ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with current practice. EIS
Section 297 of ICTA is concerned with the meaning of a qualifying trade. Section 298 of ICTA contains provisions that supplement section 297 of that Act. In particular, section 298(3) of ICTA contains an intricate definition of trade:
“References in this section and in section 297 to a trade shall be construed without regard to so much of the definition of “trade” in section 832(1) as relates to adventures or concerns in the nature of trade; but the foregoing provisions do not affect the construction of references in section 297(2)(g) or subsection (1) above to a trade carried on by a person other than the company and those references shall be construed as including a reference to any business, profession or vocation.”
Section 297(2) of ICTA lists a number of activities (called “excluded activities” in the draft rewritten sections) that may prevent a trade being a qualifying trade.
Section 297(2)(g) of ICTA concerns services provided to other businesses and the activities it refers to are:
“providing services or facilities for any trade carried on by another person … which consists to any substantial extent of activities within any of paragraphs (a) to (fe) above and in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company …”
Section 298(1) of ICTA gives the meaning of a controlling interest in a trade.
So the definition of trade in section 298(3) of ICTA differs depending on whether references are to “the company” or “to a person other than the company”. “The company” here is the company which provides the services or facilities.
The way the definition applies has been simplified. The meaning of “trade” has been rewritten separately in section 189(2) of this Act (meaning of qualifying trade) as:
“References in this section and sections 192 to 198 to a trade are to be read without regard to the definition of “trade” in section 989.”
Section 989 of this Act rewrites section 832(1) of ICTA.
Section 189(2) does not apply to section 199 which rewrites sections 297(2)(g) and 298(1) of ICTA. So section 989 applies to define the reference to “trade” in section 199(5)(b). There is no differentiation in section 199 between “a person other than the company” and “the company”.
In section 199 of this Act there are consistent references to “business” rather than “trade”. This includes references to “the business carried on by the company”. Paragraph 33 of Schedule 15 to FA 2000 (corporate venturing scheme) has been used as a model for this.
Instead therefore of interpreting a trade as including a reference to “any business, profession or vocation”, the approach in section 199(5)(b) is the other way round:
““business” includes any trade, profession or vocation.”
As with the application of section 989 of this Act to “trade” in section 199(5)(b), there is here no differentiation between “the company” and “a person other than a company”; but here it is in relation to the interpretation that (in effect) trade encompasses a business, profession and vocation.
It appears that this change can have no effect. The “trade carried on by the company” in section 297(2)(g) of ICTA is the trade of providing services or facilities. In whatever way “trade” is interpreted in relation to the provider of the services or facilities in section 199 of this Act, the activity of the provider, (whether this is the issuing company or a qualifying subsidiary) is required to be a qualifying trade for the other purposes of Chapter 4 of Part 5 of this Act.
The change is similar but not identical to Change 64 in section 310 of this Act (the venture capital trust scheme). The changes get rid of an extra layer of complexity and have little or no practical effect.