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HMRC internal manual

Venture Capital Schemes Manual

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Share loss relief: individual and corporate claimants: individual claimants: type of company invested in: qualifying trading company: condition A: trading requirement: effect of administration or receivership

The meaning of a company being ‘in administration’ or ‘in receivership’ given by ITA07/S252for EIS relief applies also for the purposes of the trading requirement in the context of Share Loss Relief. The terms are defined by reference to the insolvency statutes of the United Kingdom and corresponding statutes of overseas territories. For general guidance on administration or receivership see CTM36105 onwards.

ITA07/S138 provides that, generally, a company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries being in administration or receivership.

This only applies if the entry into administration or receivership (or, before 15 September 2003, the making of the relevant order), and everything done as a result of the company itself being in administration or receivership, is for genuine commercial reasons and is not part of a scheme or arrangement the main purpose, or one of the main purposes of which is the avoidance of tax.

The winding up of a company is not the same as its entering into administration or receivership. The general rule is that a company does cease to meet the trading requirement when a resolution is passed or an order is made for the winding up of the company or any of its subsidiaries, or if the company or any of its subsidiaries is dissolved without winding up. However, this general rule does not apply if the winding up is for genuine commercial reasons and is not part of a scheme or arrangement the main purpose, or one of the main purposes of which is the avoidance of tax, and if the company which is subject to the trading requirement continues to be a trading company during the winding up.

For shares issued before 17 March 2004 section 138 applies only to the company which is subject to the trading requirement, and does not extend to its subsidiaries. Further, in relation to shares issued before 21 March 2000, subsections (1) and (2) are omitted, so things done as a consequence of a company’s receivership or administration can mean that it ceases to meet the trading requirement, even without uncommercial reasons or a tax avoidance purpose being present. (However, shares issued on or after 6 April 1998 and before 21 March 2000, and to which Enterprise Investment Scheme relief or relief under schedule 5B TCGA 1992 (reinvestment relief) was attributable immediately before 21 March 2000, are treated as having been issued on or after 21 March 2000 so that subsections (1) and (2) do apply to them.)

Section 138 does not apply at all to shares issued before 6 April 1998.