This change is adverse to some taxpayers in principle and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 50: EIS: value received by other persons: prevent multiple reductions of EIS relief: clause 224

This change introduces a provision reducing the chances of one receipt of value causing more than one restriction of EIS relief.

It also brings the enterprise investment scheme into closer alignment with the corporate venturing scheme in Schedule 15 to FA 2000. That is because clause 224(6) is based on paragraph 58(1) of Schedule 15 to FA 2000:

Any repayment shall be disregarded for the purposes of .. to the extent to which investment relief attributable to any shares has already been reduced or withdrawn on its account.

This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 51: EIS: repaying share capital of nominal value equal to the authorised minimum if eligible shares are issued before registrar's certificate: clause 230

This change extends the exception from reduction of EIS relief in certain cases where other persons receive value on the repayment of subscriber shares.

Section 303(9) of ICTA and paragraph 58(5) and (6) of Schedule 15 to FA 2000 (corporate venturing scheme) (CVS) provide nearly identical exceptions from section 303 of ICTA and paragraph 56 of that Schedule.

Both exceptions apply in the context of the repayment within a year of issue of shares which were issued to meet certain requirements of company law (the requirements in section 117 of the Companies Act 1985). But there is a minor difference between these two provisions relating to when eligible shares have to be issued.

Section 303(9)(b) says (emphasis added):

after the registrar has issued the company with a certificate under section 117, it issues eligible shares.

Paragraph 58(5)(b) of Schedule 15 to FA 2000 says:

the registrar of companies issues the company with a certificate under section 117.

So paragraph 58(5)(b) can be met even if eligible shares are not issued after the registrar has issued a certificate whereas section 303(9)(b) cannot be satisfied in such a case.

There is no reason why the conditions in section 303(9)(b) of ICTA should be more restrictive than paragraph 58(5)(b) of Schedule 15 to FA 2000 (CVS). Clause 230(1)(b) of this Bill omits the additional requirement in section 303(1)(b) of ICTA that eligible shares be issued after the registrar issues the company with a certificate under section 117 of the Companies Act 1985. That marginally widens the scope of the exception in section 303(9)(b) of ICTA and brings EIS into closer alignment with CVS.

This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.

Change 52: EIS: cases where assessment not to be made after disposal of all shares to which EIS relief is attributable: clause 238.

This change limits the shares that need to be taken into account in deciding whether an individual is protected from being assessed by reason of events happening after the individual has disposed of all the shares to which EIS relief is attributable.

Section 307(4) of ICTA says:

Where a person has, by a disposal or disposals to which section 299(1)(b) applies, disposed of all the eligible shares issued to him by a company, no assessment for withdrawing relief in respect of any of those shares shall be made by reason of any subsequent event unless it occurs at a time when he is connected with the company within the meaning of section 291.

Section 307(4) presents no problems for the majority of cases for which it may be relevant. Those are straightforward cases of an investor whose only connection with a company is a single subscription for shares that are later sold at arm's length in a single transaction. But issues could arise in less straightforward cases.

First, the reference to "section 299(1)(b) applies" may suggest that all eligible shares issued to the investor must be disposed of before the end of the relevant period related to their issue (section 312(1A)(a) of ICTA). Consider a case where the investor holds one or more of those shares at the end of the relevant period in question. The investor arguably could never benefit from section 307(4) in relation to a later issue of shares by the company concerned.

Second, "eligible shares" are referred to but it is not always possible to say at particular times, before the termination date, that a share is an eligible share. That is because section 289(7) of ICTA requires the shares to meet certain conditions over a period of time relating to the date on which the share was issued.

The reference to "eligible shares" might be intended to limit section 307(4) to a consideration of just those shares on which it was possible for EIS relief to be claimed by the individual. But eligible shares issued for non-cash consideration would, for instance, not be eligible for EIS relief and could not have EIS relief attributed to them. It would therefore not be possible to dispose of such shares in a way that "section 299(1)(b) applies" to the disposal. It is accordingly not clear what the word "eligible" adds or that it is helpful or necessary.

Clause 238(2) of this Bill is a change from section 307(4). It ignores any shares for which period A (corresponding to the relevant period in the source legislation) has ended. It also ignores shares to which EIS relief is not attributable (whether it is because they are not eligible shares or for some other reason).

This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 53: EIS: Interest and Self Assessment: clause 239

This change omits provisions that do not fit with Self Assessment in relation to charging interest on assessments. The omitted provisions are sections 306(9) and 307(6)(a) and (aa) and (7) of ICTA.

Section 306(9) of ICTA says:

For the purposes of section 86 of the Management Act (interest on overdue tax), tax charged by an assessment—

(a)     shall be regarded as due and payable notwithstanding that relief from the tax (whether by discharge or repayment) is subsequently given on a claim for the relief; but

(b)     shall, unless paid earlier or due and payable later, be regarded as paid on the date of the making of the claim on which the relief is given;

and section 91 of that Act (effect on interest of reliefs) shall not apply in consequence of any discharge or repayment for giving effect to the relief.

Apart from immaterial differences, section 306(9) of ICTA is the same as section 61(7) of FA 1981 (the provision from which it originates). FA 1981 was enacted approximately 15 years before Self Assessment came into force.

In 1981 it was standard practice for separate Schedular assessments (often estimated) to be made by HMRC (then the Inland Revenue). At that time, parts of the income tax liability of an individual for a single year could have different due and payable dates. Different due dates could arise because:

• of the Schedule under which parts of the individual's total income fell; and

• of the date that each part of that total income was (separately) assessed by the HMRC.

HMRC would typically make an assessment to income tax and issue a notice of that assessment to the individual showing when the assessed tax was due and payable. Interest on overdue income tax was determined by reference to the date on which the assessed tax was due and payable under the assessment.

The individual might later claim that, say, relief under Chapter 2 of Part 4 of FA 1981 (relief for investment in new corporate trades, but referred to in this note as BSS (business start-up scheme) relief) should be given. If satisfied that relief was due, HMRC might:

• send the individual notice of an amended assessment incorporating BSS relief; and

• repay the amount, if any, that had been paid by the individual in relation to the original notice of assessment but which was no longer due under the amended assessment.

HMRC were therefore heavily involved in making assessments to income tax and in giving effect to claims for relief against that tax. That meant HMRC knew from their records when:

• an assessment to income tax had been made and notice of it given to the individual;

• a claim for relief against income tax had been made;

• a revised assessment had been made to give effect to the relief; and

• a repayment had been made as a result of the revised assessment.

It is significant that section 61(1)(a) of FA 1981 then prevented claims for BSS relief during the tax year to which they related (an "in-year claim"). This rule meant that BSS relief was not allowed in the form of a PAYE coding adjustment either.

This prevention of in-year claims in turn raised issues related to the possibility of different payment dates existing for parts of an individual's income tax liability by reason of Schedular assessing. For instance, Schedule A assessments for a tax year normally had a payment date in the tax year (an "in-year payment date"). It would have been inconsistent to prevent in-year claims to relief and yet allow some individuals to achieve the same effect as an in-year claim by claiming BSS relief against, say, Schedule A assessments that had in-year payment dates.

That potential inconsistency was overcome by section 61(7) of FA 1981 providing that, despite section 91 of TMA (effect on interest of reliefs), interest would continue to be charged on tax due under an assessment until the date that a claim for BSS relief was made to HMRC.

The rule against making in-year claims was relatively short-lived. In relation to the relief in Schedule 5 to FA 1983 (business expansion scheme - BES) which replaced BSS relief, the rule was not reproduced in paragraph 13(1) of Schedule 5 (claims). And paragraph 13(7) of Schedule 5 even contemplated BES relief being given in the form of a PAYE coding adjustment.

Self Assessment made significant changes to the system that had applied in 1981. Three such changes are mentioned here:

• the individual now makes most assessments as part of the individual's tax return;

• tax payment dates no longer vary with the type of income involved; and

• much less HMRC involvement is required for claims as they can form part of the individual's self-assessment.

Section 306(9) has not been rewritten, as it is not readily compatible with Self Assessment. Omitting this provision will result in claims for EIS relief being treated in the same way for Self Assessment as any other claim. In principle, this part of the change is favourable to taxpayers as section 91 of TMA may operate to relieve them of liabilities to interest that were not previously relievable. In practice, this change is expected to have no impact.

Section 307(6)(a) and (aa) and (7) of ICTA say:

(6) In its application to an assessment made by virtue of this section, section 86 of the Management Act (interest on overdue tax) shall have effect as if the relevant date were—

(a)     in the case of relief withdrawn by virtue of section 289(6) or 299B(1)—

(i)     so far as effect has been given to the relief in accordance with PAYE regulations, 5th April in the year of assessment in which effect was so given;

(ii)     so far as effect has not been so given, the date on which the relief was granted;

(aa)     in the case of relief withdrawn by virtue of section 289(1)(c) or (d), the date on which the relief was granted;

(7) For the purposes of subsection (6) above the date on which the relief is granted is the date on which a repayment of tax for giving effect to the relief was made or, if there was no such repayment, the date on which the inspector issued a notice to the claimant showing the amount of tax payable after giving effect to the relief.

Section 62(6) and (7) of FA 1981 had rules about charging interest on a withdrawal of BSS relief by a separate assessment (later assessment) made after BSS relief had been given against an earlier assessment (original assessment). In most cases interest ran from the date of the event that caused the later assessment to be made.

But in one case (avoidance), the withdrawal of BSS relief was in broad terms intended to restore the position to the same as if the relief had never been given. In that case, the later assessment could not simply provide for interest to run from the normal date on which interest would have been chargeable under the original assessment. That was because interest might have been charged in relation to the original assessment up to the date that BSS relief was claimed (see earlier discussion on section 61(7) FA 1981). The later assessment had to take account of such a possibility.

So a concept of "the date on which the relief is granted" was defined and used as the date from which interest would be charged in this case. That concept naturally used typical pre-Self Assessment actions of HMRC issuing a notice of assessment giving effect to the claim or making a repayment of income tax to give effect to the claim.

Section 307(6)(a) and (aa) of ICTA set out the cases in which withdrawal of EIS relief is intended, broadly, to restore the position to the same as if the relief had never been given. And the pre-Self Assessment concept of "the date on which the relief is granted" lingers on in section 307(7) of ICTA. This concept does not fit with Self Assessment.

With the omission of section 306(9) of ICTA (see earlier) the reason for the provisions in section 307(6)(a) and (aa) and (7) cease to exist. So the rules in section 307(6)(a) and (aa) and (7) have not been rewritten either.

This means there will be no special rule about assessments that withdraw relief in the cases set out in section 307(6)(a) and (aa) (avoidance: pre-arranged exits and time limit for use of money). Such assessments will be dealt with under Self Assessment in the same way as any other assessments.

In principle this part of the change is unfavourable to taxpayers as it will prevent them contending that the legislation is deficient in such a way that interest should not be charged in relation to matters contemplated by section 307(6)(a) and (aa). But it is unlikely that such cases will be met.

This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 54: EIS: information provided by the issuing company and persons connected with the issuing company in respect of certain events: clause 241

This change provides a link between (i) the requirement that the issuing company and "any person connected with the issuing company" provide notices of certain events and (ii) the requirement that the issuing company provides information in a compliance statement (covered by clause 205). The change also gives the issuing company a longer period to provide a notice to an officer of Revenue and Customs in one particular case.

The change aligns EIS more closely with a similar provision in the corporate venturing scheme (CVS).

Clause 241 is based on section 310 of ICTA. Section 310(2) of ICTA says that:

(2) Where an event occurs by reason of which any relief in respect of any shares in a company falls to be withdrawn by virtue of section 289(1)(ba), (c) or (d), 293, 300, 302 or 303, or would fall to be withdrawn under section 300 were it not for the application of section 300A,—

(a)     the company; and

(b)     any person connected with the company who has knowledge of that matter;

shall within 60 days of the event or, in the case of a person within paragraph (b) above, of his coming to know of it, give a notice to the inspector containing particulars of the event ..

From those words it may be thought that the company and connected person are expected to know whether an individual investor has obtained EIS relief. Alternatively it may be thought that information of the specified events must be provided to the officer of Revenue and Customs (i) whether or not any investor has obtained relief and (ii) whether or not the company has provided a statement under section 306(3) of ICTA. EIS relief cannot be obtained without the issuing company having provided a statement under section 306(3) to the officer of Revenue and Customs.

Clause 241(1) of this Bill resolves these difficulties by tying the requirement to provide notice of the events listed to:

• the submission by the issuing company of a compliance statement; and

• a supposition that EIS relief has been obtained.

This follows paragraph 65(1) of Schedule 15 to FA 2000 (CVS).

Section 310(2) of ICTA provides for the case of a connected person having no initial knowledge of an event. The connected person is given 60 days from when that person comes to know of the event. Section 310 does not provide for the case of an issuing company having no initial knowledge of a receipt of value, under section 300 of ICTA, from a person connected to the company.

Clause 241(4)(b) of this Bill provides an alternative period of notice for the issuing company if the event is a receipt of value, within clause 216(2), from a person connected to the company under clause 221. This follows paragraph 65(4)(b)(ii) of Schedule 15 to FA 2000 (CVS).

This change has no implications for the amount of tax paid, who pays it or when. It affects (in principle but not in practice) only administrative matters.

Change 55: EIS: share transfers between spouses or civil partners: clause 245

This change expands the assumptions that are made in relation to transfers between spouses or civil partners of shares to which EIS relief is attributable. Clause 245(2)(b) and (d) and subsection (3) ensure that the "step in shoes treatment" works in all situations in relation to any subsequent event.

Section 304(2)(a) of ICTA provides that the transferee is treated as though he or she had subscribed for the shares. Clause 245(2)(b) makes it explicit that the transferee is treated as having subscribed for the shares the amount that was subscribed by the transferor.

Section 304(2)(b) of ICTA says that the transferee's liability to income tax is treated as having been reduced for the same year as the transferor's liability to income tax was reduced. Clause 245(2)(d) of this Bill makes it explicit that this deemed reduction in the transferee's liability should be the same as the reduction obtained by the transferor.

Change 48 discusses the clarification of what the "gross amount" is in cases where, for instance, the transferor receives value from the issuing company before the transferor obtains EIS relief. Clause 245(3) of this Bill provides that the effect on EIS relief in these circumstances is unaffected by a transfer of shares between a husband and wife and civil partners. It does this as follows:

• Subsection (3)(a) carries over to the transferee any reduction in the EIS relief attributable to the shares in respect of the transferred shares.

• Subsection (3)(b) provides that the transferee's treatment will be the same as the transferee's would have been in cases where clauses 210(3), 220(2) and 229(3) are relevant. These are concerned with the reduction of EIS attributable to relevant shares before EIS relief is obtained in cases involving disposal, the receipt of value by the investor and the receipt of value by other persons. Since these are three distinct cases, the required effect in subsection (3) is achieved by cross-referring to those provisions rather than attempting to reproduce their contents.

This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.

Change 56: EIS, VCT and share loss relief: the meaning of "a company being in administration": clauses 252 and 331, Schedule 1 (section 312(2A) of ICTA and paragraph 11(10) of Schedule 5 to ITEPA) and Schedule 2 Parts 6 and 8 (meaning of company being "in administration")

This change updates and extends the definition of administration by referring to the meaning within Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 (NI 19)) and adapting this and the meaning within Schedule B1 to the Insolvency Act 1986 to provide for a similar interpretation of an administration outside the UK. The result is that the meaning of a company "in administration" is widely drawn whichever rules on administrations apply.

The change applies to the enterprise investment scheme (EIS) and to venture capital trusts (VCT). The relevant provisions in ICTA are section 312(2A)(a) (EIS) and paragraph 11A(2)(a) of Schedule 28B (VCT). The change also applies to enterprise management incentives (EMI) under Schedule 5 to ITEPA and to share loss relief under Chapter 6 of Part 4 of this Bill, because these provisions use the EIS definition of "in administration".

Paragraph 11(10) Schedule 5 to ITEPA applies section 312(2A) of ICTA to EMI.

Section 576(4A) of ICTA (share loss relief) reads across into the EIS provisions in section 293 of that Act. In rewriting that read across in Chapter 6 of Part 4 of this Bill, clause 138(5) applies clause 252. Clause 141(2) applies the definition of "qualifying 90% subsidiary" in clause 190 and clauses 137(7), 139(2), 140(2) and 142(4) all apply the definition of "qualifying subsidiary" in clause 191. Clauses 190 and 191 both in turn apply clause 252.

Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 (NI 19)) was inserted by Schedule 1 to the Insolvency (Northern Ireland) Order 2005, (SI 2005/1455 (NI 10)) with a commencement date of 27 March 2006 under SR (NI) 2006 No.21 (CI). This new Schedule B1 is the equivalent to Schedule B1 to the Insolvency Act 1986 inserted by the Enterprise Act 2002. Paragraph 1(2) of both Schedules B1 provides that:

(a)     a company is "in administration" while the appointment of an administrator of the company has effect,

(b)     a company "enters administration" when the appointment of an administrator takes effect.

So the references to an administration order under Part 3 of the Insolvency (Northern Ireland) Order 1989 in the definition of a company in administration in section 312(2A)(a)(i) of and paragraph 11A(2)(a)(i) of Schedule 28B to ICTA are now out of date.

To remedy this, the opening words and sub-paragraph (i) of section 312(2A)(a) of and paragraph 11A(2)(a) of Schedule 28B to ICTA are replaced in clauses 252(2)(a) and 331(2)(a) of this Bill by:

A company is "in administration" if-

(a)     it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986 or Schedule B1 to the Insolvency (Northern Ireland) Order 1989

The reference to a "corresponding order" under the law of a country or territory outside the United Kingdom in section 312(2A)(a)(ii) of and paragraph 11A(2)(a)(ii) of Schedule 28B to ICTA is no longer appropriate since there is no reference to "order" in the UK context. The intention is to provide for equivalent legislation so far as this can be expressed. Clauses 252(2)(b) and 331(2)(b) of this Bill, therefore, provide:

(b)     There is in force in relation to it [the company ] under the law of a country or territory outside the United Kingdom any appointment corresponding to an appointment of an administrator under either of those Schedules.

There is a similar example of the drafting providing for equivalent legislation outside the UK, so far as this is possible, in section 12(7ZA) of ICTA.

This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.

Change 57: EIS: conditions to be met over a period: clause 257

This change makes it explicit that EIS relief can be obtained even though future events could mean that the relief is not due. That is consistent with practice and the corporate venturing scheme (CVS).

Whether an individual is eligible for EIS relief in respect of an issue of shares normally depends on certain conditions being met for at least three years after the issue has taken place.

The framework of the EIS scheme indicates, in various places, that claims for the relief may be made even though the relief may ultimately not be available because of future events, so on a provisional basis. One example is that section 307(1) of ICTA contemplates an assessment being made to withdraw:

relief .. which is subsequently found not to have been due..

Predecessors to the EIS scheme were more explicit about the existence of a provisional basis. Thus for the business expansion scheme (BES), section 289(9) and (10) of ICTA (prior to any later amendments) read:

(9) A claim for relief may be allowed .. if the conditions for relief are then satisfied.

(10) In the case of a claim allowed before the end of the relevant period, the relief shall be withdrawn if by reason of any subsequent event it appears that the claimant was not entitled to the relief allowed.

CVS addresses this aspect by referring, where appropriate, to requirements "being met for the time being" and paragraph 102(7)(a) of Schedule 15 to FA 2000 (CVS) says:

In the case of a requirement that cannot be met until a future date—

(a) references..to a requirement being met for the time being are to nothing having occurred to prevent its being met.

Clause 257(8) of this Bill is based on this extract from paragraph 102(7)(a) of Schedule 15 to FA 2000 (CVS). The wording of clause 204(1)(b) (compliance certificates) and clause 205(1)(a) (compliance statements) has been adapted so that clause 257(8) applies: the references to requirements for EIS relief being "for the time being met". This makes explicit the operation of the provisional basis for EIS.