Revenue Tax Briefing Issue 47, April 2002
Section 16 makes a number of changes to the provisions governing the Business Expansion Scheme (BES) and the related Seed Capital Scheme (SCS). Both schemes are being extended for a further two years to 31 December 2003. The BES company limit is being increased from its existing level of ₤317,500 to ₤750,000 and this limit will also apply to the SCS.
Under the SCS, employees who leave employment to invest in certain new businesses and take up employment in these businesses can claim a refund of tax paid for the previous 5 years. This refund period is being increased to 6 years.
Finally, it is provided that where any amount raised by a Designated Fund up to 31 January 2002 is invested in qualifying companies before 31 December 2002 the individual investors who subscribed to the funds will have the option of claiming tax relief on their investment for either the short tax year 2001 or 2002. Similarly, in the case of direct investment by investors in qualifying BES companies, where eligible shares are issued before 31 January 2002, the investor will have the option of claiming tax relief on their investment for either the short tax year 2001 or 2002.
With reference to the extension of the BES until 31 December 2003 and to the increase of the company limit to ₤750,000 companies and practitioners should be aware of the possible application of Section 501 TCA 1997 to companies who have previously raised funds through BES and now intend to raise more.
Section 501 provides that capital repayments by a BES company to some person other than an individual claiming BES relief will result in the amount of relief due to that individual being reduced or eliminated entirely. Where it is proposed to avail of the increased company limit and raise further capital for a company through a fresh issue of BES shares, practitioners and promoters should be particularly aware of any Put and Call options already in place with previous investors. If these provide for the buyback of the shares by the BES company, then the provisions of Section 501 may come into play in respect of any new share issues following the redemption. Where a person other than the BES company purchases the shares or where the new shares are issued more than 2 years after the redemption of the other shares, Section 501 will have no effect.