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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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Share loss relief: individual and corporate claimants: individual claimants: type of company invested in: qualifying trading company: condition A: control and independence requirement: introduction

The control and independence requirement is one of the four requirements of condition A at ITA07/S134, and condition A is one the four conditions a company must meet in order for it to be a qualifying trading company.

The control and independence requirement is set out in detail at ITA07/S139. It has two elements: the control element and the independence element. Each element refers to ‘arrangements’ the existence of which will prevent the requirement being met. In this context, ‘arrangements’ includes any scheme, arrangement or understanding, whether or not legally enforceable. The existence of any such arrangements will be a question of fact and careful and thorough enquiry and evidence-gathering will be necessary if they are suspected.

When a company is taken over by another company in a share-for-share exchange it will very likely cease to be independent. This means the control and independence requirement may no longer be met and the second company’s shares would not be capable of being qualifying shares. ITA07/S145 and S146 address this and mean that, in some circumstances, the second company’s shares will be qualifying shares for Share Loss Relief purposes (see VCM75350 and VCM75360). Where this is the case nothing in section 139 applies to the share-for-share exchange. In particular, the existence of arrangements with a view to the exchange will not mean the control and independence requirement is not met by the first or second companies.