Chapter VCM8151
| Published date | 09 March 2016 |
| Record Number | VCM8151 |
| Court | HM Revenue & Customs |
ITA07/S175A (for EIS)
ITA07/S280C and section 294A (for VCTs)
There is a general limit on the age of a company when it receives its first relevant investment, referred to here as the “basic age condition”. Otherwise, an investment made after that time must meet one of conditions A, B or C to be eligible.
Together, the rules ensure that tax relief is targeted on investments in earlier-stage companies, companies that need several rounds of tax-advantaged funding before the market will invest in them and, in certain specific circumstances, companies whose activities are changing so substantially as to constitute a new business activity.
The basic age condition
A company will meet the basic age condition if a relevant investment is made before the end of its initial investing period.
A relevant investment is defined under sections 173A (for EIS) and section 280B (for VCTs) as:
- An investment of any kind made by a VCT
- An issue of shares in respect of which the company provides an EIS compliance statement (EIS1)
- An issue of shares in respect of which the company provides an SEIS compliance statement (SEIS1)
- An investment made in a social enterprise (shares or loan) in respect of which the social enterprise provides an SITR compliance statement (SITR1)
- Any other investment which is a notified State aid approved by the European Commission in accordance with the Guidelines on State aid to promote risk finance investment. It is the company’s responsibility to keep records of any State aids it receives. Notified UK State aids which have been approved under the Guidelines on State aid to promote risk finance investment, other than those listed above, are listed in VCM8121.
The initial investing period is the period that ends 7 years after the company’s first commercial sale. For knowledge-intensive companies, the initial investing period is the period that ends 10 years after the company’s first commercial sale or the date on which the company’s annual turnover reaches £200,000 (see further below).
The first commercial sale is defined by reference to the European Commission’s Guidelines on State aid to promote risk finance investments. Paragraph 52(xi) of the Guidelines defines a first commercial sale as “the first sale by an undertaking on a product or service market, excluding limited sales to test the market”.
In most cases the date of the first commercial sale is likely to be at or around the time the company starts to trade but in some cases it may be...
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