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HMRC internal manual

Venture Capital Schemes Manual

From
HM Revenue & Customs
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First commercial sale: groups of companies and acquired trades

There are special rules to determine the date of the first commercial sale of a company where

  • the investee company is, or has been, the holding company of a group or
  • the company or any subsidiary of the investee company has acquired an established business from another owner in the past, whether or not the business is still in the ownership of the company/group at the time the investment is made.

The rules look at all the businesses of every company that has ever been a member of the investee company’s group including businesses or parts of businesses acquired by any of the companies and take the earliest possible date of all those companies and businesses as the date of the first commercial sale.

Example 19

Company A was incorporated on 1 February 2016. It used private investments to acquire the issued share capital of company B on 1 March 2016.

Company B’s first commercial sale was made on 1 April 2015.

Company A’s first commercial sale was therefore on 1 April 2015 and it has until 31 March 2022 if it wishes to raise funds through EIS or VCT investors (or 31 March 2025 if it is a knowledge-intensive company at the time of raising the money).

Example 20

Company C was incorporated on 1 February 2016. It used private investments to acquire the issued share capital of company D on 1 March 2016.

Company D’s first commercial sale was made on 1 April 2005.

Company C’s first commercial sale was therefore on 1 April 2005 and it is not eligible to receive an investment under EIS/VCT.

Example 21

Company E was incorporated on 1 February 2016. It used private investments to acquire the issued share capital of company F on 1 March 2016.

Company F was incorporated on 1 February 2014 to trade as a brewery. Its first commercial sale was made on 1 June 2014. On 1 March 2015 company F acquired a pub which had started to trade on 1 April 2005.

Company E’s first commercial sale was therefore on 1 April 2005 and it does not meet the basic age condition.

Example 22

The facts are the same as before. However, in 2018 company E decides to sell company F and use the proceeds to start up a brand new pub business which it will run through a newly incorporated subsidiary, company G. 

Although company E has sold company F, the date of company E’s first commercial sale is still 1 April 2005 and it does not meet the basic age condition.

In determining a company’s first commercial sale, it does not matter that it or its subsidiaries may be, or may have been, carrying on different activities.

Example 23

The facts are the same as in the previous two examples, except this time when in 2018 company E decides to sell company F the proceeds are to be used to start up a brand new fashion business which it will run through a newly incorporated subsidiary, company H. 

Although company E has sold company F, the date of company E’s first commercial sale is still 1 April 2005 and it does not meet the basic age condition.

 

The rules also take into account the date of the first commercial sale of any subsidiary acquired by the investee company or trade acquired by the investee company or its subsidiary after the date of the investment is received where all or part of the money raised by that investment is used for the business activities of that newly acquired subsidiary or business. 

The purpose of the rules is to prevent businesses being moved into a newer company wrapper in order to make investments in companies or businesses with an established track record (which should be able to obtain investment from the market).

Example 24

Company J was incorporated on 1 February 2014. It has two subsidiaries, companies K and L; both companies K and L were incorporated after February 2014 and their share capital has always been owned by company J. The earliest first commercial sale of company J, K and L is 1 March 2014.

On 1 September 2016 company J raises money under EIS/VCT.

On 1 October 2016 company J acquires company M using private money. The date of company M’s first commercial sale was 1 April 2005.

If company J uses the money raised on 1 September 2016 to support the business activities of itself, company K or company L then company J will meet the age condition.

If company J uses any part of the money raised on 1 September 2016 to support the growth and development of company M then company J will not meet the age condition.

Example 25

The facts are as before, except that this time on 1 October 2016 it is company K that acquires a business using private money. The date of the newly acquired business’s first commercial sale was 1 April 2005.

If company J uses the money raised on 1 September 2016 to support the business activities of itself or company L then company J will meet the age condition.

However, if company J uses any part of the money raised on 1 September 2016 to support the growth and development of company K, which now includes the newly acquired business, then company J will not meet the age condition.