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HMRC internal manual

Venture Capital Schemes Manual

CVS: general: qualifying issuing companies: qualifying subsidiaries

FA00/SCH15/PARA20 and PARA21

Throughout the qualification period the company must not have any subsidiary other than a qualifying subsidiary. For this purpose a subsidiary is any company which the company controls, using the definition in ICTA88/S416(2) to (6), or which the company and any connected person or persons control.

In the case of shares issued before 17 March 2004 a subsidiary is a qualifying subsidiary of the issuing company if it satisfies the following conditions:

  1. Not less than 75% of its issued share capital and not less than 75% of the voting power must be held by the issuing company, or by another of its subsidiaries, and, in the event of a winding-up, the latter company must be entitled to receive not less than 75% of its assets.
  2. It must not be ‘controlled’ by any other person within the meaning of ITA07/S995, and no arrangements must exist by virtue of which any such person could obtain control of it.

For shares issued on or after 17 March 2004 the 75% ownership and entitlement tests (sub-paragraph (a) above) do not apply - the test is simply one of control within the meaning of section 995 (sub-paragraph (b) above). (But there are additional restrictions where any subsidiary employs the money raised under the CVS or where there are ‘property managing subsidiaries’ - see below.)

These conditions are not to be regarded as ceasing to be satisfied by reason of:

  • a winding-up or dissolution of the subsidiary or any other company,
  • the disposal of the shares in the subsidiary, or
  • anything done in consequence of the company, or any other company, being in administration or receivership.

In all cases, this is subject to the proviso that everything is done for genuine commercial reasons.

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Property managing subsidiaries

In the case of shares issued on or after 17 March 2004 any subsidiary that is a property managing subsidiary (see VCM13140) must be a qualifying 90% subsidiary of the issuing company.

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Subsidiaries employing from money raised

Prior to FA04 the activities for which money was raised by a CVS investee company could be carried on by the issuing company or one of its 75% subsidiaries.

Where shares are issued on or after 17 March 2004 those activities must be carried on by the issuing company or one of its qualifying 90% subsidiaries.