IFM41320 - Administrative requirements: breach of ownership condition: within first two years

There are slightly different rules where the ownership condition is breached within the first two years of the company joining the QAHC regime. The type of notification to make will depend upon whether the company had met the ownership condition at time of entry.

If all eligibility criteria were met at time of entry

If the company entered the QAHC regime while meeting all the eligibility conditions (and therefore submitted a standard entry notification), but then the ownership condition is breached within the first two years from its entry date, the QAHC may submit a notification under PARA 16(2) to HMRC if it wishes to remain in the regime. The QAHC must reasonably expect the ownership condition to be met within the first two years for a valid notification to be given and must continue to do so for PARA 16 to continue to apply. If it does not wish to or cannot serve such a notification under PARA 16(2) then it must submit a ‘breach and exit’ notification under PARA 26 or, if the conditions in PARA 27 are satisfied and it wishes to do so, a ‘breach and cure’ notification under PARA 26. A ‘breach and cure’ notification under PARA 27 may be appropriate if at the time of the breach of the ownership condition there are less than 90 days before the two-year anniversary of the company joining the QAHC regime.

Example

Company E entered the QAHC regime on 1 January 2023 and on that date, it met all the eligible criteria. Due to a category A investor pulling out on 1 January 2024, the ownership condition was breached, but Company E started negotiations with a different potential category A investor and reasonably expects to settle the negotiations within two years of joining, which will result in the ownership condition being met.

Company E can submit a notification under PARA 16(2) to HMRC to advise that the ownership condition has been breached within the first two years but that it wishes to remain a QAHC. If the potential category A investor becomes an actual investor, or if Company E otherwise meets the ownership condition by 1 January 2025, no further notification to HMRC is required, and the company will continue to be a QAHC as if no breach had occurred.

If company E were to subsequently breach the ownership condition again within the first two years then a further notification could be made under PARA 16(2), provided the company reasonably expects the ownership condition to be met again within that two-year period.

If the ownership condition was not met at time of entry

If the company entered the QAHC regime before meeting the ownership condition was satisfied, it would have submitted an entry notification declaring that it reasonably expects to meet the ownership condition within the first two years of joining. If the QAHC subsequently realises that the ownership condition will not be met within two years, it will exit the regime on that date and should notify HMRC under PARA 16(5) that it is exiting for this reason.

Example

Company E entered the QAHC regime on 1 January 2023 and on that date, it met all the eligible criteria except the ownership condition. Company E had planned negotiations with a category A investor which were due to conclude on 1 January 2024 and, at the time of entry, it was reasonable to expect that these negotiations would result in the ownership condition being met and therefore gave HMRC a non-standard entry notification.

If, however, on say 1 November 2023, the potential category A investor decided not to invest and there was little prospect of Company E finding another category A investor and meeting the ownership condition before 1 January 2025, Company E will cease to be a QAHC. It should submit a notification to HMRC advising that there is now no reasonable expectation that the ownership condition will be met and will cease to be a QAHC on 1 November 2023.

Further guidance on meeting the ownership condition is at IFM40320.