Income Tax Act 2007 section 294

Further requirements as to the money raised by the investment in question

Section 294 sets out additional conditions about who may carry on the qualifying trade or activity funded by the VCT investment, ensuring the activity remains with the investee company or its qualifying subsidiaries after the shares are issued.

• After the shares are issued, the relevant qualifying activity (as defined by reference to section 293) must be carried on only by the investee company itself or by a qualifying 90% subsidiary of that company.
• The condition is not breached simply because someone else carries on the trade during a period after the shares are issued but before the investee company or its qualifying 90% subsidiary has begun trading, nor where the trade is carried on through a partnership or joint venture of which the company or its 90% subsidiary is a member or party.
• If the company enters administration, receivership, or is wound up or dissolved, the condition is not broken provided the trade passes to an unconnected person — that is, someone who has not been connected with the investee company at any time after the date 12 months before the shares were issued.
• The administration, receivership, winding up or dissolution must be for genuine commercial reasons and must not form part of any arrangement whose purpose, or one of whose main purposes, is tax avoidance.