Finance Act, 1986

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Individuals qualifying for relief.

20.—(1) (a) An individual qualifies for the relief if he subscribes on his own behalf for the eligible shares in a qualifying research and development company and is not at any time in the relevant period connected with a qualifying sponsoring company on behalf of which the qualifying research and development company carries out a qualifying research and development project.

(b) For the purposes of this section any question whether an individual is connected with a qualifying sponsoring company shall be determined in accordance with the following provisions of this section.

(2) An individual is connected with a qualifying sponsoring company if he, or an associate of his, is—

(a) an employee of the company or of a partner of the company,

(b) a partner of the company, or

(c) subject to subsection (3), a director of the company or of another company which is a partner of that company.

(3) An individual is not connected with a qualifying sponsoring company by reason only that he, or an associate of his, is a director of the company or of another company which is a partner of that company unless he or his associate (or a partnership of which he or his associate is a member) receives a payment from either company during the period of five years beginning on the date on which the shares are issued or is entitled to receive such a payment in respect of that period or any part of it; but for that purpose there shall be disregarded—

(a) any payment or reimbursement of travelling or other expenses wholly, exclusively and necessarily incurred by him or his associate in the performance of his duties as such director,

(b) any interest which represents no more than a reasonable commercial return on money lent to either company,

(c) any dividend or other distribution paid or made by either company which does not exceed a normal return on the investment,

(d) any payment for the supply of goods to either company which does not exceed their market value, and

(e) any reasonable and necessary remuneration which—

(i) is paid for services rendered to either company in the course of a trade or profession (not being secretarial or managerial services or services of a kind provided by the company itself),

and

(ii) is taken into account in computing the profits or gains of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits or gains are assessed under that Schedule.

(4) An individual is connected with a qualifying sponsoring company if he directly or indirectly possesses or is entitled to acquire more than 30 per cent. of—

(a) the issued ordinary share capital of the company, or

(b) the loan capital and issued share capital of the company, or

(c) the voting power in the company.

(5) For the purposes of subsection (4) (b) and section 21 (7) (b) the loan capital of a company shall be treated as including any debt, other than a debt referred to in subsection (9), incurred by the company—

(a) for any money borrowed or capital assets acquired by the company, or

(b) for any right to receive income created in favour of the company, or

(c) for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium thereon).

(6) An individual is connected with a qualifying sponsoring company if he directly or indirectly possesses or is entitled to acquire such rights as would, in the event of the winding up of the company or in any other circumstance, entitle him to receive more than 30 per cent. of the assets of the company which would at that time be available for distribution to equity holders of the company, and for the purposes of this subsection—

(a) the persons who are equity holders of the company, and

(b) the percentage of the assets of the company to which the individual would be entitled,

shall be determined in accordance with sections 109 and 111 of the Corporation Tax Act, 1976 , taking references in the said section 111 to the first company as references to an equity holder and references to a winding up as including references to any other circumstance in which assets of the company are available for distribution to its equity holders.

(7) An individual is connected with a qualifying sponsoring company if he has control of it within the meaning of section 158 of the Corporation Tax Act, 1976 .

(8) For the purposes of this section an individual shall be treated as entitled to acquire anything which he is entitled to acquire at a future date or will at a future date be entitled to acquire; and there shall be attributed to any person any rights or powers of any other person who is an associate of his.

(9) In determining, for the purposes of this section, whether an individual is connected with a qualifying sponsoring company, no debt incurred by the company by overdrawing an account with a person carrying on a business of banking shall be treated as loan capital of the company if the debt arose in the ordinary course of that business.