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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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SEIS: income tax relief: issuing company: issuing company to carry on qualifying business activity

ITA07/S257DC

Throughout period B (see VCM31140) the new qualifying trade and any preparation work or research and development leading to it must be carried on by the issuing company itself or by a qualifying 90 percent subsidiary.

But the rules do not act to deny relief where an existing trade is carried on by another company and the issue of shares is preparatory to the carrying of a qualifying trade by the qualifying company or one of its qualifying 90 percent subsidiaries. Neither do the rules act to deny relief in cases in which the qualifying company (or any other company) goes into liquidation, administration or receivership provided that these actions are entered into and carried out for bona fide reasons and that the relevant qualifying trade is not sold on a going concern basis to a person who was connected with the qualifying company during period B.

See VCM34020 for the meaning of ‘new qualifying trade’.

Meaning of ‘qualifying 90 percent subsidiary’ (ITA07/S190)

For a subsidiary to be a qualifying 90 percent subsidiary, the relevant company must:

  • own at least 90 percent of the subsidiary’s issued share and voting rights,
  • be beneficially entitled to at least 90 percent of the assets available for distribution to equity holders of the subsidiary, and
  • be beneficially entitled to at least 90 percent of any profits of the subsidiary which would be available for distribution to equity holders.

In addition, no person other than the relevant company must have control of the subsidiary, and there must be no arrangements by virtue of which any of the above conditions could cease to be met.

A company is still to be treated as a qualifying 90 percent subsidiary if it is held indirectly via a company which is a qualifying 100 percent subsidiary of the relevant company, (based on similar considerations to those above).

Arrangements for the disposal of the subsidiary do not prevent this test from being regarded as met, providing that the disposal is for genuine commercial reasons and not for the purposes of tax avoidance.

The winding up of a subsidiary, or the subsidiary entering into or being in administration or receivership, do not prevent this test from being regarded as met providing that those events take place for genuine commercial reasons and not for the purposes of tax avoidance.

‘Equity holder’ is as defined at CTA10/S158 (see CTM81010).