Income Tax Act 2007 section 257QQ

Effect of the investor receiving value from the social enterprise

Section 257QQ prevents Social Investment (SI) tax relief from being used where a trade has simply been transferred into a social enterprise structure by someone who previously owned or controlled it, ensuring that the relief encourages genuinely new investment in social enterprises.

• SI relief is withdrawn if the social enterprise or a qualifying subsidiary takes on a trade (or the greater part of its assets) previously carried on by someone else during the longer applicable period, and the investor had a significant connection to that previous trade.
• A significant connection exists where the investor (alone or with others) held more than a half share in the previous trade and also holds an interest in the trade now carried on by the social enterprise, or where the investor controlled both the social enterprise and a company that previously carried on the trade.
• Associates' interests, rights and powers are attributed to the person they are associated with when determining trade ownership and shares, using the rules in sections 941(6) and 942 of the Corporation Tax Act 2010.
• Where the investor is a director receiving reasonable remuneration for services, the time references for the control test extend to any time before the end of the longer applicable period, and "remuneration" includes any benefit or facility.

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