Clause 222: Receipt of replacement value

705.     This clause prevents clause 213 reducing or withdrawing EIS relief in certain cases. It is based on sections 300A(1) to (6) and (11), 301(5) and 312(1) of ICTA.

706.     This clause applies to certain cases where the person who received value effectively repays all of it to the person who gave that value.

Clause 223: Section 222: supplementary

707.     This clause supplements clause 222. It is based on section 300A(1), (2) and (7) to (11) and section 312(1) of ICTA.

708.     Subsections (1) and (2) contain limitations on the application of clause 222.

709.     There is a new reference in subsection (2)(c) to "the day" on which the amount of relief is determined. This is in line with the interpretation that the provision disqualifies restitution if it happens on the 61^st day after the day of the determination.

710.     Subsections (3) and (4) set out, for one particular case, the consequences of clause 222 applying. Subsection (4) combines part of the provision in section 300A(10) of ICTA with material from paragraph 13C(4) of Schedule 5B to TCGA. A consequential amendment to that paragraph completes the picture, (see the commentary in Part 2 of Schedule 1 to this Bill on paragraph 13C of Schedule 5B to TCGA).

Clause 224: Repayments etc of share capital to other persons

711.     This clause reduces or withdraws EIS relief in certain cases where, broadly, the issuing company (group) repays some of its share capital within period C relating to the issue of shares in question. It is based on sections 303(1) to (1C), (9A) and (9B), 303AA(2), 303A(2) and 312(1) of ICTA.

712.     Subsection (2) sets out the calculation of the withdrawal or reduction in the simplest case where the repayment affects only a single issue of shares and only a single subscriber to that issue.

713.     Subsection (3) provides a signpost to other clauses that, depending on the particular combination of circumstances present, may modify (or remove the need for) the calculation in subsection (2). Subsection (3) makes explicit the order in which to apply clauses 226 to 229.

714.     Subsections (4) and (5) prevent this clause applying in two cases. First, where the repayment causes a withdrawal or reduction of EIS relief (under other clauses) or of relief under Schedule 15 to FA 2000 (the corporate venturing scheme) or precipitates a qualifying chargeable event for the purposes of Schedule 5B to TCGA (enterprise investment scheme: reinvestment). Second, where there would be a withdrawal etc in these cases if the repayment were not treated as insignificant.

715.     The references in subsections (4)(b) and (c) to "that person's shares in the issuing company" are more explicit than in the source legislation and are consistent with section 303(IB)(a) of ICTA.

716.     Subsection (6) is new and corresponds to paragraph 58(1) of Schedule 15 to FA 2000 (corporate venturing scheme - supplementary to value received). See Change 50 in Annex 1.

Clause 225: Insignificant repayments ignored for purposes of section 224

717.     This clause provides an exception to clause 224 in certain cases where the repayment is insignificant. It is based on section 303AA(1) to (5) and section 312(1) of ICTA.

Clause 226: Amount of repayments etc where there is more than one issue of shares

718.     This clause apportions the repayment for cases where that repayment results in relief being reduced or withdrawn, under clause 224(2), in relation to two or more issues of shares. It is based on section 303(2) and (2A) of ICTA.

719.     By referring to the relief which the individuals obtain subsection (2) caters for the case where an individual claims EIS relief on some, but not all, of the shares in respect of which the individual is eligible for relief. See the commentary on clause 158 and Change 36 in Annex 1.

Clause 227: Single issue affecting more than one individual

720.     This clause apportions the repayment for cases where, in relation to a single issue of shares affected by that repayment, there is more than one individual that has shares to which EIS relief is attributable. It is based on section 303(1C) and (1D) of ICTA.

721.     By referring to the relief which the individual obtains subsection (2) caters for the case where an individual claims EIS relief on some, but not all, of the shares in respect of which the individual is eligible for relief. See the commentary on clause 158 and Change 36 in Annex 1.

Clause 228: Single issue treated as made partly in previous tax year

722.     This clause deals with a complication that can arise where clause 224(2) applies to an issue of shares. The investor may obtain relief as if part of that share issue had taken place in the previous tax year; a different savings rate may apply in the previous tax year. It is based on sections 289B(5), 299(4) and 303(1C) of ICTA.

723.     Setting out steps, involving apportionment of the repayment, in subsection (2) is a change because the source legislation is not explicit on how to deal with such a complication. See Change 49 in Annex 1.

724.     By referring to the amount on which the individual obtains relief the subsection also caters for the case where an individual claims EIS relief on some, but not all, of the shares in respect of which the individual is eligible for relief. See the commentary on clause 158 and Change 36 in Annex 1.

Clause 229: Maximum relief not obtained for share issue

725.     This clause deals with the case where EIS relief on a subscription for shares was obtained for a tax year at a rate that is less than the savings rate for that tax year. It is based on sections 299(4) and 303(1C) of ICTA.

726.     Subsection (1) caters for the case where an individual claims EIS relief on some, but not all, of the shares in respect of which the individual is eligible for relief. See the commentary on clause 158 and Change 36 in Annex 1.

727.     Subsection (2) lowers the rate at which clause 224(2) recovers EIS relief on the repayment. The rate of recovery is reduced to the rate at which EIS relief was effectively obtained.

728.     Subsections (3) and (4) are new and correspond to provisions in paragraph 56(7) and (8) of Schedule 15 to FA 2000 (corporate venturing scheme - value received by other persons). See Change 48 in Annex 1.

Clause 230: Repayment of authorised minimum within 12 months

729.     This clause provides an exception to clause 224 for certain repayments. It is based on section 303(9) of ICTA.

730.     Subsection (1)(b) widens the exception in the source legislation and corresponds to paragraph 58(5)(b) of Schedule 15 to FA 2000 (corporate venturing scheme - repayment of authorised minimum within 12 months). See Change 51 in Annex 1.

Clause 231: Restriction on withdrawal of relief under section 224

731.     This clause provides for clause 224 to apply as if the repayment were a reduced, or zero, amount in cases where the repayment has led to a reduction of relief under Schedule 15 to FA 2000 (corporate venturing scheme). It is based on section 303A(1), (3) to (7) and (9) of ICTA.

Clause 232: Acquisition of a trade or trading assets

732.     This clause withdraws relief from an individual in the circumstances set out in the clause. It is based on section 302(1), (2) and (4) to (5) of ICTA.

733.     The definition of "subsidiary" in section 302(5) is not needed in clauses 232 and 233 because they refer to "any qualifying subsidiary" and apply to period A.

734.     Subsection (7) differs from the source legislation by not referring to a vocation. That is on the footing that an incorporated company cannot carry on a vocation.

Clause 233: Acquisition of share capital

735.     This clause withdraws relief from an individual in the circumstances set out in the clause. It is based on section 302(3), (4A), (4B) and (5) of ICTA.

Clause 234: Relief subsequently found not to have been due

736.     This clause withdraws EIS relief in cases where the conditions for EIS relief, having been satisfied at the time it was obtained, cease to be satisfied. It is based on section 307(1) and (1A) of ICTA.

Chapter 7: Withdrawal or reduction of EIS relief: procedure

Overview

737.     This Chapter deals with the withdrawal or reduction of EIS relief after it has been obtained along with related matters such as information requirements, interest and penalties.

Clause 235: Assessments for the withdrawal or reduction of EIS relief

738.     This clause provides that an assessment must be made to withdraw or reduce EIS relief after it has been obtained. It is based on section 307(1) and (8A) of ICTA.

Clause 236: Appeals against section 234(3)(b) notices

739.     This clause allows the issuing company to appeal to an independent tribunal in cases where the issuing company disagrees with a notice under clause 234(3)(b). It is based on section 307(1B) and (1C) of ICTA.

Clause 237: Time limits for assessments

740.     This clause sets out the time limits for making an assessment or giving a notice under clause 234(3)(b). It is based on section 307(2), (5) and (8A) of ICTA.

Clause 238: Cases where assessment not to be made

741.     This clause provides for two cases in which EIS relief will not be withdrawn or reduced. It is based on section 307(3), (4) and (8A) of ICTA.

742.     Subsections (2) and (3) cover the case of events occurring after the individual has disposed of all the shares, on which reduction of relief is still possible, by way of bargains at arm's length. An assessment cannot be made in relation to such events unless the individual is connected with the issuing company.

743.     Subsection (2) limits, compared to the source legislation, the shares that need consideration in deciding whether an assessment cannot be made. See Change 52 in Annex 1.

Clause 239: Date from which interest is chargeable

744.     This clause gives the date from which interest runs if EIS relief is withdrawn or reduced by an assessment. It is based on sections 299A(2) and 307(6) and (8A) of ICTA.

745.     Subsection (1) contains a table setting out the dates that apply. Those dates depend on the provision on which the assessment is based.

746.     The table does not include anything derived from section 307(6)(a) and (aa) and (7) of ICTA. Nor is there any material derived from 306(9) of ICTA. Those provisions do not fit with Self Assessment. See Change 53 in Annex 1.

747.     Section 307(8) of ICTA is redundant as it refers to spent legislation and has not been rewritten.

Clause 240: Information to be provided by the investor

748.     This clause requires an investor to provide information to an officer of Revenue and Customs if certain events occur after the investor has obtained EIS relief. It is based on section 310(1), (2A) and (9A) of ICTA.

Clause 241: Information to be provided by the issuing company etc

749.     This clause requires the issuing company, or certain other persons, to provide information to an officer of Revenue and Customs if certain events occur which could withdraw or reduce EIS relief. It is based on section 310(2), (2A) and (9A) of ICTA.

750.     Subsection (1) differs from source legislation by linking the provision of a compliance statement to the requirement to give notice of certain events and in referring to events having an effect "if EIS relief had been obtained". This follows the approach in paragraph 65(1) of Schedule 15 to FA 2000 (corporate venturing scheme). See Change 54 in Annex 1.

751.     Subsection (4) also follows the corporate venturing scheme approach and differs from source legislation. It allows the issuing company to provide notice of one particular event within 60 days of coming to know of that event. See Change 54 in Annex 1.

752.     Section 310(3) of ICTA is redundant as it refers to spent legislation and has not been rewritten.

Clause 242: Power to require information where section 240 or 241 applies or could have applied

753.     This clause allows an officer to require information in certain cases. It is based on section 310(4) of ICTA.

Clause 243: Power to require information in other cases

754.     This clause provides additional circumstances in which an officer can require information for the purposes of this Part. It is based on section 310(5) to (8) of ICTA.

Clause 244: Obligations of secrecy

755.     This clause allows an officer of Revenue and Customs to give certain information to the issuing company. It is based on section 310(9) of ICTA.

Chapter 8: Supplementary and general

Overview

756.     This Chapter deals with some special cases and definitions.

Clause 245: Transfers between spouses or civil partners

757.     This clause provides for "step in shoes" treatment where shares are transferred between spouses or civil partners in specified circumstances. It is based on section 304(2) and (3) of ICTA.

758.     Subsection (2)(b) and (d) and subsection (3) contain material, not in the source legislation, making clearer how the "step in shoes" treatment operates. See Change 55 in Annex 1.

Clause 246: Identification of shares on a disposal

759.     This clause gives rules identifying which shares are disposed of. It is based on sections 299 (6) to (6D) and 304(4) of ICTA.

Clause 247: Continuity of EIS relief where issuing company is acquired by new company

760.     This clause allows, in limited circumstances, the issuing company to become a wholly-owned subsidiary of another company without jeopardising EIS relief attributable to shares in the issuing company. It is based on section 304A(1), (2) and (6) to (8) of ICTA.

761.     When this clause applies, the exchange of shares and the issuing company becoming a subsidiary do not cause a reduction or withdrawal of EIS relief.

762.     There is effectively "step in shoes" treatment given to the shares in the new company (which the shareholder receives in exchange for shares in the issuing company). The following two clauses deal with that "step in shoes" treatment.

Clause 248: Carry over of obligations etc where EIS relief attributed to new shares

763.     This clause gives the new company the rights and obligations, in relation to EIS relief, of the issuing company that has been acquired. It is based on section 304A(5) of ICTA.

Clause 249: Substitution of new shares for old shares

764.     This clause treats the shareholder in the new company broadly as if actions etc taken in relation to the issuing company had been taken in relation to the new company. It is based on section 304A(3) and (4) of ICTA.

Clause 250: Nominees and bare trustees

765.     This clause deals with the actions of nominees or bare trustees. It is based on section 311(1) to (2A), (4) and (5) of ICTA.

766.     Subsection (2) adopts a different approach from that in the source legislation. Section 311 of ICTA begins with the words "where eligible shares are held on a bare trust" and section 289(7) of ICTA defines "eligible shares" in terms of "new" shares. Subsection (2) begins with the words "if shares have been issued to a bare trust" and thereby makes it clear that these "new" shares are issued to bare trustees.

767.      Elsewhere in this Part the concept of eligible shares being "new" has been dropped as redundant in the context of a subscription for shares. Subsection (3) reproduces the other conditions of "eligible" shares, in the source legislation, by applying clause 173(2).

Clause 251: Approved investment fund as nominee

768.     This clause removes the minimum subscription requirement for shares in a company and allows the investment to be treated as made earlier than was in fact the case where investment is made through an approved investment fund. It is based on section 311(2A) to (6) of ICTA.

769.     The use in subsection (1) of "at a time when" makes it clear that the conditions in paragraphs (a) to (c) all have to be met but not in any prescribed order.

770.     The certificate issued to the investor in an approved fund by the manager (see subsection (5)) is commonly known as an EIS 5, the form provided for this purpose by HMRC.

Clause 252: Meaning of a company being "in administration" or "in receivership"

771.     This clause gives the meaning of a company being in administration (or receivership). It is based on section 312(2A) of ICTA.

772.     The reference to Northern Ireland legislation in subsection (2)(a) takes into account amendments to the Insolvency (Northern Ireland) Order 1989 by the Insolvency (Northern Ireland) Order 2005. The reference in subsection (2)(b) to the law of a country or territory outside the United Kingdom accords with the insolvency law in force in Great Britain and in Northern Ireland. See Change 56 in Appendix 1.

Clause 253: Meaning of "associate"

773.     This clause gives the meaning of "associate" in relation to a person. It is based on sections 312(1) and 417(3) and (4) of ICTA.

Clause 254: Meaning of "disposal of shares"

774.     This clause extends references to a disposal of shares and treats some matters as if they were disposals of shares. It is based on section 312(3) of ICTA.

775.     Section 136 of TCGA may treat the investor, in the case of certain reorganisations, as having exchanged "old shares" even though the investor continues to hold the same "old shares" as were held before the reorganisation (together with some "new shares"). This clause treats that reorganisation as a disposal of the "old shares".

Clause 255: Meaning of "issue of shares"

776.     This clause gives a meaning to (a) an issue of shares and (b) an issue of shares to an individual. It is based on sections 289B(4) and 312(4A) of ICTA.

777.     Section 289B(4)of ICTA, on which subsection (1)(b) is based, is subject to the rule in section 289B(5).

778.     Section 289B(5) of ICTA has been rewritten in clause 201(6) for the purposes of that clause and in other clauses where that rule is relevant. So subsection (2) makes subsection (1)(b) subject to clause 201(6) and also to the other clauses where that rule is applied.

779.     This exception for section 289A(6) and (7) of ICTA was inserted into section 289B(4) of ICTA by FA 2004 to ensure that the wording of those subsections did not invoke the interpretation in section 289B(4) and instead was linked clearly to the interpretation in section 312(4A) of ICTA. To achieve the same end the formulation in clause 176(1) is directly linked to the interpretation in clause 255(1)(a), (based on section 312(4A)).

Clause 256: Meaning of "the termination date"

780.     This clause gives the meaning of "the termination date". It is based on section 312(1) and (1ZA) of ICTA.

Clause 257: Minor definitions etc

781.     This clause contains more definitions. It is based on sections 289(9), 291B(10), 293(3A), (6D) and (8AA), 297(5A), 308(2) and 312(1), (2), (4), (4B), (5) and (6) of ICTA.

782.     The definitions of "group", "group company", "parent company" and "single company" are new.

783.     These new labels rely on the way "qualifying subsidiary" is defined in this Part. The definitions of "subsidiary" and "51% subsidiary" in section 312(1) of ICTA have not been reproduced. Instead "qualifying subsidiary" is explained in clause 191 and "51% subsidiary" in clause 923.

784.     The definition of "51% subsidiary" in section 312(1) adds a condition that the definition applies for a particular period (period A in the clauses). The aim has been to reproduce the same effect of this definition without carrying over the same level of complication. (See, for example, the commentary on clause 168(5).)

785.     In some cases the definition of a term included in the Bill-wide index of defined expressions in Schedule 4 is distinguished from the particular use of the term in this Part.

786.     For example, the definition of "control" in subsection (3) sets out the references to control which are explained by section 416(2) to (6) of ICTA. The entry in Schedule 4 which refers to the meaning in clause 929 has a signpost to the exceptions in this subsection.

787.     The two references to the "reduction" of relief in subsection (7)(b) are new: section 312(6) of ICTA refers only to the withdrawal of relief.

788.     The word "withdrawal" in EIS is used both for the occasions for a clawback of relief (in particular in the provisions in Chapter 6) and for the procedure for withdrawing relief which is set out in Chapter 7.

789.     Although the word "withdrawal" can cover both a full and a partial withdrawal of relief, this is made explicit in sections 307 and 310 of ICTA by section 307(8A) and section 310(9A). These subsections note that "references in this section to the withdrawal of relief include its reduction". This has been handled in this Part by spelling out, wherever relevant, that the rules encompass both the reduction and withdrawal of relief.

790.     Making reference to the reduction as well as the withdrawal of relief in subsection (7) ensures that there is consistency with the language used for the occasion of a clawback and with sections 307 and 310 of ICTA, which are concerned with the procedure for withdrawing relief.

791.     Subsection (8) is new. Paragraph 102(7)(a) of Schedule 15 to FA 2000 (corporate venturing scheme) contains a similar provision.

792.     The subsection interprets the reference to requirements being met "for the time being" in clause 204(1) (compliance certificates) and clause 205(1) (compliance statements), derived from section 306 of ICTA. At the time the compliance certificate is issued by the issuing company it cannot be known if all the EIS requirements will be met in the relevant period.

793.     The interpretation addresses this by treating conditions that must be met over a period of time as met at times before that period has ended (provided the condition then remains capable of being met). See Change 57 in Annex 1.

Part 6: Venture capital trusts

Overview

794.     This Part provides income tax reductions to individuals who subscribe money for "full risk" shares in certain quoted companies that, in turn, mainly provide additional equity and loan finance to smaller unquoted trading (or certain other) companies with which the quoted company is not connected.

795.     The structure of the Part is as follows:

• An overview and a definition of venture capital trust ("VCT") (Chapter 1);

• The tax reduction and related matters (Chapter 2);

• Conditions for approving a company for the purposes of this Part and related matters (Chapter 3);

• The meaning of "qualifying holding" (Chapter 4);

• Powers to make regulations relating to VCT winding up or mergers (Chapter 5); and

• Supplementary provisions (Chapter 6).

796.     In contrast to the enterprise investment scheme (EIS), clause 967(1) (commencement) applies to the VCT scheme: see the overview to Part 5. The minor changes made to the law in this Part are the subject of transitional provisions in Part 8 of Schedule 2.