»Ê¹ÚÌåÓýapp

ITA07/S286

As explained at VCM54020, in order to obtain and retain approval as a VCT the company must continuously have at least 70% of its investments in qualifying holdings (80% for accounting periods beginning on or after 6 April 2019). »Ê¹ÚÌåÓýapp guidance which follows deals with the requirements which a holding in a company needs to satisfy in order to be part of the VCT’s qualifying holdings. For this purpose a ‘holdingâ€� in a particular company is the sum of the shares and securities (see VCM54090) which it holds in that company.

A holding in a company cannot be part of a VCT’s qualifying holdings at any time when that company does not satisfy certain requirements. In the main these are similar to the conditions applying in the case of the other venture capital schemes.

»Ê¹ÚÌåÓýappre is an explicit requirement that any money raised from EIS and VCT investments must be for the company’s organic growth and development or, where the company is a parent company, the group’s ().

»Ê¹ÚÌåÓýapp other requirements are explained in more detail in the rest of this section and are as follows:

• »Ê¹ÚÌåÓýapp UK permanent establishment requirement (VCM55030),
• »Ê¹ÚÌåÓýapp financial health requirement (VCM55050),
• »Ê¹ÚÌåÓýapp maximum qualifying investment requirement (VCM55060),
• »Ê¹ÚÌåÓýapp no guaranteed loan requirement (VCM55070),
• »Ê¹ÚÌåÓýapp proportion of eligible shares requirement (VCM55080),
• »Ê¹ÚÌåÓýapp trading requirement (VCM55090),
• »Ê¹ÚÌåÓýapp carrying on of a qualifying activity requirement (VCM55110),
• »Ê¹ÚÌåÓýapp maximum amount raised annually requirement (VCM55130),
• »Ê¹ÚÌåÓýapp maximum risk finance investments requirements (VCM55135),
• »Ê¹ÚÌåÓýapp use of the money raised requirement (VCM55150),
• »Ê¹ÚÌåÓýapp relevant company carrying on the activity requirement (VCM55160),
• »Ê¹ÚÌåÓýapp permitted maximum age requirement (VCM55175),
• »Ê¹ÚÌåÓýapp unquoted status requirement (VCM55180),
• »Ê¹ÚÌåÓýapp control and independence requirement (VCM55190 and VCM55200),
• »Ê¹ÚÌåÓýapp gross assets requirement (VCM55240),
• »Ê¹ÚÌåÓýapp employee numbers requirement (VCM55250),
• »Ê¹ÚÌåÓýapp proportion of skilled employees requirement (VCM16060)
• »Ê¹ÚÌåÓýapp qualifying subsidiaries requirement (VCM55260),
• »Ê¹ÚÌåÓýapp property managing subsidiaries requirement (VCM55270),
• »Ê¹ÚÌåÓýapp no disqualifying arrangements requirement (VCM55280).

By contrast with some of the rules about qualifying companies under the EIS, the need for these requirements to be satisfied is not limited to a particular period; the question is always whether the holding qualifies at any particular time. Where an investee company does not satisfy the requirements continuously it is possible for a holding in it, which is initially part of the VCT’s qualifying holdings, not to be so for a time, and then for it to requalify.

HMRC officers will need to notify the Venture Capital Reliefs Team (VCM2070) whenever they become aware that a holding in a company no longer satisfies all the requirements.

A VCT’s holding in a company is not a qualifying holding unless it was originally issued to that VCT and has been held by it ever since. In other words, any part of the holding which consists of shares or loan stock must have been subscribed for by and issued to the VCT, and in the case of loans the company must have received the loan directly from the VCT. If a VCT disposes of a qualifying holding, or part of it, and later reacquires it, that holding or part will not be part of the VCT’s qualifying holdings following the reacquisition.

It is not necessary that the company making the loan or subscribing for the shares should have been approved as a VCT before doing so.

In certain circumstances a holding in a company is to be treated as made up of two separate holdings. This applies:

• if only part of the money raised by the issue of the holding is used within the required time (see VCM55140),
• if only part of the money is used for a qualifying trade (see VCM55100),
• if the size of the holding is such that the maximum qualifying investment is exceeded (see VCM55060). (Note: this does not apply to the maximum amount permitted to be raised annually - VCM55130)

»Ê¹ÚÌåÓýapp division is to be made in such a way as will maximise the amount which can be regarded as part of the VCT’s qualifying holdings.