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CLAUSE 64 AND SCHEDULE
16: VENTURE CAPITAL
SUMMARY
1.
This Clause and Schedule amend the Venture Capital Trust (VCT) and
Corporate Venturing Scheme (CVS) rules. The main change for VCTs
is that the proportion of money a company invested in must use within
12 months is reduced from 100% to 80% with the remainder being employed
within a further 12 months. A similar change is made to the CVS.
In addition, the CVS rules which apply where value is received from
an investee company are modified to keep them in line with changes
made to the corresponding Enterprise Investment Scheme rules under
Clause 63 and Schedule 15.
DETAILS OF CLAUSE
2.
Clause 64 provides for Part I of Schedule 16 to make amendments
to the provisions of the Venture Capital Trust (VCT) scheme and Part
II to make changes to the Corporate Venturing Scheme (CVS).
DETAILS OF SCHEDULE
PART I: VENTURE CAPITAL TRUSTS
3.
Paragraph 1 corrects a cross-reference in the rules setting
out the requirements as to the company's business, to the special
provisions for companies receiving royalties and licence fees that
was not updated to reflect changes made in Finance Act 2000. The correction
has effect, and is deemed always to have had effect, for the purpose
of determining whether shares or securities issued on or after 6th
April 2000 are to be comprised in a VCT's qualifying holdings.
Requirement as
to the money raised
4.
Paragraph 2(1) amends the existing requirements for the timely
employment of the money invested in a company by a VCT in order to
give the company longer to use it. For a company which is carrying
on a qualifying trade at the time of issue of the shares or securities
to the VCT, 80 per cent of the money raised must be used for the purposes
of the trade within 12 months of the issue, with the remainder so
used within 24 months. For a company which is preparing to carry on
a qualifying trade, the 12 month and 24 month periods run from the
commencement of the trade. The amendments have effect for the purpose
of determining whether shares held by a VCT form part of its qualifying
holdings on or after 7 March 2001.
5.
Paragraph 3 repeals the VCT-specific rules which determine
the time from which interest supplement on repayments of income tax
arising from a claim to income tax relief is due. The change has effect
from 7th March 2001. Thereafter the general interest supplement rules
will apply.
PART II: CORPORATE VENTURING SCHEME
6.
Paragraph 4 is introductory.
Requirement
as to the money raised
7.
Paragraph 5 amends the existing rules for employment of the
money raised by an issue of shares to give a company longer to employ
the money. In most cases 80% of the money must be used for the purposes
of a qualifying trade within 12 months and all of it must have been
used for such purposes no later than 12 months afterwards. The changes
have effect both for shares issued on or after 7th March
2001 and for those issued before then to which investment relief was
attributable immediately before 7th March 2001.
Receipt
of replacement value
8.
Paragraph 6 amends paragraph 54, Schedule 15, FA 2000, which
applies where an investing company (or connected person) receives
any value from the company in which it invests (“the issuing company”)
or any person connected with that company at any time during a specified
period – the period of restriction – which is defined by reference
to the date on which the shares comprising the investment were issued.
Such a receipt of value usually causes the investing company’s tax
relief to be withdrawn except where restitution is made. The rules
dealing with the restitution of value are contained in paragraphs
54 and 55 of Schedule 15 FA 2000, and the main changes made to them
are as follows—
- provision is made in all cases for restitution to be made in
specie, in cash, or through any combination of both;
- the list
of excluded payments is brought into line with the corresponding
list introduced for the EIS under Clause 63 and Schedule 15;
- it is made
clear that in any case where there is a receipt of value at a
time which falls in two or more periods of restriction relating
to investments the investing company has made in the issuing company,
investment relief will be withdrawn in respect of all those investments
unless restitution is made of the whole amount of the value received.
9.
Apart from a minor clarification the changes in paragraph 6
have effect both for shares issued on or after 7th March
2001 and in relation to value received on or after 7th
March 2001 for shares already in issue.
10.
Paragraph 7 makes a minor amendment to paragraph 55 of Schedule
15 FA 2000, to provide the definitions of two expressions used in
that provision. The change is deemed always to have had effect.
Value received
by other persons
11.
Paragraph 8 makes a minor amendment to the CVS value-received
provisions which is consequential on changes to the corresponding
rules for the Enterprise Investment Scheme made by Clause 63 and Schedule
15. The paragraph applies both for shares issued on or after 7th
March 2001 and in relation to value received on or after that date
for shares already in issue.
Insignificant
repayments disregarded
12.
Paragraph 9 makes two minor corrections to the provisions which
determine whether insignificant amounts of value are received
BACKGROUND
Venture
Capital Trusts
13.
VCTs are companies listed on the Stock Exchange, which specialise
in investing in small higher-risk unquoted trading companies of the
same kind as those which qualify under the Enterprise Investment Scheme
(EIS). By investing in a VCT, individuals are able to spread the
risk over a number of such qualifying companies. The investor is
entitled to various income tax and capital gains tax reliefs, including:
- income tax relief (at 20 per cent) up to an annual limit of
£100,000 on the amount invested in new ordinary shares provided
that they are retained for at least 3 years;
- deferral
of capital gains tax on a chargeable gain from the disposal of
any asset where the gain is invested in shares for which income
tax relief is obtained;
- exemption
from capital gains tax on the disposal of any ordinary shares
and from income tax on dividends on ordinary shares on acquisitions
of VCT shares up to £100,000 per year.
The
Corporate Venturing Scheme
14.
The Corporate Venturing Scheme (CVS) was introduced in Finance Act
2000. It is designed to encourage established companies to invest
in small higher-risk, unquoted trading companies and through this,
for the two companies to form mutually beneficial corporate venturing
relationships. Companies investing through the CVS may obtain various
reliefs from corporation tax:
- corporation tax relief (at 20 per cent) – investment relief
- on the amount invested with no limit provided the shares are
held for at least three years;
- relief from
corporation tax for most allowable losses on the disposal of CVS
shares (net of any investment relief remaining after the disposal)
against either income or chargeable gains; and
- deferral
of corporation tax on chargeable gains arising from the disposal
of shares for which investment relief has been obtained where
that gain is reinvested in a new CVS investment.
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