

(4) 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 (5), the relevant new qualifying trade—

(a) ceases to be carried on in period B by the issuing company or any qualifying 90% subsidiary of that 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.

(5) The following are acts and events within this subsection—

(a) anything done as a consequence of the issuing company or any other company being in administration or receivership, and

(b) the issuing company or any other company being wound up, or dissolved without being wound up.

(6) Subsection (4) applies only if—

(a) the entry into administration or receivership, and everything done as a consequence of the company concerned being in administration or receivership, or

(b) the winding up or dissolution,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(7) In this section—

“the relevant new qualifying trade” means the new qualifying trade which is the subject of that qualifying business activity;

“relevant preparation work” means preparations within section 257HG(2)(b) which are the subject of the qualifying business activity mentioned in section 257CB;

“relevant research and development” means—research and development within section 257HG(3) which is the subject of that qualifying business activity, andany other preparations for the carrying on of the new qualifying trade which is the subject of that activity.

257DD

(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.

257DE

(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) as those guidelines had effect in the United Kingdom immediately before IP completion day.

257DF

(1) At the beginning of period B—

(a) the issuing company must be an unquoted company,

(b) there must be no arrangements in existence for the issuing company to cease to be an unquoted company, and

(c) there must be no arrangements in existence for the issuing company to become a subsidiary of another company (“the new company”) by virtue of an exchange of shares, or shares and securities, if—

(i) section 257HB applies in relation to the exchange, and

(ii) arrangements have been made with a view to the new company ceasing 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,

(b) listed on a designated exchange in a country outside the United Kingdom, or

(4) In subsection (3)(b) and (c) “designated” means designated by an order made by the Commissioners for Her Majesty's Revenue and Customs for the purposes of that provision.

(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) and (c)(ii) 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.

257DG

(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 which is not a qualifying subsidiary of the issuing 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 (ignoring any on-the-shelf period) be within subsection (2A), and

(b) no arrangements must be in existence at any time in period A by virtue of which the issuing company could be within that subsection (whether during period A or otherwise).

(2A) The issuing company is within this subsection at any time if it is under the control of any other company (or of another company and any other person connected with that other company).

(2B) In subsection (2)(a) “on-the-shelf period” means a period during which the issuing 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.

(3) This section is subject to section 257HB(4) (exchange of shares).

257DH

(1) Neither the issuing company nor any qualifying 90% subsidiary of that company may, 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.

257DI

(1) In the case of relevant shares issued by a single company, the value of the company's assets must not exceed £350,000 immediately before the relevant shares are issued.

(2) In the case of relevant shares issued by a parent company, the value of the group assets must not exceed £350,000 immediately before the relevant shares are issued.

(3) For the purposes of this section the value of the group assets is the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.

257DJ

(1) If the issuing company is a single company, the full-time equivalent employee number for it must be less than 25 when the relevant shares are issued.

(2) If the issuing company is a parent company, the sum of—

(a) the full-time equivalent employee number for it, and

(b) the full-time equivalent employee numbers for each of its qualifying subsidiaries,

must be less than 25 when the relevant shares are issued.

(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 , paternity , shared parental , parental bereavement or neonatal care leave, or

(ii) a student on vocational training.

257DK

(1) The requirement of this section is that—

(a) 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, and

(b) no EIS investment or VCT investment has been made on or before that day in a company which at the time the relevant shares are issued is a qualifying subsidiary of the issuing company.

(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.

257DL

(1) The sum of the following amounts must not exceed £250,000—

(a) the amount of the SEIS investment made in the issuing company which includes the relevant shares (“the current investment”),

(b) the amount of other SEIS investments made in the issuing company on the same day as the current investment,

(c) the amount of any SEIS investments made in the issuing company during the period of 3 years ending immediately before that day, and

(d) the total of any other aid which—

(i) is granted to the issuing company on the day the current investment is made or during that period, and

(ii) disregarding any SEIS investment within paragraph (a) or (b), would be de minimis aid.

(2) An “SEIS investment” is made in a company if—

(a) the company issues shares (money having been subscribed for them), and

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Income Tax Act 2007

837F

837G

837H

Repos

925A

925B

925C

925D

925E

925F

998A

Application in relation to corresponding bonus shares

57A

Maximum amount for cases outside section 257MNA

74ZA

Restrictions on relief

127A

438A

521A

538A

...

943B

943C

943D

180A

180B

191A

Acquisition of share capital

286A

286B

Time as from which VCT approval has effect

302A

838A

963A

The unquoted status requirement

1007A

127ZA

Put options

CHAPTER 8 — Tainted charity donations

Introduction

809ZH

809ZI

Tainted donations

809ZJ

809ZK

809ZL

Removal of reliefs and imposition of charge to tax

809ZM

809ZN

809ZO

Supplementary

809ZP

809ZQ

809ZR

256A

The default basic, higher and additional rates

Personal allowance

Meaning of “qualifying film expenditure”

Meaning of “qualifying 90% subsidiary”

Time as from which VCT approval has effect

98A

127B

173B

178A

198A

The purpose of the issue requirement

PART 5A — Seed enterprise investment scheme

CHAPTER 1 — Introduction

SEIS relief

257A

257AA

257AB

Miscellaneous

257AC

257AD

257AE

CHAPTER 2 — The investor

Introduction

257B