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ETASSUM52180 | Enterprise Management Incentives (EMI): Excluded activities: Provision of facilities for another business

From HM Revenue & Customs · Employee Tax Advantaged Share Scheme User Manual

Paragraph 23, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

Providing services or facilities for any business carried on by another person (other than the parent of the company) is an excluded activity where that other business consists to a substantial extent of any excluded activities, and a controlling interest in that other business is held by a person who also has a controlling interest in the business carried on by the company.

A person has a controlling interest in a business if:

(a) in the case of a business carried on by a company:

  1. he controls the company, or

  2. the company is a close company and he (or an associate of his) is both a director of it and the beneficial owner of, or able directly or through the medium of other companies (or by any other indirect means) to control, more than 30% of its ordinary share capital, or

  3. he owns at least one-half of the business by reference to any of the tests of ownership set out in Section 942 of Corporation Tax Act 2010.

(b) in any other case, he is entitled to not less than half of the assets used for, or the income arising from, the business.

For the purposes of (a) and (b) above, the rights or powers of any person’s associate count as his rights and powers.

For the purposes of (a) above, ‘control’ has the meaning given to it by sections 450 and 451 of Corporation Tax Act 2010 (CTA10).

A person may have a controlling interest in a business by virtue of (a)(3) above although he does not have control, under (a)(1) above, of the company carrying it on.

Example
Suppose A holds 25 percent of the ordinary share capital of Y Ltd, the remaining 75 percent being held by X Ltd. A also holds 40 percent of the share capital of X Ltd. In these circumstances A does not control Y Ltd within the s450 CTA10 definition of the term. However, A does own more than half the business of Y Ltd, because s941(6) CTA10 enables a proportion of X Ltd’s 75 percent holding in Y Ltd to be attributed to A even though he does not control X Ltd. A thus owns 25 percent + 30 percent (40 percent x 75 percent) of Y’s business.