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 7 — Withdrawal or reduction of EIS relief: procedure
129

241
Information to be provided by the issuing company etc
(1)
This section applies if the issuing company has provided an officer of Revenue
and Customs with a compliance statement in respect of an issue of shares and
an event occurs as a result of which—
(a)
the requirement of section 175 (the use of money raised) is not met in
5
respect of any of the shares included in the issue, or would not be met
if EIS relief had been obtained in respect of the shares in question,
(b)
any provision of Chapter 4 has effect to prevent the issuing company
being a qualifying company in relation to any of the shares included in
the issue, or would have such an effect if EIS relief had been obtained
10
in respect of the shares in question, or
(c)
any provision of Chapter 6 which is listed in subsection (2) has effect to
cause any EIS relief attributable to any of the shares included in the
issue to be withdrawn or reduced, or—
(i)
would have such an effect if EIS relief had been obtained in
15
respect of the shares in question, or
(ii)
in the case of section 213, would have such an effect but for
section 222 (receipt of replacement value).
(2)
The provisions are—
(a)
section 213 (value received by the investor),
20
(b)
section 224 (repayments etc of share capital to other persons),
(c)
section 232 (acquisition of a trade or trading assets), and
(d)
section 233 (acquisition of share capital).
(3)
If this section applies—
(a)
the issuing company, and
25
(b)
any person connected with the issuing company who has knowledge of
the matters mentioned in subsection (1),

must give a notice to an officer of Revenue and Customs containing particulars
of the event.
(4)
Any notice required to be given by the issuing company under subsection
30
(3)(a) must be given—
(a)
within 60 days of the event, or
(b)
if the event is a receipt of value within section 216(2) from a person
connected with the company (see section 221), within 60 days of the
company coming to know of the event.
35
(5)
Any notice required to be given by a person under subsection (3)(b) must be
given within 60 days of the person coming to know of the event.
(6)
If a person—
(a)
is required under this section to give notice of a receipt of value which
is within section 213, or would be within that section but for section 222,
40
and
(b)
has knowledge of any replacement value received (or expected to be
received) because of a qualifying receipt,

the notice must include particulars of that receipt of replacement value (or
expected receipt).
45
(7)
In subsection (6) “qualifying receipt” and “replacement value” are to be read in
accordance with section 222.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 7 — Withdrawal or reduction of EIS relief: procedure
130

242
Power to require information where section 240 or 241 applies or could have
applied
(1)
This section applies if an officer of Revenue and Customs has reason to believe
that a person—
(a)
has not given a notice which the person is required to give under
5
section 240 or 241 in respect of any event,
(b)
has given or received value within the meaning of section 216(2) or (6)
which, but for the fact that the amount given or received was an
amount of insignificant value, would have triggered a requirement to
give such a notice, or
10
(c)
has made or received any repayment within the meaning given by
section 224(7) which, but for the fact that it falls to be ignored for the
purposes of section 224 by virtue of section 225(1), would have
triggered a requirement to give a notice under section 241.
(2)
The officer may by notice require the person concerned to supply the officer,
15
within such time as the officer may specify in the notice, with such information
relating to the event as the officer may reasonably require for the purposes of
this Part.
(3)
The period specified in a notice under subsection (2) must be at least 60 days.
(4)
In subsection (1)(b) the reference to an amount of insignificant value is
20
construed in accordance with section 215(2).
243
Power to require information in other cases
(1)
Subsection (2) applies if EIS relief is claimed in respect of shares in a company,
and an officer of Revenue and Customs has reason to believe that it may not be
due because of any such arrangement or scheme as is mentioned in—
25
(a)
section 165 or 182(2) or (4) (no tax avoidance),
(b)
section 171 (persons subscribing for shares under certain
arrangements),
(c)
section 176(4) or (5), 183(6) or 191(3), (4) or (5) (winding up,
administration etc),
30
(d)
section 177(1) (no pre-arranged exits), or
(e)
section 185(1) or (2), 190(1) or 191(2) (conditions ceasing to be met).

The reference in paragraph (c) to subsections (3), (4) and (5) of section 191 is to
be read as including those subsections as applied by section 190(2).
(2)
The officer may by notice require any person concerned to supply the officer
35
within such time as may be specified in the notice with—
(a)
a declaration in writing stating whether or not, according to the
information which that person has or can reasonably obtain, any such
arrangement or scheme exists or has existed, and
(b)
such other information as the officer may reasonably require for the
40
purposes of the provision in question and as that person has or can
reasonably obtain.
(3)
The period specified in a notice under subsection (2) must be at least 60 days.
(4)
For the purposes of subsection (2), in a case falling within a provision listed in
column 1 of the following table, the person concerned is given by the
45
corresponding entry in column 2 of the table.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 7 — Withdrawal or reduction of EIS relief: procedure
131

Provision
The person concerned

Subsection (1)(a)
The claimant, the company and any person

controlling the company

Subsection (1)(b)
The claimant

Subsection (1)(c)
The claimant, the company, any other

5

company in question and any person

controlling the company or any other

company in question

Subsection (1)(d)
The claimant, the company and any person

connected with the company

10

Subsection (1)(e)
The company and any person controlling

the company


References in this subsection to the claimant include references to any person
to whom the claimant appears to have made such a transfer as is mentioned in
section 245 (spouses or civil partners) of any of the shares in question.
15
(5)
If EIS relief has been obtained in respect of shares in a company—
(a)
any person who receives from the company any payment or asset
which may constitute value received (by the person or another) for the
purposes of section 213, and
(b)
any person on whose behalf such a payment or asset is received,
20

must, if so required by an officer of Revenue and Customs, state whether the
payment or asset so received is received on behalf of any other person and, if
so, the name and address of that other person.
(6)
If EIS relief has been claimed in respect of shares in a company—
(a)
any person who holds or has held shares in the company, and
25
(b)
any person on whose behalf any such shares are or were held,

must, if so required by an officer of Revenue and Customs, state whether the
shares so held are or were held on behalf of any other person and, if so, the
name and address of that other person.
244
Obligations of secrecy
30
No obligation of secrecy imposed by statute or otherwise prevents an officer of
Revenue and Customs from disclosing to a company that EIS relief has been
obtained or claimed in respect of a particular number or proportion of its
shares.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 8 — Supplementary and general
132

Chapter 8
Supplementary and general
Disposals of shares
245
Transfers between spouses or civil partners
(1)
This section applies if—
5
(a)
shares to which an amount of EIS relief is attributable were issued to an
individual (“A”),
(b)
A transferred the shares to another individual (“B”) during their lives,
(c)
A was married to, or was the civil partner of, B at the time of the
transfer, and
10
(d)
section 209 (disposal of shares) does not apply to the transfer.
(2)
This Part has effect, in relation to any subsequent disposal or other event, as
if—
(a)
B were the individual who had subscribed for the shares,
(b)
the amount that B had subscribed for the shares were the amount that
15
A had subscribed for them,
(c)
B’s liability to income tax had been reduced in respect of the shares for
the same tax year as that for which A’s was so reduced,
(d)
the amount by which B’s liability to income tax had been reduced in
respect of the shares were the same as that by which A’s liability to
20
income tax had been so reduced, and
(e)
that amount of EIS relief had continued to be attributable to the shares
despite the transfer.
(3)
If the amount of EIS relief attributable to the shares had been reduced before
the relief was obtained by A—
25
(a)
this Part has effect, in relation to any subsequent disposal or other
event, as if the amount of EIS relief attributable to the shares transferred
to B had been correspondingly reduced before the relief was obtained
by B, and
(b)
sections 210(3), 220(2) and 229(3) apply in relation to B as they would
30
have applied in relation to A.
(4)
If, because of any such disposal or other event, an assessment for reducing or
withdrawing EIS relief is to be made, the assessment is to be made on B.
246
Identification of shares on a disposal
(1)
The rules in subsections (2) and (3) are for determining which shares of any
35
class are treated as disposed of for the purposes of—
(a)
section 209 (disposal of shares), or
(b)
section 245 (spouses or civil partners),

if the investor disposes of some but not all of the shares of that class which the
investor holds in a company.
40
(2)
Shares acquired on an earlier day are treated as disposed of before shares
acquired on a later day.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 8 — Supplementary and general
133

(3)
Shares acquired on the same day are treated as disposed of in the following
order—
(a)
first any to which neither EIS relief nor deferral relief is attributable,
(b)
next any to which deferral relief, but not EIS relief, is attributable,
(c)
next any to which EIS relief, but not deferral relief, is attributable, and
5
(d)
finally any to which both EIS relief and deferral relief are attributable.
(4)
Any shares within paragraph (c) or (d) of subsection (3) which are treated by
section 201(6) as issued on an earlier day are treated as disposed of before any
other shares falling within that paragraph of subsection (3).
(5)
The following—
10
(a)
any shares to which EIS relief is attributable and which were
transferred to an individual as mentioned in section 245, and
(b)
any shares to which deferral relief, but not EIS relief, is attributable and
which were acquired by an individual on a disposal to which section 58
of TCGA 1992 applies,
15

are treated for the purposes of subsections (2) and (3) as acquired by the
individual on the day on which they were issued.
(6)
In a case to which section 127 of TCGA 1992 applies (including the case where
that section applies by virtue of an enactment relating to chargeable gains),
shares included in the new holding are treated for the purposes of subsections
20
(2) and (3) as acquired when the original shares were acquired.
(7)
In this section—
“deferral relief” has the same meaning as in Schedule 5B to TCGA 1992,
“new holding” and “original shares” have the same meaning as in section
127 of TCGA 1992 (or, as the case may be, that section as applied by the
25
enactment concerned).
Acquisition of issuing company
247
Continuity of EIS relief where issuing company is acquired by new company
(1)
This section applies if—
(a)
a company (“the new company”) in which the only issued shares are
30
subscriber shares acquires all the shares (“old shares) in another
company (“the old company”),
(b)
the consideration for the old shares consists wholly of the issue of
shares (“new shares”) in the new company,
(c)
the consideration for the new shares of each description consists wholly
35
of old shares of the corresponding description,
(d)
new shares of each description are issued to the holders of old shares of
the corresponding description in respect of and in proportion to their
holdings,
(e)
at some time before the issue of the new shares—
40
(i)
the old company issued shares which meet the requirements of
section 173(2), and
(ii)
a compliance certificate in respect of those shares was issued by
that company for the purposes of subsection (1) of section 203
and in accordance with section 204, and
45

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 8 — Supplementary and general
134

(f)
before the issue of the new shares the Commissioners for Her Majesty’s
Revenue and Customs have, on the application of the new company or
the old company, notified that company that they are satisfied that the
exchange of shares—
(i)
will be effected for genuine commercial reasons, and
5
(ii)
will not form part of any such scheme or arrangements as are
mentioned in section 137(1) of TCGA 1992 (schemes with
avoidance purposes).

In this subsection references to shares, except in the expressions “subscriber
shares” and “shares which meet the requirements of section 173(2)”, include
10
securities.
(2)
Subsection (2) of section 138 of TCGA 1992 (procedure for advance clearance)
applies for the purposes of subsection (1)(f) as it applies for the purposes of
subsection (1) of that section.
(3)
For the purposes of this Part—
15
(a)
the exchange of shares is not regarded as involving any disposal of the
old shares or any acquisition of the new shares, and
(b)
any EIS relief which is attributable to any old shares is attributable
instead to the new shares for which they are exchanged.
(4)
Nothing in section 185 (the control and independence requirement) applies in
20
relation to such an exchange of shares, or shares and securities, as is mentioned
in subsection (1), or arrangements with a view to such an exchange.
(5)
For the purposes of this section old shares and new shares are of a
corresponding description if, on the assumption that they were shares in the
same company, they would be of the same class and carry the same rights.
25
(6)
References in sections 248 and 249 to “old shares”, “new shares”, “the old
company” and “the new company” are to be read in accordance with this
section.
248
Carry over of obligations etc where EIS relief attributed to new shares
(1)
This section applies if, under section 247, any EIS relief which is attributable to
30
any old shares becomes attributable instead to any new shares.
(2)
This Part has effect as if anything which, under—
(a)
section 203(1) (entitlement to claim),
(b)
section 234(3) (relief subsequently found not to be due), or
(c)
sections 241 to 244 (information to be provided),
35

has been done, or is required to be done, by or in relation to the old company
had been done, or were required to be done, by or in relation to the new
company.
(3)
Any appeal brought by the old company against a notice under section
234(3)(b) may be prosecuted by the new company as if it had been brought by
40
that company.
249
Substitution of new shares for old shares
(1)
Subsection (2) applies if, in the case of any new shares held by an individual to
which EIS relief becomes attributable under section 247, the old shares for

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 8 — Supplementary and general
135

which they were exchanged were subscribed for by and issued to the
individual.
(2)
This Part has effect as if—
(a)
the new shares had been subscribed for by the individual at the time
when, and for the amount for which, the old shares were subscribed for
5
by the individual,
(b)
the new shares had been issued to the individual by the new company
at the time when the old shares were issued to the individual by the old
company,
(c)
the claim for EIS relief made in respect of the old shares had been made
10
in respect of the new shares, and
(d)
the individual’s liability to income tax had been reduced in respect of
the new shares for the same tax year as that for which the individual’s
liability was so reduced in respect of the old shares.
(3)
Subsection (4) applies if, in the case of any new shares held by an individual to
15
which EIS relief becomes so attributable under section 247, the old shares for
which they were exchanged were transferred to the individual as mentioned in
section 245.
(4)
This Part has effect in relation to any subsequent disposal or other event as if—
(a)
the new shares had been subscribed for by the individual at the time
20
when, and for the amount for which, the old shares were subscribed
for,
(b)
the new shares had been issued by the new company at the time when
the old shares were issued by the old company,
(c)
the claim for EIS relief made in respect of the old shares had been made
25
in respect of the new shares, and
(d)
the individual’s liability to income tax had been reduced in respect of
the new shares for the same tax year as that for which the liability of the
individual who subscribed for the old shares was so reduced in respect
of those shares.
30
Nominees etc
250
Nominees and bare trustees
(1)
Shares subscribed for, issued to, held by or disposed of for an individual by a
nominee are treated for the purposes of this Part as subscribed for, issued to,
held by or disposed of by the individual.
35
(2)
If shares have been issued to a bare trust for two or more beneficiaries, this Part
has effect (with the necessary modifications) as if—
(a)
each beneficiary had subscribed as an individual for all of those shares,
and
(b)
the amount subscribed by each beneficiary was equal to the total
40
amount subscribed on the issue of those shares divided by the number
of beneficiaries.
(3)
In subsection (2) and section 251 “shares” means shares which meet the
requirements of section 173(2).