Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 4 — The issuing company
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(a)
any estate, interest or right in or over land, including any right affecting
the use or disposition of land, or
(b)
any right to obtain such an estate, interest or right from another which
is conditional on the other’s ability to grant it.
(4)
References in this section to an interest in land do not include—
5
(a)
the interest of a creditor (other than a creditor in respect of a rentcharge)
whose debt is secured by way of mortgage, an agreement for a
mortgage or a charge of any kind over land, or
(b)
in the case of land in Scotland, the interest of a creditor in a charge or
security of any kind over land.
10
197
Excluded activities: hotels and comparable establishments
(1)
This section supplements section 192(1)(j).
(2)
The reference to a comparable establishment is to a guest house, hostel or other
establishment the main purpose of maintaining which is the provision of
facilities for overnight accommodation (with or without catering services).
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(3)
The activities of a person are not to be taken to fall within section 192(1)(j)
unless that person has an estate or interest in, or is in occupation of, the hotel
or comparable establishment in question.
198
Excluded activities: nursing homes and residential care homes
(1)
This section supplements section 192(1)(k).
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(2)
“Nursing home” means any establishment which exists wholly or mainly for
the provision of nursing care—
(a)
for persons suffering from sickness, injury or infirmity, or
(b)
for women who are pregnant or have given birth.
(3)
“Residential care home” means any establishment which exists wholly or
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mainly for the provision of residential accommodation, together with board
and personal care, for persons in need of personal care because of—
(a)
old age,
(b)
mental or physical disability,
(c)
past or present dependence on alcohol or drugs,
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(d)
any past illnesses, or
(e)
past or present mental disorder.
(4)
The activities of a person are not to be taken to fall within section 192(1)(k)
unless that person has an estate or interest in, or is in occupation of, the nursing
home or residential care home in question.
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199
Excluded activities: provision of services or facilities for another business
(1)
Providing services or facilities for a business carried on by another person
(other than a company of which the provider of the services or facilities is a
qualifying subsidiary) is an excluded activity if—
(a)
the business consists wholly or as to a substantial part of activities
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falling within any of paragraphs (a) to (k) of section 192(1), and

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Part 5 — Enterprise investment scheme
Chapter 5 — Attribution of and claims for EIS relief
105

(b)
a controlling interest in the business is held by a person who also has a
controlling interest in the business carried on by the provider of the
services or facilities.
(2)
Subsections (3) to (5) explain what is meant by a controlling interest in a
business for the purposes of subsection (1)(b).
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(3)
In the case of a business carried on by a company, a person (“A”) has a
controlling interest in the business if—
(a)
A controls the company,
(b)
the company is a close company and A or an associate of A is a director
of the company and is either—
10
(i)
the beneficial owner of more than 30% of the ordinary share
capital of the company, or
(ii)
able, directly or through the medium of other companies or by
any other indirect means, to control more than 30% of that share
capital, or
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(c)
at least half the business could, in accordance with section 344(2) of
ICTA (persons to whom company’s trade may be treated as belonging),
be regarded as belonging to A for the purposes of section 343 of that Act
(company reconstructions without a change of ownership).
(4)
In any other case, a person has a controlling interest in a business if the person
20
is entitled to at least half the assets used for, or of the income arising from, the
business.
(5)
For the purposes of this section—
(a)
any rights or powers of a person who is an associate of another are to
be attributed to that other person, and
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(b)
“business” includes any trade, profession or vocation.
Supplementary
200
Power to amend by Treasury order
The Treasury may by order make such amendments of sections 181, 182, 184 to
189 and 192 to 199 as they consider appropriate.
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Chapter 5
Attribution of and claims for EIS relief
Attribution
201
Attribution of EIS relief to shares
(1)
References in this Part, in relation to any individual, to the EIS relief
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attributable to any shares or issue of shares are to be read as references to any
reduction made in the individual’s liability to income tax that is attributed to
those shares or that issue in accordance with this section.

This is subject to the provisions of Chapters 6 and 7 providing for the
withdrawal or reduction of EIS relief.
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(2)
If an individual’s liability to income tax is reduced in any tax year, then—

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 5 — Attribution of and claims for EIS relief
106

(a)
if the reduction is obtained because of one issue of shares, the amount
of the reduction is attributed to that issue, and
(b)
if the reduction is obtained because of two or more issues of shares, the
amount of the reduction—
(i)
is apportioned between those issues in the same proportions as
5
the amounts claimed by the individual in respect of each issue,
and
(ii)
is attributed to those issues accordingly.
(3)
If under this section an amount of any reduction of income tax is attributed to
an issue of shares (“the original issue”) to an individual, a proportionate part
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of that amount is attributed to each share in respect of which the claim was
made.
(4)
If corresponding bonus shares are issued to the individual in respect of any
shares (“the original shares”) to which EIS relief is attributed—
(a)
a proportionate part of the total amount attributed to the original
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shares immediately before the bonus shares are issued is attributed to
each of the shares in the holding comprising the original shares and the
bonus shares, and
(b)
after the issue of the bonus shares, this Part applies as if the original
issue had included those shares.
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(5)
In subsection (4) “corresponding bonus shares” means bonus shares which are
in the same company, of the same class, and carry the same rights as the
original shares.
(6)
If section 158(1) and (2) applies in the case of any issue of shares as if part of the
issue had been issued in a previous tax year, this section has effect as if that part
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and the remainder were separate issues of shares (and that part had been
issued on a day in the previous tax year).
(7)
If, at a time when EIS relief is attributable to, or to any part of, any issue of
shares, the relief falls to be withdrawn or reduced under Chapters 6 and 7—
(a)
if it falls to be withdrawn, the relief attributable to each of the shares in
30
question is reduced to nil, and
(b)
if it falls to be reduced by any amount, the relief attributable to each of
the shares in question is reduced by a proportionate part of that
amount.
Claims: general
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202
Time for making claims for EIS relief
(1)
A claim for EIS relief in respect of shares issued by a company in any tax year
may be made—
(a)
not earlier than the time the requirement in section 176(2) or (3) (trade
etc must have been carried on for 4 months) is first met, and
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(b)
not later than the fifth anniversary of the normal self-assessment filing
date for the tax year.
(2)
If section 158(1) and (2) applies in the case of any issue of shares as if part of the
issue had been issued in a previous tax year, this section has effect as if that part
and the remainder were separate issues of shares (and that part had been
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issued on a day in the previous tax year).

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 5 — Attribution of and claims for EIS relief
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203
Entitlement to claim
(1)
The investor is entitled to make a claim for EIS relief in respect of the amount
subscribed by the investor for the relevant shares if the investor has received
from the issuing company a compliance certificate in respect of those shares.
(2)
For the purposes of PAYE regulations no regard is to be had to EIS relief unless
5
a claim for it has been duly made.
(3)
No application may be made under section 55(3) or (4) of TMA 1970
(application for postponement of payment of tax pending appeal) on the
ground that the investor is eligible for EIS relief unless a claim for the relief has
been duly made by the investor.
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Claims: supporting documents
204
Compliance certificates
(1)
A “compliance certificate” is a certificate which—
(a)
is issued by the issuing company in respect of the relevant shares,
(b)
states that, except so far as they fall to be met by or in relation to the
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investor, the requirements for EIS relief are for the time being met in
relation to those shares, and
(c)
is in such form as the Commissioners for Her Majesty’s Revenue and
Customs may direct.
(2)
Before issuing a compliance certificate in respect of the relevant shares, the
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issuing company must provide an officer of Revenue and Customs with a
compliance statement in respect of the issue of shares which includes the
relevant shares.
(3)
The issuing company must not issue a compliance certificate without the
authority of an officer of Revenue and Customs.
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(4)
If the issuing company, or a person connected with the issuing company, has
given notice to an officer of Revenue and Customs under section 241 of this Act
or paragraph 16(2) or (4) of Schedule 5B to TCGA 1992, a compliance certificate
must not be issued unless the authority is given or renewed after the receipt of
the notice.
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(5)
If an officer of Revenue and Customs—
(a)
has been requested to give or renew an authority to issue a compliance
certificate, and
(b)
has decided whether or not to do so,

the officer must give notice of the officer’s decision to the issuing company.
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205
Compliance statements
(1)
A “compliance statement” is a statement, in respect of an issue of shares, to the
effect that, except so far as they fall to be met by or in relation to the individuals
to whom shares included in that issue have been issued, the requirements for
EIS relief (see section 157)—
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(a)
are for the time being met in relation to the shares to which the
statement relates, and
(b)
have been so met at all times since the shares were issued.

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Part 5 — Enterprise investment scheme
Chapter 6 — Withdrawal or reduction of EIS relief
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(2)
In determining for the purposes of subsection (1) whether the requirements for
EIS relief are met at any time in relation to the issue of shares, references in this
Part to “the relevant shares” are read as references to the shares included in the
issue.
(3)
A compliance statement must be in such form as the Commissioners for Her
5
Majesty’s Revenue and Customs direct and must contain—
(a)
such additional information as the Commissioners reasonably require,
including in particular information relating to the persons who have
requested the issue of compliance certificates,
(b)
a declaration that the statement is correct to the best of the issuing
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company’s knowledge and belief, and
(c)
such other declarations as the Commissioners may reasonably require.
(4)
The issuing company may not provide an officer of Revenue and Customs with
a compliance statement in respect of any shares issued by it in any tax year—
(a)
before the requirement in section 176(2) or (3) (trade etc must have been
15
carried on for 4 months) is met, or
(b)
later than two years after the end of that tax year or, if that requirement
is first met after the end of that tax year, later than two years after the
requirement is first met.
206
Appeal against refusal to authorise compliance certificate
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For the purpose of the provisions of TMA 1970 relating to appeals, the refusal
of an officer of Revenue and Customs to authorise the issue of a compliance
certificate is taken to be a decision disallowing a claim by the issuing company.
207
Penalties for fraudulent certificate or statement etc
The issuing company is liable to a penalty not exceeding £3,000 if—
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(a)
it issues a compliance certificate, or provides a compliance statement,
which is made fraudulently or negligently, or
(b)
it issues a compliance certificate in contravention of section 204(3) or
(4).
Chapter 6
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Withdrawal or reduction of EIS relief
Introduction
208
Overview of Chapter
This Chapter provides for EIS relief to be withdrawn or reduced under—
(a)
section 209 (disposal of shares),
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(b)
section 211 (call options),
(c)
section 212 (put options),
(d)
section 213 (value received by the investor),
(e)
section 224 (repayments etc of share capital to other persons),
(f)
section 232 (acquisition of a trade or trading assets),
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(g)
section 233 (acquisition of share capital), and

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 6 — Withdrawal or reduction of EIS relief
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(h)
section 234 (relief subsequently found not to have been due).
Disposals
209
Disposal of shares
(1)
This section applies if—
(a)
the investor disposes of any of the relevant shares,
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(b)
the disposal takes place before period A ends, and
(c)
EIS relief is attributable to the shares.
(2)
If the disposal is not made by way of a bargain made at arm’s length, the EIS
relief attributable to the shares must be withdrawn.
(3)
If the disposal is made by way of a bargain made at arm’s length, the EIS relief
10
attributable to the shares must—
(a)
if it is greater than the amount given by the formula set out below, be
reduced by that amount, and
(b)
in any other case, be withdrawn.

The formula is—
15

where—
R is the amount or value of the consideration received by the investor for
the shares, and
S is the savings rate for the tax year for which the EIS relief was obtained.
(4)
This section does not apply to a disposal of shares to which an amount of EIS
20
relief is attributable if—
(a)
the disposal was made by an individual (“A”) to another individual
(“B”), and
(b)
A and B were married to, or were civil partners of, each other and living
together at the time of the disposal.
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(5)
Section 246 contains rules for determining which shares of any class are treated
as disposed of for the purposes of this section if the investor disposes of some
but not all the shares of that class which are held by the investor.
210
Cases where maximum EIS relief not obtained
(1)
If the investor’s liability to income tax is reduced for any tax year in respect of
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any issue of shares and—
(a)
the amount of the reduction (“A”), is less than
(b)
the amount (“B”) which is equal to tax at the savings rate for that year
on the amount on which the investor claims EIS relief in respect of the
shares,
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Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 6 — Withdrawal or reduction of EIS relief
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section 209(3) has effect in relation to a disposal of any of the shares as if the
amount or value referred to as “R” were reduced by multiplying it by the
fraction—
(2)
If section 158(1) and (2) applies in the case of any issue of shares as if part of the
issue had been issued in a previous tax year, subsection (1) has effect as if that
5
part and the remainder were separate issues of shares (and that part had been
issued on a day in the previous tax year).
(3)
If the amount of EIS relief attributable to any of the relevant shares has been
reduced before the EIS relief was obtained, the amount referred to in
subsection (1) as A is to be treated for the purposes of that subsection as the
10
amount that it would have been without that reduction.
(4)
Subsection (3) does not apply to a reduction of EIS relief by virtue of section
201(4) (attribution of EIS relief if there is a corresponding issue of bonus
shares).
211
Call options
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(1)
This section applies if the investor grants an option which, if exercised, would
bind the investor to sell any of the relevant shares.
(2)
The grant of the option is treated for the purposes of section 209 as a disposal
of the shares to which the option relates.
(3)
Nothing in this section prejudices section 177 (no pre-arranged exits).
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212
Put options
(1)
This section applies if, at any time in period A, a person grants the investor an
option which, if exercised, would bind the grantor to purchase any of the
relevant shares.
(2)
Any EIS relief attributable to the shares to which the option relates must be
25
withdrawn.
(3)
For the purposes of subsection (2) the shares to which an option relates are
those which, if—
(a)
the option were exercised immediately after the grant, and
(b)
any shares in the issuing company acquired by the investor after the
30
grant were disposed of immediately after being acquired,

would be treated for the purposes of section 209 as disposed of in pursuance of
the option.