Income Tax Act 2007
What this means for your business
- Enforced by
- HMRC
- Applies to
- United Kingdom
- On this page
- 35 compliance obligations, 9 practical guides across 3 topics
What you must do
35 compliance obligations under this legislation.
Risk assessment 5
Adjust SI relief by filing an income tax assessment when required
If your business has taken advantage of Share Incentive (SI) relief and that relief later has to be withdrawn or reduced under the rules, you must correct it by filing an assessment with HMRC for the tax year when the relief was originally claimed. This keeps your accounts clean and ensures you donāt claim more tax relief than youāre entitled to.
Confirm your company is not in financial difficulty at start of periodāÆB
Your business must check that it is financially sound ā i.e. not in difficulty ā at the beginning of the relevant reporting period (periodāÆB). If the company would be classed as āin difficultyā under the EU StateāAid guidelines, it fails the requirement. This means you need to carry out a solvency check before the period starts.
Ensure share subscriptions are for genuine commercial reasons, not tax avoidance
When your company issues sharesāespecially those that may qualify for taxārelief schemes like EISāyou must make sure the investor is buying them for a real commercial purpose, not mainly to avoid tax. You need to check the reason for the investment and keep records showing itās a genuine business decision.
Ensure your company is not in financial difficulty at start of periodāÆB
Before the relevant tax period begins, you must check that your company would not be considered a firm in difficulty under the EU State Aid guidelines. If the company is judged to be in difficulty, you will not meet the tax requirement and could lose any related reliefs.
Make required tax assessments and adjustments
Unlimited fineYou must carry out any tax calculations and adjust them as needed to comply with the Income Tax Act. In practice this means your tax returns and payments must reflect the correct amounts and be updated whenever the law requires a change.
Management duties 17
Attribute excess charitable expenditure to earlier tax years
If your charitable trust spends more than its charitable income in a tax year, you can move some of that excess to an earlier year, but only if the earlier year is within six years and the trust had enough income and gains to cover its nonācharitable costs. You must apply the rules in order, attributing to the latest eligible year first, and you cannot attribute more than the surplus available in that earlier year.
Avoid preāarranged exit arrangements for qualifying investment
If your social enterprise wants the tax relief for a new share or debt investment, you must not have any plans or agreements that would allow the investment to be redeemed, repaid, repurchased, exchanged or otherwise disposed of during the short qualifying period. You also must not have arrangements to shut down the business or sell a substantial amount of its assets, except for normal windingāup arrangements.
Carry on the qualifying trade yourself
If you are an issuing company claiming tax relief for a new qualifying trade, you must make sure that the trade itself, any preparation work and any researchāandādevelopment are carried out only by your company or a 90āÆ% subsidiary throughout the relevant period. letting another business do this work can cause you to lose the relief, unless the change is due to genuine administration or windingāup reasons.
Do not join any partnership during the SEIS period
Your company ā and any subsidiary that you own at least 90% of ā must not become a member of a partnership while the SEIS qualifying period (periodāÆA) is running. This includes limitedāliability partnerships and foreign entities that are partnershipālike. Breaching this rule could jeopardise your SEIS tax relief.
Ensure all subsidiaries are qualifying subsidiaries
If your company owns any subsidiaries, you must check that each one meets the definition of a qualifying subsidiary under the Income Tax Act. This means continuously reviewing your subsidiaries' ownership and activities to confirm they qualify, and fixing any that do not.
Ensure all subsidiaries are qualifying subsidiaries
If your business is a social enterprise, any company you own as a subsidiary must meet the specific āqualifying subsidiaryā criteria set out in the Income Tax Act. You need to check that each subsidiary you have during the relevant period complies, otherwise you could lose the tax benefits that apply to qualifying subsidiaries.
Ensure share issue arrangements are not preāarranged exits
When you issue shares (for example under an Enterprise Investment Scheme), you must make sure the share issue does not include any preāarranged plan to buy back, exchange, sell, or otherwise dispose of the shares, to shut down the business, to sell its assets, or to give investors protection against investment risk. In practice, you need to check the terms of the issue and confirm no such exit arrangements are built in.
Issue qualifying shares only as fullyāpaid ordinary cash shares
When you raise money by issuing shares for a taxāadvantaged investment, the shares must be ordinary shares that carry no special dividend or asset rights, must be paid for in cash, and must be fully paid up when they are issued. You must also avoid any promise to receive cash for the shares at a later date.
Issue shares only for genuine commercial reasons
When your company issues new shares, you must do so because of a real business need, not just to cut your tax bill. Make sure the purpose of the issue is commercial and keep clear records showing that. If the main aim is tax avoidance, HMRC can treat the share issue as invalid and impose penalties.
Keep employee numbers below the permitted limit for tax holdings
When you apply for a relevant tax holding, you must work out your company's fullātime equivalent staff count and ensure it stays under the set limit (250 normally, 500 if youāre a knowledgeāintensive company). Directors count as employees, but staff on maternity/paternity/shared parental/parentalābereavement/neonatalācare leave and students on vocational training do not.
Keep fullātime equivalent staff under 250 for investment
When you seek an investment under the Income Tax Act 2007 you must make sure your social enterprise (or its parent plus qualifying subsidiaries) has fewer than 250 fullātime equivalent employees at the moment the money is invested. You need to count staff using the prescribed method and exclude people on certain maternity/paternity/parental leave or on vocational training.
Keep gross assets below Ā£7m/Ā£8m when claiming share loss relief
If you want to claim share loss relief, you must make sure your company's total gross assets are no more than Ā£7āÆmillion right before you issue the shares and no more than Ā£8āÆmillion right after. This means you need to check and document the value of all assets at those two points before you can rely on the relief.
Limit SEIS funding and aid to Ā£250,000 per investment
When your company raises money under the Seed Enterprise Investment Scheme you must add up the current SEIS investment, any other SEIS investments made on the same day, all SEIS investments received in the previous three years and any deāminimis state aid. The total must stay at or below Ā£250,000. If it would go over, you must split the share issue so that only the allowed amount is treated as SEIS.
Maintain 4āmonth trade or R&D period before issuing qualifying shares
If you raise money by issuing new shares for a qualifying business activity or research and development, you must have been carrying out that trade or R&D for at least four months, and only your company (or a 90āÆ% subsidiary) may have been doing it. The fourāmonth spell must end on or after the share issue date. A shorter period is allowed only if the company is being woundāup, dissolved, or in administration for genuine commercial reasons and not to avoid tax.
Maintain control and independence for SEIS eligibility
If you want your company to qualify for Seed Enterprise Investment Scheme (SEIS) tax relief, you must make sure that, throughout the SEIS qualifying period, your business does not control any other company that isnāt a qualifying subsidiary, and that no other company controls yours. You also need to avoid any arrangements that could cause a breach of these rules.
Maintain control and independence of your company
Your company must not control any other company that isnāt a qualifying subsidiary, and it must not be a 51% subsidiary or be under another companyās control during the relevant period. You also need to avoid any arrangements that could cause you to breach these rules.
Withdraw socialāinvestment tax relief when you grant a put option
If your business gives an investor a put option ā i.e. the right for them to require you to buy back all or part of their investment ā you must cancel any socialāinvestment tax relief that relates to that investment (or the part covered by the option). This means you canāt claim that relief on your tax return and must adjust any previous relief claimed.
Notifications 1
Notify HMRC if issued shares cease to meet EIS conditions
If your company has issued shares and given HMRC a compliance statement for Enterprise Investment Scheme (EIS) relief, and later an event occurs that means the shares no longer satisfy the EIS rules (for example, breaching fundraising limits, misuse of the raised money or losing qualifying status), you must tell HMRC about it. The company itself ā and any connected person who knows about the event ā must send a notice within 60 days of the event (or within 60 days of becoming aware of it).
Other requirements 2
Comply with accreditation terms and conditions
If your business seeks or holds accreditation under this part of the Income Tax Act, you must follow all the terms set out in the regulations and any additional conditions the Secretary of State decides are appropriate. You also have to meet any requirements attached to the accreditation, such as providing specified information. Failure to do so can lead to the accreditation being withdrawn and penalties being applied.
Discharge tax obligations of nonāUK residents you represent
If your business acts as a UK representative for a company or person that lives outside the UK, you must treat any UK tax duties that apply to that nonāresident as if they were your own. In practice this means you need to make sure the relevant tax returns, payments and filings are completed, because the nonāresident will be bound by your actions and you can be held liable.
Payments and fees 2
Deduct and remit tax on incomeātaxable payments
Unlimited fineWhen you pay wages, interest, royalties, dividends or any other sum that will be taxed, you must withhold the correct amount of income tax at the time of payment and send it to HMRC. This duty applies to all businesses that make such payments, whether youāre an employer, a trader or a contractor.
Withdraw Enterprise Investment Scheme (EIS) relief if later found not due
If you have claimed EIS tax relief and it is later decided that the relief should not have been given, you must give the relief back. You can only withdraw the relief after receiving a formal notice from the issuing company or HMRC; you cannot simply withdraw it because the share rules were not met.
Record keeping 2
Ensure any business deal meets armāsālength commercial criteria for tax
The Income Tax Act explains what counts as a "commercial transaction" for tax purposes. If your company makes a deal that is part of or aimed at starting a trade or business, you must ensure it is made on armālength terms and between unrelated parties. Otherwise the transaction may not be treated as commercial for tax and could affect the tax you owe.
Ensure you are sole beneficial owner of any investment
When you invest in something, you must be the only person who truly owns it for tax purposes. If the investment is a loan, the person who will be repaid is treated as the owner of that loan for tax calculations. You need to check ownership and keep the relevant paperwork before the investment is made.
Reporting and filing 6
Apply exemption rules for mixed preā and postā5āÆDecāÆ2005 transactions
If you have both transactions that occurred before 5āÆDecemberāÆ2005 and after 4āÆDecemberāÆ2005, you must apply the special exemption rules when completing your tax return. This means any income earned before 5āÆDecemberāÆ2005 is not treated as foreign income, and benefits received before or in the 2005ā06 tax year are excluded from the taxable amount.
Calculate taxable amount for hireāpurchase capital sums
If your business receives a capital sum in connection with a hireāpurchase lease, you must work out how much of the lease payments are not covered by tax relief and any capital payment made for an assignment. You then compare that total to the capital sum to decide whether tax is due or to reduce the taxable amount. This calculation must be reflected in your tax return.
Comply with all conditions of any accreditation you hold
If your business obtains an accreditation under the Income Tax Act (for example as a socialāimpact contractor), you must obey every condition the accrediting Minister sets ā such as providing information or meeting other regulatory requirements. Breaching those conditions can lead to the accreditation being withdrawn and penalties being imposed.
Notify HMRC if a payment you receive is not taxāexempt
If your business receives a payment (for example a royalty or licence fee) that does not qualify for an exemption under the Income Tax Act, you must tell HMRC about it. The notification lets the tax authority ensure the correct tax is accounted for.
Notify HMRC if SEIS share issue conditions are not met
If your company has given HMRC a compliance statement for a SEIS share issue and later an event means the spending condition, qualifyingācompany status, or the SEIS relief is lost, withdrawn or reduced, you must inform HMRC. Both the company and anyone who knows about the event must send a notice with the details within 60 days.
Notify HMRC within 60āÆdays of any event that reduces or withdraws SI relief
If you have claimed SE (SI) tax relief and something happens that makes that relief be withdrawn or reduced ā for example you receive a payment, sell the investment, or an option is exercised ā you must tell HMRC about it. You have to send a notice with the details of the event (and any replacement value received) within 60āÆdays of becoming aware of it.
Penalties for non-compliance
2 penalties under this legislation. 2 carry an unlimited fine.
Make required tax assessments and adjustments
Unlimited fine
Deduct and remit tax on incomeātaxable payments
Unlimited fine
Practical guidance
Our guides explain how to comply with the requirements above.
Tax & Finance 5
Register as self-employed with HMRC
How to register for Self Assessment as a sole trader, get your Unique Taxpayer Reference (UTR), and understand ā¦
Set up as a sole trader
How to register as self-employed and start trading as a sole trader.
Corporation tax loss relief
How to use trading losses to reduce your company's corporation tax bill. Covers carry-back, carry-forward, group relief, terminal ā¦
How taxes work for limited companies
Understanding Corporation Tax, VAT, PAYE, and Self Assessment - how they interconnect and your obligations to Companies House ā¦
Report property income on your Self Assessment
How to report rental income on your Self Assessment using SA105 - allowable expenses, mortgage interest restriction, property ā¦
Sector-Specific 2
Start a construction business
Essential compliance requirements for starting a construction business in the UK, including CDM regulations, health and safety obligations, ā¦
Convert farm buildings to holiday accommodation
How to get planning permission, meet building regulations, and understand the post-April 2025 tax treatment when converting agricultural ā¦
Sections and provisions
499 classified provisions from this legislation.
Duties 35
- s.142 The gross assets requirement
- s.165 The no tax avoidance requirement
- s.173 The shares requirement
- s.176 The minimum period requirement the trade
- s.177 The no pre-arranged exits requirement
- s.178 The no tax avoidance requirement
- s.180B The financial health requirement
- s.185 The control and independence requirement the issuing company
- s.234 Relief subsequently found not to have been due
- s.241 Information to be provided by the issuing company etc
- s.257RC Put options
- s.257SE Information to be provided by the investor
- s.257DL The amount raised through the SEIS
- s.257DH The no partnerships requirement
- s.257GF Information to be provided by the issuing company etc
- s.257JF Accreditations: supplementary provisions other party
- s.257MF The qualifying subsidiaries requirement
- s.257DC The issuing company to carry on the qualifying business activity
- s.257MH The number of employees requirement
- s.257S Assessments for the withdrawal or reduction of SI relief
- ... and 15 more duties
Powers 25
- s.128 Employment loss relief against general income
- s.132 Entitlement to claim
- s.152 Losses from miscellaneous transactions
- s.200 Power to amend by Treasury order
- s.242 Power to require information where section 240 or 241 applies or could have applied
- s.243 Power to require information in other cases
- s.257SH Power to require information in other cases
- s.257GH Power to require information in other cases
- s.257EG Power to amend sections 257EC and 257ED
- s.281 Withdrawal of VCT approval of a company
- s.282 Withdrawal of VCT approval in cases for which provision made under section 280(3)
- s.311 Power to amend Chapter
- s.314 Power to treat VCT-in-liquidation as VCT
- s.324 Regulations under Chapter
- s.330B Powers to amend Chapters 3 and 4 by Treasury regulations
- s.508 Election by trustees
- s.698 Counteraction notices
- s.722 When an individual has power to enjoy income of person abroad
- s.809BZP Power to make further exceptions
- s.871 Power to make regulations to give effect to Chapter
- ... and 5 more powers
Definitions 130
- Schedule 2 Transitionals and savings relevant tax purposes superseded enactment the relevant period
- s.18 Meaning of āsavings incomeā
- s.44 Election for new rules to apply an election for the new rules to apply the new rules the old rules
- s.68 Reasonable expectation of profit The prior period of loss
- s.77 First-year allowances: partnerships with companies
- s.96 Post-cessation trade relief
- s.1001 Meaning of āoffshore installationā offshore installation
- s.1021 Application of definitions of āconnectedā persons and ācontrolā
- s.1023 Meaning of ādouble taxation arrangementsā double taxation arrangements
- s.1024 Meaning of āgilt-edged securitiesā gilt-edged securities
- s.103B Meaning of ānon-active partnerā etc the relevant period
- s.108 Meaning of ācontribution to the LLPā
- s.125 Post-cessation property relief
- s.127B No relief for tax-generated agricultural expenses relevant tax avoidance arrangements the applicable amount of the loss allowable agricultural expenses
- s.143 The unquoted status requirement unquoted company
- s.151 Interpretation of Chapter bonus shares EIS relief excluded company
- s.157A Risk-to-capital condition
- s.173A The maximum amount raised annually through risk finance investments requirement relevant operating costs the relevant three succeeding years
- s.191A Meaning of āpermanent establishmentā
- s.215 Meaning of āreceipts of insignificant valueā A receipt of insignificant value repayment arrangements
- ... and 110 more definitions
Exemptions 87
- s.35 Personal allowance
- s.38 Blind person's allowance
- s.45 Marriages before 5 December 2005
- s.55A Tax reduction under Chapter
- s.74A Reliefs in any tax year not to exceed cap for tax year
- s.95 Foreign trades etc: reliefs only against foreign income
- s.98A Denial of relief for tax-generated payments or events
- s.116A Excess loss allocation to partners who are individuals
- s.127C Excess loss allocation to partners who are individuals
- s.138 Ceasing to meet trading requirement because of administration or receivership
- s.175 The use of the money raised requirement
- s.182 Ceasing to meet trading requirement because of administration or receivership
- s.225 Insignificant repayments ignored for purposes of section 224
- s.238 Cases where assessment not to be made
- s.244 Obligations of secrecy
- s.245 Transfers between spouses or civil partners
- s.257QK Insignificant payments ignored for the purposes of section 257QJ
- s.257DB Ceasing to meet trading requirement: administration etc
- s.257ML The issue must be to raise money for chosen trade or preparing for it
- s.257GC Cases where assessments not to be made
- ... and 67 more exemptions