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HMRC internal manual

Venture Capital Schemes Manual

EIS: income tax relief: the issuing company: control and independence requirement


The control test

The company must not, at any time in Period B (see VCM10540) control, whether on its own or together with any person connected with it, any company which is not a qualifying subsidiary of the issuing company. There must be no arrangements at any time during Period B by virtue of which this test could be breached, whether during Period B or at any other time.

For the meaning of ‘qualifying subsidiary’ see VCM13130.

The independence test

The company is not a qualifying company if at any time during Period B it is under the control of another company or of another company and any person or persons connected with that company.

It is also specifically provided that the company must not be a 51% subsidiary of another company - that is, owned as to more than 50% of its ordinary share capital. That is, the relevant company must directly or indirectly hold more than 50% of the ordinary share capital.

There must not be any arrangements at any time during Period B by virtue of which these rules could be breached, either during Period B or at any other time. But this rule does not apply where the arrangements relate to transactions to which VCM16030 applies.

See below for the meaning of ‘arrangements’ in this context. Note that the definition includes informal understandings or agreements which are not legally binding.

Meaning of ‘control’

For the purpose of determining whether a company is under the control of another company on or after 21 March 2000, ‘control’ has the meaning given to it by ITA07/S995. That is, the power of any person by means of the holding or shares or voting power in any company, or as a result of any powers conferred by a document regulating the company or any other company, that the affairs of the company are conducted in accordance with the person’s wishes.

Meaning of ‘connected’

‘Connected’ has the meaning given in ITA07/S993, (see CG14580 onwards, which deals with similarly worded legislation).

Note that, as well as the more obvious connections, ITA/S993(7) provide that persons are to be regarded as connected in relation to a company if they act together to secure or exercise control of that company. The provision extends to persons acting on the direction of any of those persons. Guidance can be found at CG14622.

Meaning of ‘arrangements’

‘Arrangements’ for this purpose is as defined in ITA07/S257. It includes any scheme, agreement or understanding, transaction or series of transactions, whether or not legally enforceable. Note: prior to 6 April 2012 the definition excluded reference to ‘transaction or series of transactions’.