VCT: VCT returns: identifying investments funding by different issues of shares: record keeping
The provisions relating to protected money and the temporary disregard of the 70% qualifying holdings condition and the 30% or 70% eligible shares condition for funds raised by further issues apply to the use of money raised directly by a share issue and the use of any money derived from the investment of such money (VCM58030).
For example, if a VCT disposes of an investment funded directly from an issue and acquires another from the proceeds, then the later investment is also regarded as being funded from that issue. Similarly, investments acquired using income generated by an investment funded by an issue, will themselves be regarded as being funded from that issue.
A VCT that makes more than one issue of shares or securities will need to keep records of the origin of the funding of all its investments (qualifying and non-qualifying) and of the source of any cash held pending investment. Income from an investment will need to be correctly allocated to the fund that provided its source.
It is possible that the VCT will need to keep track of several different funds at any given time if its share issues fall into a number of different categories of protection (VCM58040) and/or it makes multiple further share issues (VCM58050).
Where a VCT has funds which could be said to directly or indirectly come from either an earlier or later share issue, it can allocate its funds in such a way as to choose which of these issues is deemed to have funded any particular investment.
For example, a VCT may have a bank account holding £7m from the sale of two investments, £3m from an investment from an early share issue which is protected money in relation to a relevant change, and £4m from an investment from a later share issue.
If the VCT purchases an investment for £2m out of the funds in that account, it can choose whether to treat the funds as coming all from the later monies, all from the earlier monies or from a mixture of both. If it chooses to treat the investment as entirely from the earlier monies, then that investment will be treated as made entirely out of protected money. Correspondingly, the bank account is now deemed to hold only £1m of protected money and £4m of non protected money for the purpose of identifying future investments
A VCT that is claiming the benefit of protected money or of a further share issue should at all times be able to identify the current allocation of the relevant funds. Allocations should therefore be made and recorded at the relevant times.
Sufficient records must be kept to demonstrate that an investment out of protected money or a further issue was made from money raised by a particular share issue (or from money derived from such money).
It is the responsibility of the VCT to keep appropriate records to support its identification of investments. Records that might be expected to be available in respect of a relevant share issue could include;
- the investments acquired and still held,
- cash so far uninvested,
- proceeds of sales of investments that had been acquired from this fund,
- income from the investments acquired using this fund.
It may be easier in some circumstances for the VCT to keep track of its non-protected funds in detail instead. For instance, if the VCT has only raised a small amount after 5 April 2007 it could show how that amount, plus all monies derived from that amount, have been allocated. The rest of the funds held by the VCT would therefore be protected money in relation to the 6 April 2007 changes.