Income Tax Act 2007 section 257CF

The no disqualifying arrangements requirement

Section 257CF prevents SEIS income tax relief where shares are issued in connection with arrangements designed to channel venture capital scheme tax reliefs to parties involved, while routing the money raised back to those same parties or effectively repackaging an existing business.

• Shares must not be issued, nor money raised spent, in consequence of, in anticipation of, or otherwise in connection with disqualifying arrangements
• Arrangements are disqualifying where their main purpose (or one of them) is to secure that a qualifying business activity is carried on and that venture capital tax reliefs become available, provided either Condition A or Condition B (or both) are met
• Condition A is met where the majority or all of the money raised ends up being paid to or for the benefit of a party to the arrangements (or a connected person); Condition B is met where, without the arrangements, the business activity would reasonably have been expected to be carried on as part of another business by such a party
• The rule applies regardless of whether the issuing company is itself a party to the arrangements, and covers a wide range of tax reliefs including SEIS, EIS, social investment relief, capital gains exemptions, and reinvestment reliefs