IFM40320 - Becoming a QAHC: when ownership condition is not met

The rules allow a company to join the QAHC regime for a two-year grace period during which time the ownership condition may not be fully met. It is, however, required that throughout that grace period, there is a reasonable expectation that the ownership condition will be met by the date two years from entry into the regime. Whether this requirement is met will be dependent on the facts and circumstances of each case, which should be considered in the round.

Meaning of ‘reasonable expectation’

A company should only choose to become a QAHC before it fully meets the ownership condition if there is a clear path to meeting that condition within two years. For example, if the company or its sponsors/key investors have commenced negotiations with category A investors, that might well create a reasonable expectation that the ownership condition would be met within the two-year period. Alternatively, if a fund manager has a pool of regular category A investors with whom they have a relationship such that they would expect a number to invest, that might also create a reasonable expectation in the absence of ongoing negotiations.

It would not generally be enough for the company or other parties to have merely approached a number of potential category A investors with a vague hope that sufficient investors will come on board to result in the ownership condition being met.

If at any point during the two-year grace period there ceases to be a reasonable expectation that the ownership condition will be met by the statutory deadline, the QAHC will leave the regime immediately and must notify HMRC of this as soon as reasonably practicable (IFM41320).

Situations where the grace period may be extended

The two-year grace period may be extended by agreement with HMRC in certain situations. Requests for an extension period should be made to HMRC’s QAHC team (see IFM41210 for contact details).

Each case must be judged on its own facts. HMRC will take a practical approach and will consider granting an extension where there is agreement that there remains a reasonable expectation the ownership condition will be met within a specific timeframe.

For example, within the two-year grace period, negotiations are ongoing with a potential major category A investor, whose investment would result in the ownership condition being met, but the end date for the negotiations has been set for up to three months after the end of the two-year grace period. In such a situation, it may be appropriate for HMRC to allow a three-month extension.

HMRC will not grant longer extensions than appear necessary, but may subsequently grant further extensions depending on the specific facts. For example, a further extension may be appropriate if the timetable for ongoing negotiations has slipped due to an unforeseen circumstance.

Where a company subsequently ceases to meet the ownership condition

Where a company meets all the eligible conditions and chooses to join the QAHC regime but subsequently ceases to meet the ownership condition within the first two years, the QAHC can utilise the two-year grace period to again meet the ownership condition, as long as it notifies HMRC that it intends to do so, and it reasonably expects to meet that condition again within two years of becoming a QAHC. The two-year grace period runs from the date of entry into the QAHC regime, not the date on which the QAHC ceased to meet the ownership condition.

During the first two years of entry, the two-year grace period rules take priority over the rules relating to curable breaches of the ownership condition (see IFM41320).