Revenue Note for Guidance

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Revenue Note for Guidance

Schedule 10

[Section 507 (Part 16 (BES))]

Relief for Investment in Corporate Trades: Subsidiaries


This Schedule contains provisions adapting the Business Expansion Scheme (Part 16) in the context of subsidiaries.

Finance for trade of subsidiary

par 1 It is a general requirement (section 489) that money raised through the issue of eligible shares must be applied for the purposes of a qualifying trade which the company carries on or intends to carry on. This requirement is modified in a case where a qualifying company has one or more qualifying subsidiaries. In such a case the proceeds of the share issue may be applied for the purpose of a qualifying trade which a subsidiary carries on or intends to carry on or partly for such a purpose and partly for a qualifying trade undertaken by the holding company issuing the shares.

The provisions of sections 488(1) and 489(1)(c), (7), (8) and (11) apply when the qualifying trade is carried on by a subsidiary company.

Individuals qualifying for relief

par 2(1) The various restrictions which apply to individuals who are connected in various ways with a company are applied to individuals who are correspondingly connected with companies which become subsidiaries of that company at any time during the relevant period (the relevant period here has the same meaning as in section 493).

Subsidiary companies are included in the references (other than the first such reference) to companies in subsections (2), (4) and (6) of section 493 (which deals with individuals qualifying for relief). Consequently an individual is deemed to be connected with a company if the employees, partners or directors relationship (section 499(2)) is with a subsidiary of that company instead of with the company itself or if he/she has more than 30 per cent of the capital (including loan capital) or voting power (section 493(4)) of that subsidiary or if he/she would be entitled to receive more than 30 per cent of the assets (section 498(6)) of that subsidiary company available for distribution to equity holders in a winding up.

In addition, if during the relevant period an individual is connected with a trading subsidiary, within the meaning of subsections (2), (4) and (6) of section 493 before or after the company has become a subsidiary of the holding company issuing the shares for which he/she has subscribed, he/she is nonetheless treated as connected with the holding company. Such connection would result in denial or withdrawal of relief.

par 2(2)(a) Also an individual who has had at any time in the relevant period control of a company which subsequently becomes a subsidiary of the qualifying company before the end of the relevant period is treated as connected with the company and accordingly is disqualified from obtaining the relief.

par 2(2)(b) Also an individual who has, or is entitled to acquire, any loan capital of a subsidiary of a qualifying company is treated as being connected with the qualifying company and accordingly is not entitled to obtain relief.

par 2(3) The definitions of “loan capital” and “entitled to acquire” in subsections (5) and (9) of section 493 apply.

Value received

par 3 The rules which apply when a claimant (section 499) or another member of the company (section 501) has received value from the company apply where he/she has received value from a subsidiary of that company.

par 3(1) The provisions of section 499(9) and 501(5) apply to subsidiaries. This secures that the receipt of value from a company which leads to a reduction in the relief includes the receipt of value from a subsidiary of that company. The reduction in relief referred to could involve total withdrawal of relief already given.

par 3(2) The provisions of section 501(1) are also applied to subsidiaries. This secures that the repayment to, or redemption or repurchase from, any member of the share capital of a company which at any time during the relevant period (the reference here is to be taken as the reference to the relevant period within the meaning of section 501) is a subsidiary of the qualifying company is to be treated for the purposes of section 501 as if it were a repayment, redemption or repurchase of shares in the company itself. Consequently, there would be a receipt of value by that member which would result in a reduction (or withdrawal) of relief otherwise due to a claimant.


par 4 Subsections (4) and (5) of section 505 (which deals with the provision of information) apply to subsidiary companies. This secures that an inspector may request information from “the person concerned” if he/she considers that there are any arrangements or schemes under which the subsidiary would cease to be a qualifying subsidiary. An example of such an arrangement or scheme would be an agreement to transfer the shares in, or control of, the subsidiary at some future date in the event of certain specified conditions being fulfilled.

Relevant Date: Finance Act 2021