Income Tax Act 2007 section 257LEA

The no disqualifying arrangements requirement

Section 257LEA prevents social investment tax relief (SITR) from applying where the investment is connected with artificial arrangements designed primarily to secure tax reliefs rather than genuine commercial activity.

• An investment must not be made, and the money raised must not be used, in connection with, in consequence of, or in anticipation of disqualifying arrangements
• Arrangements are disqualifying where a main purpose is to ensure both that an activity is carried on by the social enterprise (or its 90% social subsidiary) and that tax relief is obtained, provided at least one of two further conditions is met
• Condition A is that most or all of the money raised ends up being paid to parties to the arrangements; Condition B is that, without the arrangements, the activities would have been carried on as part of another business by those parties
• It does not matter whether the social enterprise itself is a party to the arrangements — the rules can still apply