VCT: VCT qualifying holdings: gross assets test
Upper limits on the size of the company invested in are imposed by reference to the size of its gross assets. Those limits are:
- £15m immediately before the issue of the shares or securities, and
- £16m immediately after the issue.
For shares or securities issued before 6 April 2012 those limits were £7m and £8m respectively and for shares issued before 6 April 2006 those limits were £15m and £16m respectively.
All forms of property that appear on a company’s balance sheet are assets for the purpose of this rule. HMRC has issued Statement of Practice 2 (2006) indicating that ordinarily we will determine the value of a company’s assets by reference to the values shown on its balance sheets. The detail of that Statement is included below.
In the case of a company with subsidiaries, the rule applies to the total of the gross assets of the company and its subsidiaries (excluding shares in, and loans to, those subsidiaries). For this purpose it is important to look at the assets of each separate company and not at those shown on the consolidated balance sheet for the group.
For this purpose, no account is taken of:
- any assets which consist in rights against another company in the group, or
- any shares in, or securities of, another such company.
Valuation of assets
HMRC’s general approach is that the value of a company’s gross assets at any time is the aggregate of the values of the company’s gross assets as shown in its balance sheet if the company were to draw one up at that time. ‘Gross assets’ means all the assets which would be shown on that balance sheet, without any deduction in respect of liabilities. This approach is subject to the proviso that the balance sheet would be drawn up on a basis consistent with that used in the accounts for preceding periods (if any), and in accordance with generally accepted accounting practice.
If a company has chosen to use IFRS then IFRS 16 will apply from January 2019, to determine the amount of assets shown on the balance sheet.
So if the shares or securities in question were issued immediately after the date to which the company’s accounts were drawn up, the value of the company’s gross assets immediately before the issue would be the value shown in the balance sheet. And if the shares or securities were issued immediately before the date to which the company’s accounts were drawn up, the value of the company’s gross assets immediately after the issue would be the value shown in the balance sheet.
Where shares or securities are issued at other times, the values will, in the first instance, be based on the values given in the company’s latest available balance sheet. However, these values should be updated as precisely as is practicable, taking into account all the relevant information available to the company (and, where applicable, to its subsidiaries). For example, where a company is able to ascertain the amount of trade debts owed to it at any given time, it would be reasonable to take the aggregate amount of such debts outstanding at the time of the issue.
When accounts covering:
- The accounting period in which the issue was made or the option was granted,
- and if they were not available at the time of the issue or grant, those for the immediately preceding accounting period,
become available, the values arrived at in the way described above may need to be reviewed in the light of the information contained in those accounts.
Payments in respect of shares or securities
HM Revenue and Customs will not regard the assets of a company immediately before the issue of the shares or securities in question as including any advance payment received by the company in respect of that issue.
Where shares or securities are issued partly paid, the right to the unpaid portion will be regarded as an asset of the company. That asset will be taken into account for the purpose of deciding whether the relevant gross assets rule is satisfied, whether it is shown in the company’s balance sheet or not.