Corporate Venturing

Investment relief

An investing company subscribing for shares in an issuing company may claim investment relief providing certain conditions relating to both companies, and to the shares, are met. Relief is allowed against corporation tax at up to 20% of the amount subscribed.

Where investment relief is obtained, the investing company's corporation tax liability for the accounting period in which the shares were issued is reduced by whichever is the smaller of either

• 20% of the amount subscribed for the shares, or
• the amount which reduces the liability to nil.

There is no minimum amount and no absolute limit on the amount of investment relief a company can obtain on subscriptions for shares of qualifying companies. But, the amount that may be invested in any one company is indirectly restricted by conditions relating to

• the size (in terms of asset value) of the issuing company following the investment, and
• the proportion of its share capital that can be owned by the investing company.

Although investment relief can be claimed once the shares have been issued, its retention is conditional on the shares being held by the investing company throughout the 'qualification period' and on the other conditions of the CVS being met. Most of these conditions apply throughout the qualification period.

Can any unused investment relief be carried forward or backwards to other accounting periods?

No. Investment relief is available only for the accounting period (for corporation tax purposes) in which the shares are issued.

What if qualifying investments have been made in more than one company during an accounting period?

The investing company may claim investment relief in respect of some, or all, of the qualifying investments it has made in the accounting period.

What if a company claims relief for more than one qualifying investment in an accounting period and has insufficient corporation tax liability for relief at 20% of the amount subscribed to be obtained in full?

Investment relief can be claimed for each qualifying investment up to the amount of the corporation tax liability. But, if the corporation tax liability for an accounting period is exhausted, the total relief actually obtained will be attributed to each of the share issues in question in proportion to the amounts subscribed.

Example
If during an accounting period, an investing company subscribes £30,000 for 3,000 shares in company A and £90,000 for 6,000 shares in company B, then the maximum investment relief available is £24,000 (20% of £30,000 + £90,000).

If the investing company's corporation tax liability for the accounting period is £18,000 before taking account of any investment relief, then only three-quarters of the available investment relief can be used.

So, the amount attributable to the shares in A is

£30,000 x £18,000 = £4,500
£120,000

The amount attributable to the shares in B is

£90,000 x £18,000 = £13,500
£120,000

It would also be possible for the investing company to claim investment relief only in respect of the shares in company B, so all the investment relief would be attributable to those shares. But, this would prevent shares in company A from qualifying for CVS loss relief and deferral relief, because there would be no investment relief attributable to the shares in company A immediately before any future disposal.

Is investment relief available for investments other than in ordinary shares?

No. The reliefs are available only where there has been an investment in new ordinary shares of the issuing company, where 'ordinary share capital' means all the issued share capital of the company other than shares with a fixed rate dividend. The investing company may hold other investments in the issuing company, providing this does not lead to any conditions for relief being breached, but these will not attract CVS reliefs.

If the issuing company uses cash paid for the shares to purchase products or services from the investing company, will this affect the availability of investment relief?

Using cash raised from the share issue to make purchases from the investing company will not generally affect the availability of investment relief. If the money has been raised for the purpose of the issuing company's trade, the payment is reasonable for the products or services provided, and the products or services are for use in the trade the investment is funding, investment relief will generally be available.

Can the investing company get investment relief for non-cash investments?

No, the investing company must subscribe for the shares wholly in cash, which must be paid to the issuing company before the shares are issued.

When and how can a claim be made?

An investing company may include a claim for investment relief as part of its tax return for the accounting period during which the shares were issued. For more details see 'Using the Corporate Venturing Scheme'

In what order are reliefs/ deductions given?

Investment relief is given as a reduction in terms of tax after any small company's marginal relief but before any double taxation relief that is due.