Slevin s Guide to the Enterprise Investment Scheme LIST OF CHAPTERS

Transcription

1 Slevin s Guide to the Enterprise Investment Scheme LIST OF CHAPTERS List of Chapters Preface About the author Disclaimer List of Contents Page i ii v vi vii Chapter 1 An introduction to the Enterprise Investment Scheme 1 Chapter 2 The qualifying investor 13 Chapter 3 Is the investor unconnected? 27 Chapter 4 The general requirements in respect of relevant shares 57 Chapter 5 The company invested in 81 Chapter 6 Excluded activities 121 Chapter 7 Claims to EIS Relief 143 Chapter 8 Investment Funds 161 Chapter 9 Withdrawal or reduction of relief 171 Chapter 10 Miscellaneous 205 Chapter 11 Seeking Advance Clearance from HMRC 221 Chapter 12 HMRC s enforcement powers 229 Chapter 13 Definitions 241 Chapter 14 EIS Disposal relief (CGT Exemption) 245 Chapter 15 Setting Losses against Income 261 Chapter 16 CGT Deferral Relief - Deferring the gain 271 Chapter 17 CGT Deferral Relief Assessment of the gain 309 Chapter 18 CGT Deferral Relief - Statutory Definitions 335 i

2 CONTENTS Page Preface i Disclaimer iii List of Contents iv PART ONE The Income Tax Relief and related measures 1. The Enterprise Investment Scheme: introduction Setting the scene Four measures under one banner The four facets Who may claim relief Encouraging investment in business The activities of the company raising capital The amount of income tax relief Capital Gains Tax The ongoing requirements Structure of this publication HMRC s Small Company Enterprise Centre 7 2. Income Tax Relief: the Qualifying Investor The qualifying investor : An overview The connected person test The linked loan provision HMRC s practice: linked loans The commercial reason test Pre-arranged exits Income tax relief: is the investor unconnected? Introduction The period under review Meaning of connection with the issuing company Connected employees, directors and partners The connection test: partners The connection test: directors Unpaid directors Paid business angels 35 ii

3 309 Interaction of Section 168 & 169 ITA Connected persons interested in the capital Meaning of associate Persons subscribing for shares under certain arrangements Income tax relief: the general requirements Introduction Meaning of relevant shares The general requirements The so-called share requirement The maximum amount of risk capital raised requirement The reason for the subscription The so-called spending of the money raised by SEIS requirement The purpose of the issue requirement The absence of pre-arranged exit requirement The use of the money requirement Time limits regarding using the money raised A shortfall in spending? The need for a paper trail The minimum period requirement Income tax relief: the company invested In Introduction When can the issuing company be considered a qualifying company? Period B A permanent establishment in the UK The financial health test The Period B trading requirement Qualifying trade Groups of companies Some trading requirement definitions The meaning of Research and Development The meaning of substantial part The Qualifying Business Activity The relevant qualifying trade Activities carried on by a company in partnership Preparation work The unquoted status requirement 101 iii

4 517 The Alternative Investment Market The control and the independence requirement Continuity of EIS relief on certain takeovers The Gross Assets requirement The maximum number of employees requirement The Qualifying Subsidiaries requirement The Property Managing Subsidiaries requirement The meaning of a Qualifying 90% Subsidiary Joint ventures Meaning of qualifying trade Getting into financial difficulties Excluded Activities Introduction Non-qualifying activities Summary of excluded activities Meaning of excluded activities Excluded Activities: dealing in land, commodities, futures or in shares Excluded Activities: financial activities e.g. banking, insurance, etc Excluded activities: leasing Providing legal or accountancy services Excluded activities: wholesale and retail distribution Excluded activities: leasing of ships Excluded activities: receipt of royalties and licence fees Excluded activities: property development Excluded activities: receipt of royalties and licence fees Excluded activities: hotels and comparable establishments Excluded activities: nursing homes and residential care homes Excluded activities: the provision of certain services Excluded activities: farming 136 iv

5 618 Excluded activities: woodlands, forestry activities or timber production Excluded activities: shipbuilding Excluded activities: producing coal Excluded activities: producing steel Excluded activities: subsidised generation or export of electricity Excluded activities: subsidised generation of heat or of gas or fuel Income tax relief: claims Introduction Choosing the tax year Entitlement Time limit for making claim Supporting documents Deadline for presenting compliance statements Appeals against HMRC S refusal HMRC s processing of form EIS Penalties for fraudulent certificate or statement Carry-back provision Calculating the EIS relief setting the scene Calculating the EIS relief Attributing relief to specific shares Investment funds Approved EIS funds Impact of approved funds provisions HMRC s Guidance to Managers Unapproved funds Partners wanting to invest Withdrawal or reduction of EIS relief Introduction The meaning of Period A The meaning of Period B The meaning of Period C The date of issue of shares An unconnected investor becoming connected The issuing company ceasing to be a Qualifying Company The issuing company failing to employ the money raised 176 v

6 909 Premature disposal of the shares attracting EIS relief Premature disposal of the shares: part disposals Liquidation proceeds The granting of options Value received by the EIS investor What constitutes value received? Receipts of value from or by connected persons The calculation of the reduction or withdrawal of EIS relief The reduction where maximum EIS relief not enjoyed Replacement (circulating) capital Breaching prohibition of investment-linked loans Accidental receipts of value Further provisions regarding the replacement of value The amount of the replacement value Restriction on withdrawal of relief under Section Relief granted: subsequently found not to have been due Assessments: withdrawal of or reduction of the EIS Relief Time limits for assessments Cases where assessments are not to be made Date from which interest is chargeable on an assessment Miscellaneous matters Date of issue of shares Transfers between spouses, etc Special share identification rules Continuity of EIS relief on certain takeovers Shareholders agreements Loss of income tax relief for interest paid Interaction with other CGT reliefs Entrepreneurs relief Death of an investor Inheritance tax implication Seeking advance assurance from HMRC Introduction Requesting advance assurance HMRC s Information Powers 229 vi

7 1201 Introduction Information to be provided by the investor Information to be provided by the issuing company Power to require information where Section 240 or Section 241 apply Power to require information in other cases Obligation of secrecy Penalties Statutory definitions Meaning of a company being in administration or receivership Meaning of associate Meaning of disposal of shares Meaning of issue of shares Meaning of termination date Sundry minor definitions EIS disposal relief Introduction Losses: available for set-off against income Reduction of allowable consideration Losses arising on disposals to connected persons The CGT Exemption: introduction The CGT Exemption: details Special share identification rules Setting capital losses against income Setting capital losses on EIS shares against income Introduction Entitlement to claim How the loss is to be deducted Unrelieved losses 263 PART TWO 16. The Enterprise Investment Scheme: CGT Deferral Relief Introduction Who can claim to defer assessment gains The gains which can be deferred 273 vii

8 1604 The mechanics of the postponement of the original gain The amount of gain which can be deferred How the gains are deferred The meaning of qualifying time Extending the qualifying time Claims to deferment relief Company reorganisations Meaning of qualifying investment Company reorganisations: acquisition of capital by new company Meaning of qualifying investment Meaning of eligible shares The motive for the share subscription The use of the money requirement The 5 million annual ceiling Meaning of qualifying company Investor-controlled companies Dual action claims Pre-arranged exits Put and call options Shares acquired from a spouse or civil partner Exclusion of reinvestment in the same company Prohibition of relief where investment-linked loans exist CGT deferral and trustees Trustees: measures to counter tax avoidance CGT deferral relief: cancellation or withdrawal The end of the deferment: chargeable events Gains crystallised on certain reconstructions Gains accruing on chargeable events Who is assessable? Breaching the prohibition of investment-linked loans Put and call options 316 viii

9 1707 Breaching one of the conditions Breaching the conditions: impact on the deferral Value received by investor What triggers a return of value? Exclusion of qualifying payments The de minimis provision Accidental receipts of value Value received by persons other than the EIS investor HMRC s information powers CGT deferral relief: Statutory definitions 335 ix