Model law

Income Tax Act 2007 (Seed Enterprise Investment Scheme Net Zero Amendment) Bill

Rhine's Law

Amend the Income Tax Act 2007 to provide that SEIS tax relief is only available to investors if the issuing company has set a qualifying Net Zero target.

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Why use this?

Investor tax reliefs do not encourage alignment with climate change or the UK’s Net Zero policy.

Seed Enterprise Investment Scheme (SEIS) reliefs are available for any type of qualifying company even if that company’s trade accelerates climate change.

The proposed amendment will mean that all new and fast growth companies are developing with a Net Zero target from an early stage. In effect, Net Zero by design.

How it promotes a net zero future

The proposed legislation will accelerate the transition to Net Zero by incentivising all early stage companies to set a Net Zero target.

The law

INCOME TAX ACT 2007 (SEED ENTERPRISE INVESTMENT SCHEME NET ZERO AMENDMENT) BILL

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Amend the Income Tax Act 2007 to provide that SEIS tax relief is available to investors if the issuing company has set a qualifying Net Zero Target.    

BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

 1. Amendment to Part 5A Chapter 1 of the Income Tax Act 2007 

(1) In Part 5A of the Income Tax Act 2007 (Seed Enterprise Investment Scheme) – 

(a) in section 257(AA) (Eligibility for SEIS relief), in subsection (1), before paragraph (a) insert –

“(zb)   the Net Zero Target condition is met (see section 257ZA),”, and 

(b) after that section insert – 

257ZA Net Zero Target condition 

(1) The Net Zero Target condition is met if, in addition to the requirements in section 257AA(a) – (d), having regard to all the circumstances existing at the time of the issue of the shares– 

(a) the directors of the issuing company have prepared a reasonable Net Zero Target for the company; and  

(b) the issuing company has objectives to grow and develop its trade in accordance with its Net Zero Target.     

(2) The issuing company’s Net Zero Target must be a target to achieve Net Zero within the meaning of section 257HK. 

(3) For the purposes of subsection (1) the circumstances to which regard may be had, in determining whether a stated Net Zero Target is reasonable, include:     

(a) the extent to which a Net Zero Target is developed in the issuing company’s strategic report(s); 

(b) the extent to which a Net Zero Target is developed in contemplation of the ultimate objectives of the United Nations Framework Convention on Climate Change, the Paris Agreement and related agreements, and in particular limiting the increase in global temperatures to 1.5 degrees Celsius above pre-industrial levels and achieving Net Zero emissions by 2050 or sooner (in line with the best available science and increased climate ambition);

(c) the extent to which a Net Zero Target references the UK Government’s Net Zero policy, international commitments and related implementing legislation (as amended from time to time), including any interim targets;

(d) the extent to which a Net Zero Target references Scope 1, 2 and 3 emissions (as classified in the GHG Protocol Initiative Corporate Accounting and Reporting Standard, as updated from time to time);

(e) the extent to which a Net Zero Target prioritises avoided and reductions in emissions, utilising carbon offsetting or similar initiatives only as a last resort for unavoidable or residual emissions, is verifiable and correctly accounted for [and purchased through projects that have been verified in accordance with a voluntary standard or from a United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) or equivalent UNFCCC mechanism project];     

(f) the extent to which interim targets, board level monitoring, transparency through regular reporting and tracking, and clear plans with specific operational implications to achieve the Net Zero Target are included;      

(g) the nature of the company’s sources of income, including the extent to which the sources of income conflict with the company’s stated Net Zero Target; 

(h) the extent to which the company’s stated Net Zero Target includes increasing the number of its employees or the turnover of its trade; 

(i) the extent to which the company’s stated Net Zero Target requires a material change to the nature of the company’s business; 

(j) how any opportunity for investment in the company is marketed; and 

(k) the extent to which arrangements are in place under which opportunities for investments in the company are or may be marketed with, or otherwise associated with the company’s stated Net Zero Target.

(4) If the issuing company is a parent company – 

(a) any reference in this section to the company’s trade or business is to what would be the trade or business of the group if the activities of the group companies taken together were regarded as one, and 

(b) any reference in subsection (3)(b) to (f) to the company is to any group company”

 

2. Amendment to Part 5A, Chapter 3 of the Income Tax Act 2007 General Requirements

(1) In Part 5A of the Income Tax Act 2007 (Seed Enterprise Investment Scheme) –  

(a) in section 257CE (The no tax avoidance requirement), after the first subsection, insert- 

“(2)   In addition to subsection (1) above, for the purposes of section 257ZA, the relevant Net Zero Target must be issued for genuine environmental, social, or governance; and commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.”     

 

3. Amendment to Part 5A, Chapter 8 of the Income Tax Act 2007 Supplementary and general

(1) In Part 5A of the Income Tax 2007 (Seed Enterprise Investment Scheme) – 

(a) after section 257HJ (Minor definitions), insert-      

257HK Meaning of “Net Zero” and “Greenhouse Gas Emissions”

In this Part “Net Zero”, in relation to the issuing company, means—

A reduction of Greenhouse Gas Emissions from all operations including value and supply chains to net zero so there is a balance between sources and sinks of Greenhouse Gases in a calendar year and for each subsequent year thereafter.

In this Part “Greenhouse Gas Emissions”, in relation to the issuing company, means— Emissions by the issuing company (including its value and supply chain) of the greenhouse gases listed at Annex A of the 1998 Kyoto Protocol to The United Nations Framework Convention on Climate Change, including: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3), each expressed as a total in units of carbon dioxide equivalent (CO2e)”     

Glossary references: Net Zero Target