`(1) In subsection (1) of section 65 of the Finance Act 1981 (application of sections 52 to 67 of that Act to subsidiaries) for the words from "did not commence business" to the end there shall be substituted the words "and if any
subsidiary commenced business before the qualifying company did so, it was incorporated or (if later)
commenced business not more than five years before the date of issue of the shares in respect of which relief is claimed; and
(c) the subsidiary or each subsidiary complies with the requirements of subsections (2) to (6) of section 55 above.
§ (2) in paragraph 2(1) of Schedule 12 (modification of section 54 of the 1981 Act in relation to subsidiaries of qualifying companies) for the words from the beginning to "company if' there shall be substituted the following—
§ "(1) In subsections (2), (4) and (6) of section 54 references to the company (except, in each subsection, the first such reference) include references to a company which is during the relevant period a subsidiary of that company, whether it becomes a subsidiary before, during or after the year of assessment in respect of which the individual concerned claims relief and whether or not it is such a subsidiary while he is such an employee, partner or director as is mentioned in subsection (2) or while he has or is entitled to acquire such capital or voting power or rights as are mentioned in subsections (4) and (6).
§ (1B) Without prejudice to the provisions of section 54 (as it has effect in accordance with sub-paragraph (1) above), an individual shall be treated as connected with a company if—
- (a) he has at any time in the relevant period had control (within the meaning of section 534 of the Taxes Act) of another company which has since that time and before the end of the relevant period become a subsidiary of the company; or
§ (3) In paragraph 4 of that Schedule (modification of section 58 and 59 in relation to subsidiaries of qualifying companies) for the words "a subsidiary of the company" there shall be substituted the words "any company which during the relevant period is a subsidiary of that company, whether it becomes a subsidiary before or after the individual concerned receives any value from it,".
(4) After that paragraph there shall be inserted the following paragraph—
4A. In subsection (2) of section 59 (redemption etc. of shares by company) the references to the company (except the first) shall include references to a company which during the relevant period is a subsidiary of the company whether it becomes a subsidiary before or after the redemption, payment, repurchase or repayment referred to in that subsection.".'.—[Mr. Ridley.]
§ Brought up, and read the First time.
§ Mr. Ridley
I beg to move, That the clause be read a Second time.
The clause extends and improves the business start-up scheme. In order to keep within bounds the inevitable complexity of the start-up scheme when it was introduced, we provided for it to apply only to single independent companies. We were then pressed to allow the company to form a wholly-owned subsidiary. Section 65 and schedule 12 were added to the Bill during its passage through Parliament to provide for that purpose.
Those provisions do not entirely prevent the acquisition of companies, as opposed to their formation, but in practice they often have that effect. A condition of the present scheme is that the subsidiary company must not have started business before its parent.
Several cases have come to our attention in which investment would have been encouraged by the scheme were it not for the fact that relief is debarred by this condition. There are two examples. First, a new company may be formed—or already exist—to take over an existing company for the sake of its trade. After the acquisition, either it winds up the subsidiary and transfers the trade to itself, or it keeps the subsidiary in existence and both the parent and the subsidiary carry on qualifying new trades.
698 Secondly, an existing company that qualifies in every respect, save this one, may want to raise new capital, but it may previously, or later, have acquired a subsidiary that started to trade before it did so itself. In order to admit such cases we have disapplied the rule in question in this new clause, provided that before as well as after it became a subsidiary, the company was a qualifying new company and subject to the application of the rules relating to connected persons and the receipt of value from the company.
§ Mr. Robert Sheldon
I noted the examples given by the Financial Secretary. We have nothing against businesses in such conditions being catered for by the new clause.
The new clause is complicated, and it is not easy to see what other areas of activity it might embrace, given the possibility of certain interpretations in future. We shall need to study the consequences rather more carefully than some of the other matters that have come before us. However, in so far as the new clause deals with the points that have been put forward, we have no objection to it.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.