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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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Excluded activities: provision of services or facilities for another business

ITA07/S192(1)(l) and S199; ITA07/S303(1)(l) and S310

Providing services or facilities for any business carried on by another person (other than the parent of the company) is an excluded activity where:

  • that other business consists to a substantial extent of any activities mentioned above, and
  • a controlling interest in that other business is held by a person who also has a controlling interest in the business carried on by the company.

A controlling interest in a business is defined as below. (In this definition, references to a business carried on by a person other than the company whose shares are the subject of the claim to relief includes references to any trade, profession or vocation).

A person has a controlling interest in a business if:

  1. In the case of a business carried on by a company:

 

  1. he controls the company, or
  2. the company is a close company and he (or an associate of his) is both a director of it and the beneficial owner of, or able directly or through the medium of other companies (or by any other indirect means) to control, more than 30% of its ordinary share capital (see VCM12020), or
  3. he owns at least one-half of the business by reference to the tests of ownership set out in CTA10/942 (see CTM06020).

 

  1. In any other case, if he is entitled to not less than half of the assets used for, or the income arising from, the business.

For the purposes of (a) and (b) above, the rights or powers of any person’s associate (see VCM11100) count as his rights and powers.

Meaning of ‘control’

For the purposes of (a) above, ‘control’ has the meaning given to it by CTA10/S450, (see CTM60200). In the context of the VCT legislation at ITA07/S310 that definition applies without the modification given by ITA07/S313(6) which operates for other parts of the VCT legislation.

A person may have a controlling interest in a business by virtue of (a)(3) above although he does not have control, under (a)(1) above, of the company carrying it on.

Example

Suppose A holds 25 percent of the ordinary share capital of Y Ltd, the remaining 75 percent being held by X Ltd. A also holds 40 percent of the share capital of X Ltd. In these circumstances A does not control Y Ltd within the CTA10/S450 definition of the term. However, A does own more than half the business of Y Ltd, because CTA10/S941(6) enables a proportion of X Ltd’s 75 percent holding in Y Ltd to be attributed to A even though he does not control X Ltd. A thus owns 25 percent + 30 percent (40 percent x 75 percent) of Y’s business.