Finance Act 1994

2 For section 289 (the relief) and the heading preceding it there is substituted—

“Enterprise Investment Scheme

289 Eligibility for relief

(1) For the purposes of this Chapter, an individual is eligible for relief, subject to the following provisions of this Chapter, if—

(a) eligible shares in a qualifying company for which he has subscribed are issued to him and, under section 291, he qualifies for relief in respect of those shares,

(b) the shares are issued in order to raise money for the purpose of a qualifying business activity, and

(c) the money raised by the issue is employed not later than the time mentioned in subsection (3) below wholly for the purpose of that activity.

(2) In this Chapter “qualifying business activity”, in relation to a company, means—

(a) the company or any subsidiary—

(i) carrying on a qualifying trade which, on the date the shares are issued, it is carrying on, or

(ii) preparing to carry on a qualifying trade which, on that date, it intends to carry on wholly or mainly in the United Kingdom and which it begins to carry on within two years after that date,

but only if, at any time in the relevant period when the qualifying trade is carried on, it is carried on wholly or mainly in the United Kingdom,

(b) the company or any subsidiary carrying on research and development—

(i) which, on the date the shares are issued, it is carrying on or which it begins to carry on immediately afterwards, and

(ii) from which it is intended that a qualifying trade which the company or any subsidiary will carry on wholly or mainly in the United Kingdom will be derived,

but only if, at any time in the relevant period when the research and development or the qualifying trade derived from it is carried on, it is carried on wholly or mainly in the United Kingdom, or

(c) the company or any subsidiary carrying on oil exploration—

(i) which, on the date the shares are issued, it is carrying on or begins to carry on immediately afterwards, and

(ii) from which it is intended that a qualifying trade which the company or any subsidiary will carry on wholly or mainly in the United Kingdom will be derived,

but only if, at any time in the relevant period when the oil exploration or the qualifying trade derived from it is carried on, it is carried on wholly or mainly in the United Kingdom.

(3) The time referred to in subsection (1)(c) above is—

(a) the end of the period of twelve months beginning with the issue of the eligible shares, or

(b) in the case of money raised only for the purpose referred to in subsection (2)(a) above, the end of that period or, if later, the end of the period of twelve months beginning when the company or subsidiary concerned begins to carry on the qualifying trade,

and for the purposes of this Chapter, the condition in subsection (1)(c) above does not fail to be satisfied by reason only of the fact that an amount of money which is not significant is employed for another purpose.

(4) Subsection (2)(c) above shall not apply unless—

(a) throughout the period of three years beginning with the date on which the shares were issued, the company or any subsidiary holds an exploration licence which was granted to it, or to another subsidiary,

(b) the exploration is carried out solely within the area to which the licence applies, and

(c) on the date on which the shares were issued, neither the company nor any subsidiary held an appraisal licence or a development licence relating to that area or any part of that area.

(5) Where, at any time after the issue of the shares but before the end of the period mentioned in subsection (4)(a) above, the company or any subsidiary comes to hold an appraisal licence or development licence which relates to the area, or any part of the area, to which the exploration licence relates, the exploration licence and that other licence shall be treated for the purposes of subsection (4)(a) above as a single exploration licence.

(6) An individual is not eligible for relief in respect of any shares unless the shares are subscribed, and issued, for bona fide commercial purposes and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(7) In this Chapter “eligible shares” means new ordinary shares which, throughout the period of five years beginning with the date on which they are issued, carry no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future preferential right to be redeemed.

(8) Section 312(1A)(b) applies to determine the relevant period for the purposes of this section.

289A Form of relief

(1) Where an individual eligible for relief in respect of any amount subscribed for eligible shares makes a claim, then, subject to the following provisions of this Chapter, the amount of his liability for the year of assessment in which the shares were issued (“the current year”) to income tax on his total income shall be the following amount.

(2) That amount is the amount to which he would be so liable apart from this section less whichever is the smaller of—

(a) an amount equal to tax at the lower rate for the current year on the amount or, as the case may be, the aggregate of the amounts subscribed for eligible shares issued in that year in respect of which he is eligible for relief, and

(b) the amount which reduces his liability to nil.

(3) Subject to subsection (4) below, if in the case of any issue of relevant shares, that is, shares—

(a) which are issued before 6th October in the current year, and

(b) in respect of the amount subscribed for which the individual is eligible for relief,

the individual so requests in his claim, subsection (1) above shall apply as if, in respect of such part of that issue as may be specified in his claim, the shares had been issued in the preceding year of assessment; and his liability to income tax for both years of assessment shall be determined accordingly.

(4) Not more than half of the relevant shares comprised in any issue may be treated by virtue of subsection (3) above as issued in the previous year; and the number of relevant shares (comprised in any issues) so treated as issued in a particular year shall not be such that the total amount subscribed for them exceeds £15,000.

(5) In determining for the purposes of subsection (2) above the amount of income tax to which a person would be liable apart from this section, no account shall be taken of—

(a) any income tax reduction under Chapter I of Part VII of this Act or under section 347B,

(b) any income tax reduction under section 353(1A),

(c) any income tax reduction under section 54(3A) of the [1989 c. 26.] Finance Act 1989,

(d) any relief by way of a reduction of liability to tax which is given in accordance with any arrangements having effect by virtue of section 788 or by way of a credit under section 790(1), or

(e) any tax at the basic rate on so much of that person’s income as is income the income tax on which he is entitled to charge against any other person or to deduct, retain or satisfy out of any payment.

(6) A claim for relief shall not be allowed unless subsection (7) below is complied with but, where it is complied with, the relief may be given at any time when it appears that the conditions for the relief may be satisfied.

(7) This subsection is complied with if—

(a) in the case of shares issued for the purpose of a qualifying business activity falling within paragraph (a) of section 289(2), the company or subsidiary concerned has carried on the trade for four months,

(b) in the case of shares issued for the purpose of a qualifying business activity falling within paragraph (b) of that subsection or within both paragraph (a) and paragraph (b) of that subsection, the company or subsidiary concerned has carried on the research and development for four months, and

(c) in the case of shares issued for the purpose of a qualifying business activity falling within paragraph (c) of that subsection, the company or subsidiary concerned has carried on the exploration for four months.

(8) Where—

(a) the company or subsidiary concerned, by reason of its being wound up, or dissolved without winding up, carries on a trade for a period shorter than four months, and

(b) it is shown that the winding up or dissolution was for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which was the avoidance of tax,

subsection (7)(a) above shall have effect as if it referred to that shorter period.

(9) Where effect is given to a claim for relief by repayment of tax, section 824 shall have effect in relation to the repayment as if the time from which the twelve months mentioned in subsections (1)(a) and (3)(a) of that section are to be calculated were the end of the year of assessment in which the shares are issued or, if subsection (7) above is first complied with in a later year, the end of that later year.

289B Attribution of relief to shares

(1) References in this Chapter, in relation to any individual, to the relief attributable to any shares or issue of shares shall be read, subject to the provisions of this Chapter providing for the reduction or withdrawal of relief, as references to any reduction made in the individual’s liability to income tax which is attributed to those shares or that issue in accordance with this section.

(2) Where an individual’s liability to income tax is reduced in any year of assessment (“the current year”) under section 289A, then—

(a) where the reduction is given by reason of an issue of shares made (or treated as made) in the current year, the amount of the reduction shall be attributed to that issue, and

(b) where the reduction is given by reason of two or more issues of shares made (or treated as made) in the current year, the reduction—

(i) shall be apportioned between those issues in the same proportions as the amounts subscribed by the individual for each issue, and

(ii) shall be attributed to those issues accordingly.

(3) Where under this section an amount of any reduction of income tax is attributed to an issue of shares (“the original issue”) in a company to an individual—

(a) a proportionate part of that amount shall be attributed to each share comprised in the original issue, and

(b) if any bonus shares in that company which are eligible shares are issued to him at any subsequent time—

(i) a proportionate part of the total amount attributed immediately before that time to shares comprised in the original issue shall be attributed to each of the shares in the holding comprising those shares and the bonus shares, and

(ii) this Chapter shall apply as if the original holding had comprised all those shares.

(4) Subject to subsection (5) below, in this Chapter references to an issue of shares in any company to an individual are to any shares in the company issued to him on the same day.

(5) Where section 289A(1) applies in the case of any issue of shares as if part of the issue had been issued in a previous year, this section and the following provisions of this Chapter (except section 290(1)) shall have effect as if that part and the remainder were separate issues of shares (and that part had been issued on a day in the previous year).

(6) Where, at a time when any relief is attributable to, or to any part of, any issue of shares, the relief falls to be withdrawn or reduced under this Chapter—

(a) where it falls to be withdrawn, the relief attributable to each of the shares in question shall be reduced to nil, and

(b) where it falls to be reduced by any amount, the relief attributable to each of the shares in question shall be reduced by a proportionate part of that amount.”