Chapter VCM3200
| Published date | 09 March 2016 |
| Record Number | VCM3200 |
| Court | HM Revenue & Customs |
Below is a reproduction of the interpretation of ‘EIS - qualifying trades’ published in Tax Bulletin 54 (August 2001). ICTA88/S297 has been rewritten to ITA07/PT5/CHP4.
“Enterprise Investment Scheme - Qualifying Trades (Section 297 ICTA 1988)(This article is an updated version of one originally published in Tax Bulletin for August 1995)
For the purposes of the Enterprise Investment Scheme (EIS), the requirements which a trade must meet if it is to be a qualifying trade are set out at Section 297 Income and Corporation Taxes Act (ICTA) 1988. Section 297 ICTA 1988 subsection (2) provides that the trade must not consist of any of the various activities listed in that subsection, neither may such activities, taken together, form a substantial part of the whole trade. (These activities will be referred to below as “excluded activities”). In order to decide whether a particular trade is a qualifying trade, it is therefore necessary to ascertain whether it includes any excluded activities.
This article focuses on the three types of excluded activity listed in paragraph (e) of Section 297(2) ICTA 1988 - leasing, receiving royalties and receiving licence fees. The article applies equally for the purposes of the Corporate Venturing Scheme, Enterprise Management Incentives and the Venture Capital Trust Scheme, for which the corresponding rules are found in Paragraphs 25-26, Schedule 15, Finance Act 2000, Paragraphs 18-19, Schedule 14, Finance Act 2000 and Paragraph 4, Schedule 28B, ICTA 1988, respectively.
LeasingThis is defined in the statute as including letting ships on charter (though this exclusion is subject to an exception, which is set out in Section 297(6) ICTA 1988) and letting other assets on hire. It thus covers any trading activity which consists in allowing the customer the use of the trader’s property. Examples are television rental, video hire and the provision of self-storage warehousing facilities. It applies where, subject to reasonable conditions imposed by the trader, the customer is free to use the property for the purpose for which it is intended.
One area which has been found to give rise to difficulty is what is, and what is not, car hire. The question to be considered here is whether the person using the car is the company or the company’s customer. On the one hand the company may itself use the car to provide a transportation service for customers. On the other hand the company may provide the car to the customer as a transportation...
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