Office of Public Sector Information
697.By referring to the amount on which the investor obtains relief Step 1 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 section 158 and Change 36 in Annex 1.
698.Step 2 includes a deeming of two separate issues of shares and apportionment of the value received between those two deemed issues. That is necessary because there may be a different savings rate of tax in each of the tax years.
699.Step 2 also requires the application of section 220, where appropriate, to deal with cases where the investor has not obtained EIS relief at the savings rate for one or both of the two years concerned in Step 2.
700.This section deals with the case where EIS relief on a subscription for shares was obtained for a tax year at a rate which is less than the savings rate of tax for that tax year. It is based on sections 299(4) and 300(1B) of ICTA.
701.Subsection (1) effectively lowers the rate at which section 213(2) recovers EIS relief on value received by the investor. The rate of recovery is reduced to the rate at which EIS relief was effectively obtained. 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 section 158 and Change 36 in Annex 1.
702.Subsections (2) and (3) are new and correspond to provisions in paragraph 52(2) and (3) of Schedule 15 to FA 2000 (corporate venturing scheme - cases where maximum relief not obtained). See Change 48 in Annex 1.
703.This section extends the meaning of terms used in some of the preceding sections. It is based on sections 300(1C) and 301(6) and (6A) of ICTA.
704.Without this extension the rules in preceding sections about reduction or withdrawal of EIS relief might be avoided in various ways.
705.This section prevents section 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 section applies to certain cases where the person who received value effectively repays all of it to the person who gave that value.
707.This section supplements section 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 section 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 61st day after the day of the determination.
710.Subsections (3) and (4) set out, for one particular case, the consequences of section 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 Act on paragraph 13C of Schedule 5B to TCGA).
711.This section 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 sections 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 sections 226 to 229.
714.Subsections (4) and (5) prevent this section applying in two cases. First, where the repayment causes a withdrawal or reduction of EIS relief (under other sections) 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.
717.This section provides an exception to section 224 in certain cases where the repayment is insignificant. It is based on section 303AA(1) to (5) and section 312(1) of ICTA.
718.This section apportions the repayment for cases where that repayment results in relief being reduced or withdrawn, under section 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 section 158 and Change 36 in Annex 1.
720.This section 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 section 158 and Change 36 in Annex 1.
722.This section deals with a complication that can arise where section 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 section 158 and Change 36 in Annex 1.
725.This section 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 section 158 and Change 36 in Annex 1.
727.Subsection (2) lowers the rate at which section 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.
729.This section provides an exception to section 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.
731.This section provides for section 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.
732.This section withdraws relief from an individual in the circumstances set out in the section. It is based on section 302(1), (2) and (4) to (5) of ICTA.
733.The definition of “subsidiary” in section 302(5) of ICTA is not needed in sections 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.
735.This section withdraws relief from an individual in the circumstances set out in the section. It is based on section 302(3), (4A), (4B) and (5) of ICTA.
736.This section 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.
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.
738.This section 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.
739.This section allows the issuing company to appeal to an independent tribunal in cases where the issuing company disagrees with a notice under section 234(3)(b). It is based on section 307(1B) and (1C) of ICTA.
740.This section sets out the time limits for making an assessment or giving a notice under section 234(3)(b). It is based on section 307(2), (5) and (8A) of ICTA.
741.This section 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.
744.This section 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.
748.This section 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.
749.This section 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 section 310 of ICTA as it links the provision of a compliance statement to the requirement to give notice of certain events and it refers 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 section 310 of ICTA 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.
753.This section allows an officer to require information in certain cases. It is based on section 310(4) of ICTA.
754.This section 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.
755.This section allows an officer of Revenue and Customs to give certain information to the issuing company. It is based on section 310(9) of ICTA.
756.This Chapter deals with some special cases and definitions.
757.This section 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.
759.This section gives rules identifying which shares are disposed of. It is based on sections 299 (6) to (6D) and 304(4) of ICTA.
760.This section 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 section 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 sections deal with that “step in shoes” treatment.
763.This section 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.
764.This section 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.
765.This section 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 section 311 of ICTA. Section 311 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 by applying section 173(2).
768.This section 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.
771.This section 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.
773.This section gives the meaning of “associate” in relation to a person. It is based on sections 312(1) and 417(3) and (4) of ICTA.
774.This section 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 section treats that reorganisation as a disposal of the “old shares”.
776.This section 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 section 201(6) for the purposes of that section and in other sections where that rule is relevant. So subsection (2) makes subsection (1)(b) subject to section 201(6) and also to the other sections where that rule is applied.
779.The 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 section 176(1) is directly linked to the interpretation in section 255(1)(a), (based on section 312(4A) of ICTA).
780.This section gives the meaning of “the termination date”. It is based on section 312(1) and (1ZA) of ICTA.
781.This section 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 section 191 and “51% subsidiary” in section 989.
784.The definition of “51% subsidiary” in section 312(1) of ICTA adds a condition that the definition applies for a particular period (period A in the sections). The aim has been to reproduce the same effect of this definition without carrying over the same level of complication. (See the commentary on section 168(5).)
785.In some cases the definition of a term included in the Act-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 section 995 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 section 204(1) (compliance certificates) and section 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.
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), section 1034(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.
797.This Chapter gives an overview of the Part, labels certain concepts and gives signposts to material contained elsewhere.
798.This section says that the relief dealt with by this Part (“VCT relief”) is a tax reduction and it provides a navigational aid regarding the content of later Chapters. It is based on section 332A of ICTA.
799.This section defines “venture capital trust”, “VCT” and “VCT approval”. It is based on section 842AA(1) of ICTA and paragraphs 7(4) and 17 of Schedule 33 to FA 2002.
800.This section provides signposts to other tax reliefs relating to VCTs. It is new.
801.This Chapter:
identifies who is eligible for VCT relief and on what amounts;
identifies the claims to VCT relief that may be made;
quantifies the entitlement to the tax reduction;
deals with cases in which VCT relief is not available or will be reduced or withdrawn; and
deals with other matters (information and powers to make regulations).
802.This section identifies cases in which, and amounts in respect of which, an individual is eligible for VCT relief for a tax year. It is based on paragraph 1(1), (2), (4), (9) and (10) of Schedule 15B to ICTA.
803.This section provides for an individual to claim VCT relief for a tax year. It is based on paragraph 1(1) and (3) of Schedule 15B to ICTA.
804.Subsection (2) explicitly provides that a claim by the individual does not have to extend to all the shares by reference to which such eligibility exists for the tax year. This is implied by paragraph 1(3) of Schedule 15B to ICTA which simply sets a limit on a claim for relief.
805.This section specifies that a claim for VCT relief gives entitlement to a tax reduction and quantifies the amount of that entitlement. It is based on paragraph 1(5) of Schedule 15B to ICTA.
806.Subsection (1) is expressed in terms of the individual’s entitlement to a tax reduction. Sections 27 and 29 contain provisions about how effect is given to the entitlement to a reduction and how the actual reduction is quantified.
807.This section removes an individual’s entitlement to VCT relief by reference to shares if certain loans are made, as described in this section, to the individual or an associate of the individual. It is based on paragraph 2 of Schedule 15B to ICTA.
808.This section removes entitlement to VCT relief by reference to shares if, before the relief is obtained, circumstances have arisen that would cause the relief to be withdrawn or reduced. It is based on paragraph 1(8) of Schedule 15B to ICTA.
809.This and other sections follow the terminology used by other venture capital schemes and refer to relief being “obtained” where paragraph 1(8) refers, and other paragraphs in Schedule 15B to ICTA refer, to relief being “given”.
810.This section reduces or withdraws any VCT relief obtained by reference to shares that are disposed of within five years of their issue. It is based on paragraph 3(1) to (4) and (8) of Schedule 15B to ICTA.
811.This section prevents loss of VCT relief occurring where the shares in question are disposed of between spouses or civil partners who are living together at the time of disposal. It also provides for step-in-shoes treatment, for VCT relief purposes, in respect of shares transferred between those spouses or civil partners. It is based on paragraph 3(5) to (7) of Schedule 15B to ICTA.
Income Tax Act 2007