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 6 — Withdrawal or reduction of EIS relief
122

228
Single issue treated as made partly in previous tax year
(1)
This section applies if—
(a)
section 224(2) applies to EIS relief attributable to shares held by an
individual, and
(b)
part of the issue of shares has been treated as issued to the individual
5
in a previous tax year for the purposes of section 158(1) and (2) (form
and amount of EIS relief).
(2)
This subsection explains how the calculation under section 224(2) is to be
made.
Step 1
10

Apportion the amount referred to as “R” between the tax year in which the
shares were issued and the previous tax year by multiplying that amount by
the fraction—

where—
A is the amount on which the individual obtains EIS relief in respect of the
15
shares treated as issued in the tax year in question, and
B is the sum of that amount and the corresponding amount in respect of
the shares treated as issued in the other tax year.
Step 2

In relation to each of the amounts (“R1” and “R2”) so apportioned to the two
20
tax years, calculate the amounts (“X1” and “X2”) that would be given by the
formula if there were separate issues of shares in those tax years.

In calculating amounts X1 and X2, apply section 229 if appropriate but do not
apply section 226 or 227.
Step 3
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Add amounts X1 and X2 together.

The result is the required amount.
229
Maximum relief not obtained for share issue
(1)
This section applies if section 224(2) applies to EIS relief attributable to shares
held by an individual and—
30
(a)
the amount of the reduction (“A”) in the individual’s liability to income
tax for any tax year in respect of the shares, is less than
(b)
the amount (“B”) which is equal to income tax at the savings rate for
that year on the amount on which the individual 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
123

(2)
Section 224(2) has effect as if the amount referred to as “R” were reduced by
multiplying it by the fraction—
(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
subsections (1) and (2) as “A” is to be treated for the purposes of those
5
subsections as the 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 where there is a corresponding issue of bonus
shares).
230
Repayment of authorised minimum within 12 months
10
(1)
This section applies if—
(a)
a company issues share capital (“the original shares”) of nominal value
equal to the authorised minimum (within the meaning of the
Companies Act 1985 (c. 6)) for the purposes of complying with section
117 of that Act (public company not to do business unless requirements
15
as to share capital complied with), and
(b)
the registrar of companies issues the company with a certificate under
that section.
(2)
Section 224(2) does not apply in relation to any redemption of the original
shares within 12 months of the date on which they were issued.
20
(3)
In relation to companies incorporated under the law of Northern Ireland,
references in subsection (1) to the Companies Act 1985 and to section 117 of
that Act have effect as references to the Companies (Northern Ireland) Order
1986 (S.I. 1986/1032 (N.I. 6)) and to Article 127 of that Order.
231
Restriction on withdrawal of relief under section 224
25
(1)
This section applies if, because of a repayment, any investment relief which is
attributable under Schedule 15 to FA 2000 to any shares is withdrawn under
paragraph 56(2) of that Schedule.
(2)
For the purposes of this section “the relevant amount” is the amount
determined by the formula—
30

where—
A is the amount of the repayment, and
B is the total amount of investment relief withdrawn because of the
repayment.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 6 — Withdrawal or reduction of EIS relief
124

(3)
If the relevant amount does not exceed £1,000, the repayment is ignored for the
purposes of section 224(1), unless repayment arrangements are in existence at
any time in the period—
(a)
beginning 12 months before the issue of the shares mentioned in
subsection (1), and
5
(b)
ending at the end of the issue date.
(4)
For this purpose “repayment arrangements” means arrangements which
provide—
(a)
for a repayment by the issuing company or any subsidiary of that
company, or
10
(b)
for anyone to be entitled to such a repayment,

at any time.
(5)
Subsection (4)(a) applies in relation to a subsidiary of the issuing company
whether or not it is such a subsidiary when the arrangements were made.
(6)
If the repayment is not ignored by virtue of subsection (3), the amount received
15
because of the repayment is treated for the purposes of section 224(2) as an
amount equal to the relevant amount.
(7)
In this section—
(a)
“investment relief” has the same meaning as in Schedule 15 to FA 2000
(corporate venturing scheme), and
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(b)
references to the withdrawal of investment relief include its reduction.
Miscellaneous
232
Acquisition of a trade or trading assets
(1)
Any EIS relief attributable to any shares in a company held by an individual is
withdrawn if—
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(a)
at any time in period A, the company or any qualifying subsidiary—
(i)
begins to carry on as its trade, or as part of its trade, a trade
which was previously carried on at any time in that period
otherwise than by the company or any qualifying subsidiary, or
(ii)
acquires the whole, or the greater part, of the assets used for the
30
purposes of a trade previously so carried on, and
(b)
the individual is a person, or one of a group of persons, to whom
subsection (2) or (3) applies.
(2)
This subsection applies to any person or group of persons—
(a)
to whom an interest amounting in total to more than a half share in the
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trade (as previously carried on) belonged at any time in period A, and
(b)
who is or are a person or group of persons to whom such an interest in
the trade carried on by the company belongs or has, at any such time,
belonged.
(3)
This subsection applies to any person or group of persons who—
40
(a)
control or, at any time in period A, have controlled the company, and
(b)
is or are a person or group of persons who, at any such time, controlled
another company which previously carried on the trade.
(4)
For the purposes of subsection (2)—

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 6 — Withdrawal or reduction of EIS relief
125

(a)
the person to whom a trade belongs and, if a trade belongs to two or
more persons, their respective shares in that trade are determined in
accordance with section 344(1)(a) and (b), (2) and (3) of ICTA, and
(b)
any interest, rights or powers of a person who is an associate of another
person are treated as those of that other person.
5
(5)
In determining whether any EIS relief attributable to any shares in the issuing
company held by an individual who—
(a)
is a director of, or of a company which is a partner of, the issuing
company or any qualifying subsidiary, and
(b)
is in receipt of, or entitled to receive, remuneration as such a director
10
falling within section 169(2) (reasonable remuneration for services),

is to be withdrawn, the reference in subsection (3)(b), and (so far as relating to
that provision) the reference in subsection (1)(a)(i), to any time in period A are
to be read as references to any time before the end of period A.
(6)
Section 167(3) (director also an employee) applies for the purposes of
15
subsection (5) as it applies for the purposes of section 168, and in subsection (5)
“remuneration” includes any benefit or facility.
(7)
In this section “trade” includes any business or profession, and references to a
trade previously carried on include references to part of such a trade.
233
Acquisition of share capital
20
(1)
Any EIS relief attributable to any shares in a company held by an individual is
withdrawn if —
(a)
the company comes to acquire all of the issued share capital of another
company at any time in period A, and
(b)
the individual is a person, or one of a group of persons, to whom
25
subsection (2) applies.
(2)
This subsection applies to any person or group of persons who—
(a)
control or have, at any time in period A, controlled the company, and
(b)
is or are a person or group of persons who, at any such time, controlled
the other company.
30
(3)
In determining whether any EIS relief attributable to any shares in the issuing
company held by an individual who—
(a)
is a director of, or of a company which is a partner of, the issuing
company or any qualifying subsidiary, and
(b)
is in receipt of, or entitled to receive, remuneration as such a director
35
falling within section 169(2),

is to be withdrawn, the reference in subsection (2)(b) to any time in period A is
to be read as a reference to any time before the end of period A.
(4)
Section 167(3) applies for the purposes of subsection (3) as it applies for the
purposes of section 168, and in subsection (3) “remuneration” includes any
40
benefit or facility.
234
Relief subsequently found not to have been due
(1)
Any EIS relief obtained by the investor which is subsequently found not to
have been due must be withdrawn.

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 7 — Withdrawal or reduction of EIS relief: procedure
126

(2)
EIS relief obtained by the investor in respect of the relevant shares may not be
withdrawn on the ground—
(a)
that the requirements of sections 174 and 175 (the purpose of the issue
and use of money raised requirements) are not met in respect of the
shares, or
5
(b)
that the issuing company is not a qualifying company in relation to the
shares (see Chapter 4),

unless the requirements of subsection (3) are met.
(3)
The requirements of this subsection are met if either—
(a)
the issuing company has given notice under section 241, or paragraph
10
16(2) or (4) of Schedule 5B to TCGA 1992, (information to be provided
by issuing company etc) in relation to the relevant issue of shares, or
(b)
an officer of Revenue and Customs has given notice to that company
stating the officer’s opinion that, because of the ground in question, the
whole or any part of the EIS relief obtained by any individual in respect
15
of shares included in the relevant issue of shares was not due.
(4)
In this section “the relevant issue of shares” means the issue of shares in the
issuing company which includes the relevant shares.
Chapter 7
Withdrawal or reduction of EIS relief: procedure
20
Assessments and appeals
235
Assessments for the withdrawal or reduction of EIS relief
If any EIS relief which has been obtained falls to be withdrawn or reduced
under Chapter 6, it must be withdrawn or reduced by the making of an
assessment to income tax for the tax year for which the relief was obtained.
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236
Appeals against section 234(3)(b) notices
(1)
For the purposes of the provisions of TMA 1970 relating to appeals, the giving
of notice by an officer of Revenue and Customs under section 234(3)(b) is taken
to be a decision disallowing a claim by the issuing company.
(2)
If any issue has been determined on an appeal brought by virtue of paragraph
30
1A(6) of Schedule 5B to TCGA 1992 (appeal against notice that shares never
have been, or have ceased to be, eligible shares), the determination is
conclusive for the purposes of any appeal brought by virtue of subsection (1)
on which that issue arises.
237
Time limits for assessments
35
(1)
An officer of Revenue and Customs may not—
(a)
make an assessment for withdrawing or reducing the EIS relief
attributable to any of the relevant shares, or
(b)
give a notice under section 234(3)(b),

more than 6 years after the end of the relevant tax year.
40
(2)
In subsection (1) “the relevant tax year” means—

Income Tax Bill
Part 5 — Enterprise investment scheme
Chapter 7 — Withdrawal or reduction of EIS relief: procedure
127

(a)
the tax year in which the time mentioned in section 175(3) (the use of
money raised requirement) falls, or
(b)
the tax year in which the event which causes the EIS relief to be
withdrawn or reduced occurs,

whichever is the later.
5
(3)
Subsection (1) is without prejudice to section 36 of TMA 1970 (fraudulent or
negligent conduct).
238
Cases where assessment not to be made
(1)
No assessment for withdrawing or reducing EIS relief in respect of shares
issued to an individual may be made because of an event occurring after the
10
individual’s death.
(2)
Subsection (3) applies if an individual has, by a disposal or disposals to which
section 209(3) applies, disposed of all shares which—
(a)
have been issued to the individual by the issuing company, and
(b)
are shares—
15
(i)
to which EIS relief is attributable, or
(ii)
in relation to which period A has not come to an end.
(3)
No assessment for withdrawing or reducing EIS relief in respect of those shares
may be made because of any subsequent event unless the event occurs at a time
when the individual is connected with the company within the meaning of
20
section 166.
Interest
239
Date from which interest is chargeable
(1)
In its application to an assessment made by virtue of section 235 in the case of
relief withdrawn or reduced by virtue of a provision listed in column 1 of the
25
following table, section 86 of TMA 1970 (interest on overdue income tax) has
effect as if the relevant date were given by the corresponding entry in column
2 of the table.

Provision
Relevant date

Section 163, any of
The date of the event which caused the

30

sections 181 to 188 or
withdrawal or reduction of EIS relief

section 224, 232 or 233

Section 164
The date of the making of the loan (see

subsection (2))

Section 209
The date of the disposal

35

Section 212(1)
The date of the grant of the option

Section 213
The date of the receipt of value

(2)
The reference in the second entry in the table to the making of a loan is to be
read in accordance with section 164(3).