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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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Average annual turnover

There are special rules to calculate the average annual turnover of the company. The rules are designed to take the average of the turnovers of the company for the 5 year period ending with the end date of the company’s most recently filed (and audited, where appropriate) accounts.

Apportionments may be needed where accounting periods are less than a year, or the company is the parent of a group and the accounting periods of subsidiaries are not aligned or where the company or group has failed to file its accounts within the statutory time limits.

The most recent accounting period is the accounting period with the statutory filing date that falls most recently before the date of the investment. The statutory filing date is the date by which accounts must be filed with Companies House and falls 9 months after the end of the company’s accounting period.

The period of 5 years is then determined by reference to the end of that accounting period.

Example 28

Company F made its first commercial sale in 2000 and has never received a relevant investment. It is seeking investments of £750,000 to finance entry to a new geographical market. Company F’s average annual turnover is £1 million and it has always made up its accounts to 31 December.

Individual G invests £750,000 in company F on 1 November 2016.

Company F’s most recent filing date before the date of the investment is 30 September 2016. The filing date relates to the accounts for the year ending on 31 December 2015.

The five year period over which company F’s turnovers must be averaged is 1 January 2011 to 31 December 2015.

 

Where a number of investments are being made over a period of up to 30 days the filing date will be the most recent filing date in relation to the investment that clears the 50% hurdle.

Example 29

Company J made its first commercial sale in 2000 and has never received a relevant investment. It is seeking investments of £600,000 to finance entry to a new geographical market. Company J’s average annual turnover is £1 million and it has always made up its accounts to 31 December.

Individual K invests £250,000 in company J on 25 September 2016.

VCT L intends to invest £350,000 in company J on 1 November 2016, more than 30 days after individual K’s investment.

Company J’s most recent filing date before the date of individual K’s investment is 30 September 2015. The filing date relates to the accounts for the year ending on 31 December 2014 and the 5 year period is 1 January 2010 to 31 December 2014. The average annual turnover for company J over that period is £900,000 and so K’s investment is less than 50% of that amount and is not eligible for EIS relief.

As VCT L’s proposed investment would also stand alone it would not be a qualifying holding and the VCT is therefore unable to proceed with the investment.

Example 30

The facts are the same as for example 29 except that VCT L wants to invest £350,000 on 6 October 2016, within 30 days of individual K’s investment. As before, individual K’s investment is not enough on its own to meet the turnover test and so the filing date must be determined by reference to the date of VCT L’s investment.

The most recent filing date of company J is 30 September 2016 and the 5 year period is 1 January 2011 to 31 December 2015. The average annual turnover, averaged over the period from 1 January 2011 to December 2015, is £1 million.

Individual K and VCT L have between them invested over £500,000 within a 30 day period so the investments meet the 50% test.

 

If the investee company is the parent company of a group of companies the turnovers of all the subsidiaries are taken into account for the purpose of determining the turnover of the group.

Example 31

Company M made its first commercial sale in 2000 and has never received a relevant investment. It is seeking investments of £750,000 to finance entry into a new geographical market. Company M has always made up its accounts to 31 December.

Company M has a subsidiary, company N.

The turnovers of both companies must be taken into account for the five year period over which the turnovers must be averaged is 1 January 2011 to 31 December 2015.

 

If the relevant company acquires a new subsidiary or business after the investment date, and all or part of the money raised from the investment is used for the business activities of that new subsidiary or business, then the turnovers of the newly acquired company/business must be included in determining the average turnover of the company.

Example 32

Company O made its first commercial sale in 2000 and has never received a relevant investment. It is seeking investments of £750,000 to finance entry to a new geographical market. Company O has always made up its accounts to 31 December.

Individual P invests £750,000 in company O on 6 October 2016 to fund the new activities.

On 1 November 2016 company O buys a business from another company, using separate funds, through which company O decides to carry out the new activities.

The five year period over which the turnovers must be averaged is 1 January 2011 to 31 December 2015 and includes the turnovers of company O and the business acquired after the investment.

 

If the accounting date of a subsidiary or acquired business does not align with the parent company’s accounting date, the turnovers must be apportioned to align with the parent’s accounting dates. 

If only a part of a business is acquired the amount of turnover to be taken into account as a proportion of the whole business is determined on a just and reasonable basis, depending on the individual circumstances of the case.

If the relevant company has not filed its accounts by the statutory filing date the 5 year period ends 12 months before the date of the investment.

However a company may elect to use the period ending 12 months before the date the investment is made, to apply to all investments made in the company before 6 April 2016, under new rules being introduced by Finance Bill 2016.