VCT: VCT qualifying holdings: introduction
As explained at VCM54020, in order to obtain and retain approval as a VCT the company must continuously have at least 70% of its investments in qualifying holdings (80% for accounting periods beginning on or after 6 April 2019). The guidance which follows deals with the requirements which a holding in a company needs to satisfy in order to be part of the VCT’s qualifying holdings. For this purpose a ‘holding’ in a particular company is the sum of the shares and securities (see VCM54090) which it holds in that company.
A holding in a company cannot be part of a VCT’s qualifying holdings at any time when that company does not satisfy certain requirements. In the main these are similar to the conditions applying in the case of the other venture capital schemes.
There is an explicit requirement that any money raised from EIS and VCT investments must be for the company’s organic growth and development or, where the company is a parent company, the group’s (VCM8130).
The other requirements are explained in more detail in the rest of this section and are as follows:
- The UK permanent establishment requirement (VCM55030),
- The financial health requirement (VCM55050),
- The maximum qualifying investment requirement (VCM55060),
- The no guaranteed loan requirement (VCM55070),
- The proportion of eligible shares requirement (VCM55080),
- The trading requirement (VCM55090),
- The carrying on of a qualifying activity requirement (VCM55110),
- The maximum amount raised annually requirement (VCM55130),
- The maximum risk finance investments requirements (VCM55135),
- The use of the money raised requirement (VCM55150),
- The relevant company carrying on the activity requirement (VCM55160),
- The permitted maximum age requirement (VCM55175),
- The unquoted status requirement (VCM55180),
- The control and independence requirement (VCM55190 and VCM55200),
- The gross assets requirement (VCM55240),
- The employee numbers test (VCM55250),
- The proportion of skilled employees requirement (VCM16060)
- The qualifying subsidiaries requirement (VCM55260),
- The property managing subsidiaries requirement (VCM55270),
- The no disqualifying arrangements requirement (VCM55280).
By contrast with some of the rules about qualifying companies under the EIS, the need for these requirements to be satisfied is not limited to a particular period; the question is always whether the holding qualifies at any particular time. Where an investee company does not satisfy the requirements continuously it is possible for a holding in it, which is initially part of the VCT’s qualifying holdings, not to be so for a time, and then for it to requalify.
HMRC officers will need to notify the Small Company Enterprise Centre (VCM2070) whenever they become aware that a holding in a company no longer satisfies all the requirements.
A VCT’s holding in a company is not a qualifying holding unless it was originally issued to that VCT and has been held by it ever since. In other words, any part of the holding which consists of shares or loan stock must have been subscribed for by and issued to the VCT, and in the case of loans the company must have received the loan directly from the VCT. If a VCT disposes of a qualifying holding, or part of it, and later reacquires it, that holding or part will not be part of the VCT’s qualifying holdings following the reacquisition.
It is not necessary that the company making the loan or subscribing for the shares should have been approved as a VCT before doing so.
In certain circumstances a holding in a company is to be treated as made up of two separate holdings. This applies:
- if only part of the money raised by the issue of the holding is used within the required time (see VCM55140),
- if only part of the money is used for a qualifying trade (see VCM55100),
- if the size of the holding is such that the maximum qualifying investment is exceeded (see VCM55060). (Note: this does not apply to the maximum amount permitted to be raised annually - VCM55130)
The division is to be made in such a way as will maximise the amount which can be regarded as part of the VCT’s qualifying holdings.