Statement of Practice 8 (1995)
Published 14 September 1995
© Crown copyright 1995
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1. Taxes Act 1988 s 842AA(12)(a) provides that a loan made by a venture capital trust to a company will qualify as a security for the purposes of s 842AA (and in the provisions of s 842 as they apply for the purposes of s 842AA) if certain conditions are met. In particular, the terms of the loan (whether secured or not) must not allow any person to require it to be repaid, or any stock or security relating to that loan to be re-purchased or redeemed, within the period of 5 years from the making of the loan or, as the case may be, the issue of the stock or security.
2. Provided that the loan is made on normal commercial terms, HM Revenue and Customs will not regard a standard event of default clause in the loan agreement as a provision which would disqualify that loan from being a security within the meaning of s 842AA(12)(a). The purpose of such a clause is to afford protection to the lender by enabling redemption to be enforced in circumstances where the borrower defaults. Such a provision would not be regarded as being standard, however, if it entitled the lender, or a third party, to exercise any action which would cause the borrower to default.