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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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EIS: income tax relief: the issuing company: ceasing to meet trading requirement because of administration or receivership

ITA07/S182

Effect of administration or receivership

When a company goes into administration or receivership its directors lose most of their powers. The person who is able to exercise those powers (usually an ‘administrative receiver’) may act in a way which would cause the company to cease to satisfy one or more of the conditions - for example, they may have to sell the company’s assets, with the result that the company is unable to carry on a trade.

With effect from 21 March 2000, any failure to satisfy a requirement which is due entirely to the company’s having been put into administration or receivership is to be ignored, provided everything done as a consequence of that is done for commercial reasons and is not part of a scheme or arrangement aimed at avoiding tax.

Effect of liquidation

If a resolution is passed, or an order is made, for the winding up of the company (or any other act is done for the same purpose), or if the company is dissolved without winding up, the company will fail to satisfy at least one of the conditions which apply to it.

However, this failure will be disregarded where the winding up or dissolution is for genuine commercial reasons, and not part of a scheme or arrangement for avoiding tax.

The usual ‘genuine commercial reason’ for winding up a company will be that it is insolvent or is likely to become insolvent. The sooner a company goes into liquidation after ceasing to trade because of insolvency, the sooner it can be established that relief will not be withdrawn from its investors.