http://www.legislation.gov.uk/id/ukpga/2007/3

Part 5Enterprise investment scheme

Chapter 1Introduction

EIS relief

156Meaning of “EIS relief” and commencement

1

This Part provides for EIS income tax relief (“EIS relief”), that is, entitlement to tax reductions in respect of amounts subscribed by individuals for shares.

2

In this Part “EIS” stands for the enterprise investment scheme.

3

In accordance with section 1034(3), this Part has effect only in relation to shares issued on or after 6 April 2007.

This is subject to Schedule 2 (transitional provisions and savings).

157Eligibility for EIS relief

1

An individual (“the investor”) is eligible for EIS relief in respect of an amount subscribed by the investor on the investor's own behalf for an issue of shares in a company (“the issuing company”) if—

F154za

the risk-to-capital condition is met (see section 157A),

a

the shares (“the relevant shares”) are issued to the investor,

F112aa

the shares are issued before 6 April 2025,

b

the investor is a qualifying investor in relation to the relevant shares (see Chapter 2),

c

the general requirements (including requirements as to the purpose of the issue of shares and the use of money raised) are met in respect of the relevant shares (see Chapter 3), and

d

the issuing company is a qualifying company in relation to the relevant shares (see Chapter 4).

F1131A

The Treasury may, by regulations, amend subsection (1)(aa) to substitute a different date for the date for the time being specified there.

F752

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F763

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

the extent to which arrangements are in place under which opportunities for investments in the company are or may be marketed with, or otherwise associated with, opportunities for investments in other companies or entities.

4

If the issuing company is a parent company—

a

any reference in this section to the company's trade is to what would be the trade of the group if the activities of the group companies taken together were regarded as one trade, and

b

any reference in subsection (3)(a) to (e) to the company is to any group company.

158Form and amount of EIS relief

b

in respect of the amount subscribed for which the individual is eligible for EIS relief,

the individual so claims, F158subsections (1) to (2ZB) apply as if, in respect of such part of that issue as may be specified in the claim, the shares had been issued in the preceding tax year; and the individual's liability to tax for both tax years is determined accordingly.

F305

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1566

If the issuing company began to carry on a trade less than three years before the date the relevant shares are issued, section 252A as it applies for the purposes of this section has effect with the substitution of the following subsections for subsections (2) to (4A)—

2
The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation.
3
The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure.
4
In subsections (2) and (3)—
“relevant operating costs” means—
a
if the issuing company is a single company at the time the relevant shares are issued, the operating costs of that company, and
b
if the issuing company is a parent company at the time the relevant shares are issued, the sum of—
i
the operating costs of the issuing company, and
ii
the operating costs of each company which is a qualifying subsidiary of the issuing company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the issuing company;
“the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant shares are issued.

c

Chapter 7 makes provision with respect to the procedure for the withdrawal or reduction of EIS relief, and

d

Chapter 8 contains supplementary and general provisions.

161Other tax reliefs relating to EIS

1

Chapter 6 of Part 4 (losses on disposal of shares) provides for relief against the income of an individual who incurs an allowable loss for capital gains tax purposes on a disposal of shares to which EIS relief is attributable.

2

Subsection (3) of section 392 (loan to buy interest in close company) provides that subsection (2)(a) of that section does not apply if at any time—

a

the individual by whom the shares are acquired, or

b

that individual's spouse or civil partner,

makes a claim for EIS relief in respect of the shares.

3

Section 150A of TCGA 1992 makes provision about gains or losses on the disposal of shares to which EIS relief is attributable.

4

Schedule 5B to TCGA 1992 provides relief in respect of the re-investment under EIS of the proceeds of assets disposed of in circumstances where there would otherwise be a chargeable gain.

F285

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 2The investor

Introduction

162Overview of Chapter

The investor is a qualifying investor in relation to the relevant shares if the requirements of this Chapter are met as to—

a

no connection with the issuing company (see section 163),

b

no linked loans (see section 164), F115...

F114ba

existing shareholdings (see section 164A), and

c

no tax avoidance (see section 165).

The requirements

163The no connection with the issuing company requirement

1

The investor must not be connected with the issuing company (whether before or after its incorporation) at any time during the period—

to the assignment to that person of a debt due from the investor or any associate of the investor.

164AF106The existing shareholdings requirement

(apart from that) A is to be treated as a director, and not as an employee, of the company.

1

Section 163(1) does not prevent the investor from being a qualifying investor despite the investor's connection with the issuing company at any time in period A relating to the relevant shares if—

a

the investor is connected with that company merely because of the investor, or the investor's associate—

i

being a director of, or of a company which is a partner of, the issuing company or a subsidiary of the issuing company, and

ii

being in receipt of, or entitled to receive, remuneration as such, and

b

conditions A and B and (where applicable) condition C are met.

2

Condition A is that, in relation to the director (“D”), whether D is the investor or an associate of the investor—

a

D's remuneration, or

b

the remuneration to which D is entitled,

consists only of remuneration which is reasonable remuneration for services rendered to the company of which D is a director in D's capacity as such.

3

Condition B is that the investor was issued with the relevant shares, or a previous issue of shares in the issuing company which meet the requirements of section 173(2), at a time when the investor had never been—

a

connected with the issuing company, or

b

involved in carrying on (whether on the investor's own account or as a partner, director or employee) the whole or any part of the trade, business or profession carried on by the issuing company or a subsidiary of that company.

4

Condition C is that, if the issue of the relevant shares did not meet condition B, they were issued before F77—

a

the termination date relating to the latest issue of shares which met that condition, or

b

if that issue is an issue in respect of which the investor is eligible for SEIS relief (within the meaning of Part 5A), before the date specified in section 257AC(4) in relation to the shares.

5

For the purposes of condition A any necessary and reasonable remuneration falling within section 168(2)(f) is to be left out of account.

6

In this section “remuneration” includes any benefit or facility.

170Persons interested in capital etc of company

1

An individual is connected with the issuing company if the individual directly or indirectly possesses or is entitled to acquire more than 30% of—

a

the ordinary share capital of the company or any subsidiary of the company,

b

the F78... issued share capital of the company or any such subsidiary, or

references in that F41section to a winding up are to be read as including references to any other circumstances in which assets of the company in question are available for distribution to its equity holders.

5

An individual is not connected with a company merely because one or more shares in the company are held by the individual or by an associate of the individual, at a time when the company—

a

has not issued any shares other than subscriber shares, and

b

has not begun to carry on, or make preparations for carrying on, any trade or business.

6

An individual is connected with the issuing company if the individual has control of the issuing company or of any subsidiary of that company.

7

In this section “subsidiary”, in relation to the issuing company, means a company which at any time in period A is a 51% subsidiary of the issuing company, whether or not it is such a subsidiary while the individual concerned has, or is entitled to acquire, such capital, voting power, rights or control as are mentioned in this section.

F798

F118aaa

the maximum risk finance investments at the issue date (see section 173AA),

aab

the maximum risk finance investments at times during period B (see section 173AB),

F119ab

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

b

the purpose of the issue (see section 174),

c

the use of the money raised (see section 175),

F120ca

the permitted maximum age (see section 175A),

d

the minimum period (see section 176),

e

are fully paid up at the time they are issued.

4

Shares are not fully paid up for the purposes of subsection (3)(b) if there is any undertaking to pay cash to any person at a future date in respect of the acquisition of the shares.

in the year mentioned in subsection (1) a trade is transferred—

i

to the issuing company,

ii

to a company that has at any time during that year been a 51% subsidiary of the issuing company, or

iii

to a partnership of which a company within sub-paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-paragraph (ii), or a partnership of which such a company is a member, in that year before the company became such a subsidiary but, if the company is not such a subsidiary at the end of that year, not where it is transferred to such a company or partnership after the company last ceased to be such a subsidiary), and

b

that trade or a part of it was previously (at any time) carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ relevant transferred trade ” at the time it is transferred as mentioned in paragraph (a).

3

A “relevant investment” is made in a company if—

a

an investment (of any kind) in the company is made by a VCT , or

b

the company issues shares (money having been subscribed for them), and (at any time) the company provides—

i

a compliance statement under section 205, or

F86ia

a compliance statement under section 257ED (seed enterprise investment scheme).

F84ii

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

in respect of the sharesF85, or

F122ba

an investment is made in the company and (at any time) the company provides a compliance statement under section 257PB (tax relief for social investments) in respect of the investment, or

c

any other investment is made in the company which is aid received by it pursuant to a measure approved by the European Commission F180before IP completion day as compatible with Article 107 of the Treaty on the Functioning of the European Union in accordance with the principles laid down in the F123European Commission's Guidelines on State aid to promote risk finance investmentF181(as those guidelines had effect at the time of the approval).

4

An investment within subsection (3)(b) is regarded as made when the shares are issued.

F1245

Section 257KB applies in determining for those purposes when an investment within subsection (3)(ba) is made as it applies for the purposes of Part 5B (tax relief on social investments).

F1605A

2
The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation.
3
The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure.
4
In subsections (2) and (3)—
“relevant operating costs” means—
a
if the issuing company is a single company at the time the relevant shares are issued, the operating costs of that company, and
b
if the issuing company is a parent company at the time the relevant shares are issued, the sum of—
i
the operating costs of the issuing company, and
ii
the operating costs of each company which is a qualifying subsidiary of the issuing company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the issuing company;
“the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant shares are issued.

F1256

For the purposes of this section—

a

references to a trade include a part of a trade (and references to the carrying on of a trade are to be construed accordingly);

b

when determining the amount of money raised by a relevant investment which has been employed for the purposes of a trade such apportionments are to be made as are just and reasonable.

7

In this section “trade” includes—

a

any business or profession,

b

so far as not within paragraph (a), the carrying on of research and development activities from which it is intended a trade will be derived or will benefit, and

c

preparing to carry on a trade.

173AAF107Maximum risk finance investments at the issue date requirement

1

The total amount of relevant investments made in the issuing company on or before the issue date must not exceed—

a

if the issuing company is a knowledge-intensive company at the issue date (see section 252A), £20 million, and

b

in any other case, £12 million.

2

In subsection (1) the reference to relevant investments made in the issuing company includes—

a

any relevant investment made in any company that at the issue date is, or has at any time before that date been, a 51% subsidiary of the issuing company (including investments made in such a company before it became such a subsidiary but, if it is not such a subsidiary at the issue date, not investments made in it after it last ceased to be such a subsidiary),

b

any other relevant investment made in a company to the extent that the money raised by the investment has been employed for the purposes of a trade carried on by another company that has at any time before the issue date been a 51% subsidiary of the issuing company (but, if it is not such a subsidiary at that date, ignoring any money so employed after it last ceased to be such a subsidiary), and

c

any other relevant investment made in a company if—

i

the money raised by the investment has been employed for the purposes of a trade carried on by that company or another person, and

ii

after the investment was made, but on or before the issue date, that trade became a relevant transferred trade (see subsection (4)).

3

4

Where—

a

at any time on or before the issue date, a trade is transferred—

i

to the issuing company,

ii

to a company that at the issue date is, or has at any time before that date been, a 51% subsidiary of the issuing company, or

iii

to a partnership of which a company within sub-paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-paragraph (ii), or a partnership of which such a company is a member, before the company became such a subsidiary but, if the company is not such a subsidiary at the issue date, not where it is transferred to such a company or partnership after the company last ceased to be such a subsidiary), and

b

the trade or a part of it was previously (at any time) carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ relevant transferred trade ” at the time it is transferred as mentioned in paragraph (a).

5

In this section—

“the issue date” means the date on which the relevant shares are issued;
“relevant investment” has the meaning given by section 173A(3), and section 173A(4) and (5) (which determines when certain investments are made) applies for the purposes of this section;

and section 173A(6) and (7) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 173A.

to a company that is at the relevant time, or has before that time been, a 51% subsidiary of the issuing company, or

iii

to a partnership of which a company within sub-paragraph (i) or (ii) is a member,

(including where it is transferred to a company within sub-paragraph (ii), or a partnership of which such a company is a member, before the company became such a subsidiary but, if the company is not such a subsidiary at the relevant time, not where it is transferred to such a company or partnership after the company last ceased to be such a subsidiary), and

b

the trade or a part of it was previously (at any time) carried on by another person,

the trade or part mentioned in paragraph (b) becomes a “ relevant transferred trade ” at the time it is transferred as mentioned in paragraph (a).

8

In this section—

“the issue date” means the date on which the relevant shares are issued, and
“relevant investment” has the meaning given by section 173A(3), and section 173A(4) and (5) (which determines when certain investments are made) applies for the purposes of this section;

and section 173A(6) and (7) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 173A.

F126173BThe spending of money raised by SEIS investment requirement

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

174The purpose of the issue requirement

F1271

The relevant shares (other than any of them which are bonus shares) must be issued in order to raise money for the purpose of a qualifying business activity F128so as to promote business growth and development.

F1292

For this purpose “business growth and development” means the growth and development of—

a

if the issuing company is a single company, the business of that company, and

b

if the issuing company is a parent company, what would be the business of the group if the activities of the group companies taken together were regarded as one business.

175The use of the money raised requirement

F311

The requirement of this section is that all of the money raised by the issue of the relevant shares (other than any of them which are bonus shares) is, no later than the time mentioned in subsection (3), employed wholly for the purpose of the qualifying business activity for which it was raised.

F1301ZA

Employing money raised by the issue of the relevant shares (whether on its own or together with other money) on the acquisition, directly or indirectly, of—

a

an interest in another company such that a company becomes a 51% subsidiary of the issuing company,

b

a further interest in a company which is a 51% subsidiary of the issuing company,

c

a trade,

d

intangible assets employed for the purposes of a trade, or

e

goodwill employed for the purposes of a trade,

does not amount to employing that money for the purposes of a qualifying business activity.

1ZB

The Treasury may by regulations provide that subsection (1ZA) does not apply in relation to acquisitions of intangible assets which are of a description specified, or which occur in circumstances specified, in the regulations.

1ZC

For the purposes of subsections (1ZA) and (1ZB)—

“goodwill” has the same meaning as in Part 8 of CTA 2009 (see section 715(3));
“intangible assets” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accountancy practice;

and section 173A(6) and (7) (meaning of “trade” etc) applies as it applies for the purposes of section 173A.

1A

Also, otherwise employing money on the acquisition of shares or stock in a company does not of itself amount to employing the money for the purposes of a qualifying business activity.

2

The F32requirement in subsection (1) does not fail to be met merely because an amount of money which is not significant is employed for another purpose.

3

The time referred to in F33subsection (1) is—

a

the end of the period of F34two years beginning with the issue of the shares, or

b

in the case of money raised only for the purpose of an activity to which section 179(2) applies, the end of the period of F34two years beginning with—

i

the issue of the shares, or

ii

if later, the time when the company or a qualifying 90% subsidiary of the company begins to carry on the qualifying trade.

4

In determining for the purposes of subsection (3)(b) when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company, any carrying on by it of the trade before it became such a subsidiary is ignored.

the issuing company, or

ii

a company that is at the issue date, or before that date has been, a 51% subsidiary of the issuing company,

(including a trade subsequently carried on by such a company before it became such a subsidiary but, if it is not such a subsidiary at the issue date, not a trade which it carried on only after it last ceased to be such a subsidiary);

d

the first commercial sale made by a company which becomes a 51% subsidiary of the issuing company after the issue date in circumstances where all or part of the money raised by the issue of the relevant shares is employed for the purposes of an activity carried on by that subsidiary (including a sale made by such a company before it became such a subsidiary);

e

the first commercial sale made by any person who previously (at any time) carried on a trade which was subsequently carried on by a company mentioned in paragraph (d) (including a trade carried on by such a company before it became such a subsidiary);

f

if the money raised by the issue of the relevant shares (or any part of it) is employed for the purposes of a trade which has been transferred, after the issue date, to the issuing company or a 51% subsidiary of that company (or a partnership of which the issuing company or such a subsidiary is a member), having previously (at any time) been carried on by another person, the first commercial sale made by that other person.

7

“The average turnover amount” means one fifth of the total relevant turnover amount for the F131relevant five year period.

F1447A

Subject to subsection (7B), the relevant five year period is the five year period which ends immediately before the beginning of the last accounts filing period.

7B

If the last accounts filing period ends more than 12 months before the issue date, the relevant five year period is the five year period which ends 12 months before the issue date.

8

In this section—

“entering a new product or geographical market” has the same meaning as in Commission Regulation (EU) No 651/2014 (General block exemption Regulation) F182as it had effect in the United Kingdom immediately before IP completion day;
“first commercial sale” has the same meaning as in the European Commission's Guidelines on State aid to promote risk finance investments F183(as those guidelines had effect in the United Kingdom immediately before IP completion day);
“the issue date” means the date on which the relevant shares are issued;
“the last accounts filing period” means the last period for filing (within the meaning of section 442 of the Companies Act 2006) for the issuing company which ends before the date on which the relevant shares are issued;
“relevant investment” has the meaning given by section 173A(3), and section 173A(4) and (5) (which determines when certain investments are made) applies for the purposes of this section;
“relevant qualifying business activity” means the qualifying business activity for which the money raised by the issue of the relevant shares is employed;
“the total relevant turnover amount” for a period is—
1. a
  if the issuing company is a single company at the issue date, the sum of—
  1. i
    the issuing company's turnover for that period,
  2. ii
    if all or part of the money raised by the issue of the relevant shares is employed for the purposes of an activity carried on by a company which becomes a 51% subsidiary of the issuing company after the issue date, the turnover for that period of that subsidiary (or, if there is more than one, each of them), and
  3. iii
    if all or part of the money raised by the issue of the relevant shares is employed for the purposes of a transferred trade, the turnover of that trade for so much of that period as falls before the trade became a transferred trade (except to the extent that it is already included in calculating the amounts within sub-paragraphs (i) and (ii));
2. b
  if the issuing company is a parent company at the issue date, the sum of—
  1. i
    the issuing company's turnover for that period,
  2. ii
    the turnover for that period of each company which at the issue date is a qualifying subsidiary of the issuing company,
  3. iii
    if all or part of the money raised by the issue of the relevant shares is employed for the purposes of an activity carried on by a company which becomes a 51% subsidiary of the issuing company after the issue date, the turnover for that period of that subsidiary (or, if there is more than one, each of them), and
  4. iv
    if all or part of the money raised by the issue of the relevant shares is employed for the purposes of a transferred trade, the turnover of that trade for so much of that period as falls before the trade became a transferred trade (except to the extent that it is already included in calculating the amounts within sub-paragraphs (i) to (iii));
“transferred trade” means a trade which has been transferred to the company which is carrying on the trade at the time the money raised by the issue of the relevant shares is employed or to a partnership of which that company is a member;
“turnover”—
1. a
  in relation to a company, has the meaning given by section 474(1) of the Companies Act 2006 and is to be determined by reference to the accounts of companies and amounts recognised for accounting purposes (and such apportionments of those amounts as are just and reasonable are to be made for the purpose of determining a company's turnover for a period);
2. b
  in relation to any other person carrying on a trade, also has the meaning given by section 474(1) of that Act (reading references in that provision to a company as references to the person) and is to be determined by reference to the accounts of the person and amounts recognised for accounting purposes (and such apportionments of those amounts as are just and reasonable are to be made for the purpose of determining a person's turnover for a period);
3. c
  in relation to a transferred trade carried on by a company or other person, means such proportion of the turnover of the company or other person as it is just and reasonable to attribute to the transferred trade;

and section 173A(6) and (7) (meaning of “trade” etc) applies for the purposes of this section as it applies for the purposes of section 173A.

the trade is carried on as mentioned in subsection (2), or

ii

4

The arrangements referred to in subsection (1)(d) do not include any arrangements which are confined to the provision—

a

for the issuing company itself, or

b

if the issuing company is a parent company that meets the trading requirement in section 181(2)(b), for the issuing company itself, for the issuing company itself and one or more of its subsidiaries or for one or more of its subsidiaries,

of any such protection against the risks arising in the course of carrying on its business as might reasonably be expected to be provided in normal commercial circumstances.

5

In this section “the issuing arrangements” means—

a

the arrangements under which the shares are issued to the individual, and

b

any arrangements made before the issue of the shares to the individual in relation to or in connection with that issue.

178The no tax avoidance requirement

The relevant shares must be issued for genuine commercial reasons, 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.

178AF73The no disqualifying arrangements requirement

1

The relevant shares must not be issued, nor any money raised by the issue employed, in consequence or anticipation of, or otherwise in connection with, disqualifying arrangements.

2

Arrangements are “disqualifying arrangements” if—

a

the main purpose, or one of the main purposes, of the arrangements is to secure—

i

that a qualifying business activity is or will be carried on by the issuing company or a qualifying 90% subsidiary of that company, and

ii

that one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of shares issued by the issuing company which raise money for the purposes of that activity or that such shares may comprise part of the qualifying holdings of a VCT,

b

that activity is the relevant qualifying business activity, and

c

one or both of conditions A and B are met.

3

Condition A is that, as a (direct or indirect) result of the money raised by the issue of the relevant shares being employed as required by section 175, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.

4

Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying business activity would have been carried on as part of another business by a relevant person or relevant persons.

5

For the purposes of this section it is immaterial whether the issuing company is a party to the arrangements.

6

In this section—

“component activities” means—
1. a
  if the relevant qualifying business activity is activity A (see section 179(2)), the carrying on of a qualifying trade or preparing to carry on such a trade, which constitutes that activity, and
2. b
  if the relevant qualifying business activity is activity B (see section 179(4)), the carrying on of research and development which constitutes that activity;
“qualifying holdings”, in relation to the issuing company, is to be construed in accordance with section 286 (VCTs: qualifying holdings);
“relevant person” means a person who is a party to the arrangements or a person connected with such a party;
“relevant qualifying business activity” means the activity for the purposes of which the issue of the relevant shares raised money;
“relevant tax relief”, in respect of shares, means one or more of the following—
1. a
  EIS relief in respect of the shares;
2. b
  SEIS relief under Part 5A in respect of the shares;
3. ba
  F152SI relief under Part 5B in respect of the shares;
4. c
  relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares;
5. d
  relief under section 150A or 150E of TCGA 1992 (enterprise investment scheme) in respect of the shares;
6. e
  relief under Schedule 5B to that Act (enterprise investment scheme: reinvestment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule);
7. f
  relief under Schedule 5BB to that Act (seed enterprise investment scheme: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).

Meaning of “qualifying business activity”

179Meaning of “qualifying business activity”

References in subsection (2)(b)(i) or (4)(b) to a qualifying 90% subsidiary of the company include references to any existing or future company which will be such a subsidiary at any future time.

Chapter 4The issuing company

Introduction

180Overview of Chapter

The issuing company is a qualifying company in relation to the relevant shares if the requirements of this Chapter are met as to—

F60za

UK permanent establishment (see section 180A),

zb

financial health (see section 180B),

a

trading (see section 181),

b

the issuing company to carry on the qualifying business activity (see section 183),

c

unquoted status (see section 184),

d

control and independence (see section 185),

e

gross assets (see section 186),

F10ea

number of employees (see section 186A),

f

qualifying subsidiaries (see section 187), and

g

property managing subsidiaries (see section 188).

the company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.

3

If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—

a

the company is treated as a parent company for the purposes of subsection (2)(b), and

b

the reference in subsection (2)(b) to the group includes the company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.

This subsection does not apply at any time after the abandonment of that intention.

4

For the purpose of subsection (2)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.

5

For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.

6

For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—

a

the holding of shares in or securities of a qualifying subsidiary of the parent company,

b

the making of loans to another group company,

c

the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or

d

the holding and managing of property used by a group company for the purpose of research and development from which it is intended—

i

that a qualifying trade to be carried on by a group company will be derived, or

ii

that a qualifying trade carried on or to be carried on by a group company will benefit.

7

Any reference in subsection (6)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time.

8

In this section—

“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the company in question,
“mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly, and
“non-qualifying activities” means—
1. a
  excluded activities, and
2. b
  activities (other than research and development) carried on otherwise than in the course of a trade.

9

This section is supplemented by section 189 (meaning of “qualifying trade”) and sections 192 to 199 (excluded activities).

182Ceasing to meet trading requirement because of administration or receivership

1

A company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries being in administration or receivership.

This has effect subject to subsections (2) and (3).

2

Subsection (1) applies only if—

a

the entry into administration or receivership, and

b

everything done as a result of the company concerned being in administration or receivership,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

3

A company ceases to meet the trading requirement if before the end of period B—

a

a resolution is passed, or an order is made, for the winding up of the company or any of its subsidiaries (or, in the case of a winding up otherwise than under the Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), any other act is done for the like purpose), or

b

the company or any of its subsidiaries is dissolved without winding up.

This is subject to subsection (4).

4

Subsection (3) does not apply if the winding up or dissolution is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

183The issuing company to carry on the qualifying business activity requirement

1

The requirement of this section is met in relation to the issuing company if, at no time in period B, is any of the following—

a

the relevant qualifying trade,

b

relevant preparation work (if any), and

c

is for genuine commercial reasons, and is not 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 section—

“relevant preparation work” means preparations within section 179(2)(b) which are the subject of the qualifying business activity mentioned in section 174,
“the relevant qualifying trade” means the qualifying trade which is the subject of that qualifying business activity,
“relevant research and development” means—
1. a
  research and development within section 179(4) which is the subject of that qualifying business activity, and
2. b
  any other preparations for the carrying on of the qualifying trade which is the subject of that activity.

184The unquoted status requirement

1

no arrangements must be in existence at any time in that period by virtue of which the issuing company could fail to meet paragraph (a) (whether during that period or otherwise).

3

This section is subject to section 247(4) (exchange of shares).

the value of the group assets is the sum of the values of the gross assets of each of the members of the group, ignoring any that consist in rights against, or shares in or securities of, another member of the group.

186AF8The number of employees requirement

1

If the issuing company is a single company, the full-time equivalent employee number for it must be less than F132the permitted limit when the relevant shares are issued.

2

If the issuing company is a parent company, the sum of—

a

the full-time equivalent employee number for it, and

b

the full-time equivalent employee numbers for each of its qualifying subsidiaries,

must be less than F133the permitted limit when the relevant shares are issued.

3

The full-time equivalent employee number for a company is calculated as follows—

Step 1

Find the number of full-time employees of the company.

Step 2

Add, for each employee of the company who is not a full-time employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.

F1343A

The permitted limit” means—

a

if the issuing company is a knowledge-intensive company (see section 252A) at the time the relevant shares are issued, 500, and

b

in any other case, 250.

3B

The Treasury may by regulations amend subsection (3A)(a) or (b) by substituting a different number for the number for the time being specified there.

4

In this section references to an employee—

a

include a director, but

b

do not include—

i

an employee on maternity F104, paternity F164, shared parental or parental bereavement leave, or

ii

a student on vocational training.

187The qualifying subsidiaries requirement

Any subsidiary that the issuing company has at any time in period B must be a qualifying subsidiary of the company.

188The property managing subsidiaries requirement

1

Any property managing subsidiary that the issuing company has at any time in period B must be a qualifying 90% subsidiary of the company.

2

“Property managing subsidiary” means a subsidiary of the company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.

3

In subsection (2) references to property deriving its value from land include—

a

any shareholding in a company deriving its value directly or indirectly from land,

b

any partnership interest deriving its value directly or indirectly from land,

c

any interest in settled property deriving its value directly or indirectly from land, and

d

any option, consent or embargo affecting the disposition of land.

Definitions

189Meaning of “qualifying trade”

1

For the purposes of this Part, a trade is a qualifying trade if—

a

it is conducted on a commercial basis and with a view to the realisation of profits, and

b

it does not at any time in period B consist wholly or as to a substantial part in the carrying on of excluded activities.

2

References in this section and sections 192 to 198 to a trade are to be read without regard to the definition of “trade” in section 989.

190Meaning of “qualifying 90% subsidiary”

1

For the purposes of this Part, a company (“the subsidiary”) is a qualifying 90% subsidiary of another company (“the relevant company”) if the following conditions are met—

a

the relevant company possesses at least 90% of the issued share capital of, and at least 90% of the voting power in, the subsidiary,

b

the relevant company would—

i

in the event of a winding up of the subsidiary, or

ii

b

no person other than the relevant company, or another of its subsidiaries, has control of the subsidiary, and

c

no arrangements are in existence by virtue of which either of the conditions in paragraphs (a) and (b) would cease to be met.

3

The conditions do not cease to be met merely because the subsidiary or any other company is wound up, or dissolved without winding up, if the winding up or dissolution—

a

is for genuine commercial reasons, and

b

is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

4

The conditions do not cease to be met merely because of anything done as a consequence of the subsidiary or any other company being in administration or receivership, if—

a

the entry into administration or receivership, and

b

everything done as a consequence of the company concerned being in administration or receivership,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

5

The conditions do not cease to be met merely because arrangements are in existence for the disposal by the relevant company or (as the case may be) by another subsidiary of all its interest in the subsidiary, if the disposal—

a

is to be for genuine commercial reasons, and

b

is not to be part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

f

section 198 (nursing homes and residential care homes) , F103... F147and

g

section 198A (export of electricity).

F148h

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

b

the letting company is a qualifying subsidiary of the charterer, or

c

both companies are qualifying subsidiaries of a third company,

subsection (5) has effect with the omission of paragraph (c).

7

If any of the requirements of subsection (4) is not met in relation to any lettings of ships, the trade is not, as a result, to be treated as consisting in the carrying on of excluded activities if—

a

those lettings, and

b

any other excluded activities

do not, taken together, amount to a substantial part of the trade.

8

In this section “pleasure craft” means any ship of a kind primarily used for sport or recreation.

C7 C2195Excluded activities: receipt of royalties and licence fees

1

This section supplements section 192(1)(e) (receipt of royalties and licence fees).

2

If the requirement of subsection (3) is met, a trade is not to be regarded as consisting in the carrying on of excluded activities within section 192(1)(e) as a result only of its consisting to a substantial extent in the receiving of royalties or licence fees.

3

The requirement of this subsection is that the royalties or licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.

4

For this purpose an intangible asset is a “relevant intangible asset” if the whole or greater part (in terms of value) of it has been created—

F2a

by the issuing company, or

F2b

by a company which was a qualifying subsidiary of the issuing company throughout a period during which it created the whole or greater part (in terms of value) of the intangible asset.

5

In the case of an intangible asset that is intellectual property, references to the creation of an asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).

6

In this section—

F3...
“intangible asset” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accountancy practice,
“intellectual property” means—
1. a
  any patent, trade mark, registered design, copyright, design right, performer's right or plant breeder's right, or
2. b
  any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a).

F47

If—

a

the issuing company acquired all the shares (“old shares”) in another company (“the old company”) at a time when the only shares issued in the issuing company were subscriber shares, and

b

the consideration for the old shares consisted wholly of the issue of shares in the issuing company,

references in subsection (4) to the issuing company include the old company.

1

b

for women who are pregnant or have given birth.

3

“Residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care because of—

a

old age,

b

mental or physical disability,

c

past or present dependence on alcohol or drugs,

d

any past illnesses, or

e

past or present mental disorder.

4

The activities of a person are not to be taken to fall within section 192(1)(k) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.

198AF74Excluded activities: F145... export of electricity

1

This section supplements section 192(1)(ka).

2

Electricity is exported if it is exported onto a distribution system or transmission system (within the meaning of section 4 of the Electricity Act 1989).

F1493

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1494

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1425

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1426

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1057

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1058

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1499

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F150198BExcluded activities: subsidised generation of heat and subsidised production of gas or fuel

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F135200Power to amend by Treasury order

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5Attribution of and claims for EIS relief

Attribution

201Attribution of EIS relief to shares

1

Claims: general

202Time for making claims for EIS relief

1

A claim for EIS relief in respect of shares issued by a company in any tax year may be made—

a

not earlier than the time the requirement in section 176(2) or (3) (trade etc must have been carried on for 4 months) is first met, and

b

not later than the fifth anniversary of the normal self-assessment filing date for the tax year.

2 203Entitlement to claim

1

The investor is entitled to make a claim for EIS relief in respect of the amount subscribed by the investor for the relevant shares if the investor has received from the issuing company a compliance certificate in respect of those shares.

2

For the purposes of PAYE regulations no regard is to be had to EIS relief unless a claim for it has been duly made.

3

No application may be made under section 55(3) or (4) of TMA 1970 (application for postponement of payment of tax pending appeal) on the ground that the investor is eligible for EIS relief unless a claim for the relief has been duly made by the investor.

Claims: supporting documents

204Compliance certificates

1

R \times EISR

where—

R is the amount or value of the consideration received by the investor for the shares, and

F23EISR is the F65EIS original rate.

4

This section does not apply to a disposal of shares to which an amount of EIS relief is attributable if—

a

the disposal was made by an individual (“A”) to another individual (“B”), and

b

A and B were married to, or were civil partners of, each other and living together at the time of the disposal.

5

Section 246 contains rules for determining which shares of any class are treated as disposed of for the purposes of this section if the investor disposes of some but not all the shares of that class which are held by the investor.

F1026

Nothing in this section applies to a disposal of shares occurring as a result of the investor’s death.

210Cases where maximum EIS relief not obtained

1

If the investor's liability to income tax is reduced for any tax year in respect of any issue of shares and—

a

the amount of the reduction (“A”), is less than

b

the amount (“B”) which is equal to tax at the F66EIS original rate on the amount on which the investor claims EIS relief in respect of the shares,

section 209(3) has effect in relation to a disposal of any of the shares as if the amount or value referred to as “R” were reduced by multiplying it by the fraction—

\frac{A}{B}

a

the option were exercised immediately after the grant, and

b

any shares in the issuing company acquired by the investor after the grant were disposed of immediately after being acquired,

would be treated for the purposes of section 209 as disposed of in pursuance of the option.

Value received by investor

C10213Value received by the investor

1

This section applies if the investor receives any value from the issuing company at any time in period C relating to the relevant shares.

2

Any EIS relief attributable to the shares must—

a

if it is greater than the amount given by the formula set out below, be reduced by that amount, and

b

in any other case, be withdrawn.

The formula is— F24

R \times EISR

where—

R is the amount of the value received by the investor, and

F25EISR is the F67EIS original rate.

3

This section is subject to the following sections—

a

section 214 (value received: receipts of insignificant value),

b

section 218 (value received where there is more than one issue of shares),

c

section 219 (value received where part of share issue treated as made in previous tax year),

d

section 220 (cases where maximum EIS relief not obtained),

e

section 221 (receipts of value by and from connected persons etc), and

f

section 222 (receipt of replacement value).

Sections 218 to 220 are to be applied in the order in which they appear in this Part.

4

Value received is to be ignored, for the purposes of this section, to the extent to which EIS relief attributable to the shares has already been withdrawn or reduced on its account.

5

For the purposes of this section and sections 214 to 223, an individual who acquires any relevant shares on such a transfer as is mentioned in section 245 (spouses or civil partners) is treated as the investor.

214Value received: receipts of insignificant value

1

Section 213(2) does not apply if the receipt of value is a receipt of insignificant value.

This is subject to subsection (2).

2

If—

a

value is received (“the relevant receipt”) by the investor from the issuing company at any time in period C relating to the relevant shares,

b

the investor has received from the issuing company one or more receipts of insignificant value at a time or times—

i

during that period, but

ii

not later than the time of the relevant receipt, and

c

the total amount of the value of the receipts within paragraph (a) and (b) is not an amount of insignificant value,

the investor is treated for the purposes of this Chapter as if the relevant receipt had been a receipt of an amount of value equal to that total amount.

3

A receipt does not fall within subsection (2)(b) if it has previously formed part of a total amount falling within subsection (2)(c).

215Meaning of “receipts of insignificant value”

1

This section applies for the purposes of section 214.

2

“A receipt of insignificant value” means a receipt of an amount of insignificant value, that is, an amount of value which—

a

is not more than £1,000, or

b

if it is more than £1,000, is insignificant in relation to the amount subscribed by the investor for the relevant shares.

This is subject to subsection (3).

3

If at any time in the period—

a

beginning 12 months before the issue of the relevant shares, and

b

ending at the end of the issue date,

repayment arrangements are in existence, no amount of value received by the investor is treated as a receipt of insignificant value.

4

For this purpose “repayment arrangements” means arrangements which provide for the investor to receive, or to be entitled to receive, any value from the issuing company at any time in period C relating to the relevant shares.

5

For the purposes of this section—

a

the references to the investor include references to any person who at any time in period C relating to the relevant shares is an associate of the investor (whether or not that person is such an associate at the material time), and

b

the reference in subsection (4) to the issuing company includes a reference to a person who at any time in period C relating to the relevant shares is connected with that company (whether or not that person is so connected at the material time).

is not longer than that normally given to customers of the person carrying on the trade or business.

217The amount of value received

In a case falling within a provision listed in column 1 of the following table, the amount of value received for the purposes of sections 213 and 218 is given by the corresponding entry in column 2 of the table.

Provision	The amount of value received
Section 216(2)(a), (b) or (c)	The amount received by the investor or, if greater, the market value of the shares, securities or debt
Section 216(2)(d)	The amount of the liability
Section 216(2)(e)	The amount of the loan or advance, less the amount of any repayment made before the issue of the relevant shares
Section 216(2)(f)	The cost to the issuing company of providing the benefit or facility, less any consideration given for it by the investor
Section 216(2)(g)	The difference between the market value of the asset and the consideration (if any) given for it
Section 216(2)(h)	The amount of the payment
Section 216(5)	The amount of the payment or the market value of the asset
Section 216(6)	The amount received by the investor or, if greater, the market value of the shares or securities

218Value received where there is more than one issue of shares

1

This section applies if—

a

two or more issues of shares in the issuing company have been made to the investor which include shares in respect of which the investor obtains EIS relief, and

b

value is received by the investor at any time in the applicable periods for two or more of those issues.

2

Section 213(2) has effect in relation to the shares included in each of the issues referred to in subsection (1)(b) as if the amount of value referred to as “R” were reduced by multiplying it by the fraction—

\frac{A}{B}

where—

A is the amount on which the investor obtains EIS relief in respect of the shares included in the issue in question, and

B is the sum of that amount and the corresponding amount or amounts in respect of the other issue or issues.

3

For the purposes of subsection (1) “the applicable period” for an issue of shares is period C in relation to those shares.

219Value received where part of share issue treated as made in previous tax year

1

This section applies if—

a

section 213(2) applies to an issue of shares, and

b

section 158(1) and (2) (form and amount of EIS relief) applies in the case of that issue as if part of the issue had been issued in a previous tax year.

2

This subsection explains how the calculation under section 213(2) is to be made.

Step 1

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—

\frac{A}{B}

where—

A is the amount on which the investor obtains EIS relief in respect of the 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 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 220 if appropriate but do not apply section 218.

Step 3

Add amounts X1 and X2 together.

The result is the required amount.

220Cases where maximum EIS relief not obtained

1

If the investor's liability to income tax is reduced for any tax year in respect of any issue of shares and—

a

the amount of the reduction (“A”), is less than

b

the amount (“B”) which is equal to income tax at the F68EIS original rate on the amount on which the investor claims EIS relief in respect of the shares,

section 213(2) has effect in relation to any value received as if the amount referred to as “R” were reduced by multiplying it by the fraction—

\frac{A}{B}

2

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 subsection (1) as “A” is to be treated for the purposes of that subsection as the amount that it would have been without that reduction.

3

Subsection (2) 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).

221Receipts of value by and from connected persons etc

In sections 213, 214 and 216 to 218—

a

any reference to a payment or transfer to the investor includes a reference to a payment or transfer made to the investor indirectly or to the investor's order or for the investor's benefit,

b

any reference to the investor includes a reference to an associate of the investor, and

c

any reference to the issuing company includes a reference to a person who at any time in period A relating to the relevant shares is connected with that company (whether or not that person is so connected at the material time).

222Receipt of replacement value

1

If—

a

any EIS relief attributable to the relevant shares would, in the absence of this section, be reduced or withdrawn under section 213 because of a receipt of value within section 216(2) or (6) (“the original value”),

b

the original supplier receives value (“the replacement value”) from the original recipient and the receipt is a qualifying receipt, and

c

the amount of the replacement value is at least the amount of the original value,

section 213 does not, because of the receipt of the original value, have effect to reduce or withdraw the EIS relief.

This is subject to section 223(1) and (2).

2

For the purposes of this section—

“the original recipient” means the person who receives the original value,
“the original supplier” means the person from whom that value was received.

3

If the amount of the original value is, by virtue of section 218, treated as reduced for the purposes of section 213(2) as it applies in relation to the relevant shares in question, the reference in subsection (1)(c) to the amount of the original value is to be read as a reference to the amount of that value ignoring the reduction.

4

A receipt of the replacement value is a qualifying receipt for the purposes of subsection (1) if it arises—

a

because of the original recipient doing one or more of the following—

i

making a payment to the original supplier, other than a payment within paragraph (c) or a payment to which subsection (5) applies,

ii

acquiring any asset from the original supplier for a consideration the amount or value of which is more than the market value of the asset,

iii

disposing of any asset to the original supplier for no consideration or for a consideration the amount or value of which is less than the market value of the asset,

b

if the receipt of the original value was within section 216(2)(d), because of an event the effect of which is to reverse the event which constituted the receipt of the original value, or

c

if the receipt of the original value was within section 216(6), because of the original recipient repurchasing the share capital or securities in question, or (as the case may be) re-acquiring the right in question, for a consideration the amount or value of which is at least the amount of the original value.

5

This subsection applies to—

a

any payment for any goods, services or facilities, provided (whether in the course of trade or otherwise) by—

i

the original supplier, or

ii

any other person who, at any time in period C relating to the relevant shares, is an associate of, or is connected with, that supplier (whether or not the other person is such an associate, or is so connected, at the material time),

which is reasonable in relation to the market value of those goods, services or facilities,

b

any payment of any interest which represents no more than a reasonable commercial return on any money lent to—

i

the original recipient, or

ii

any person who, at any time in period C relating to the relevant shares, is an associate of that recipient (whether or not the person is such an associate at the material time),

c

any payment for the acquisition of an asset which does not exceed its market value,

d

any payment, as rent for any property occupied by—

i

the original recipient, or

ii

any person who, at any time in period C relating to the relevant shares, is an associate of that recipient (whether or not the person is such an associate at the material time),

of an amount not exceeding a reasonable and commercial rent for the property,

e

any payment in discharge of an ordinary trade debt, and

f

any payment for shares in or securities of any company in circumstances that do not fall within subsection (4)(a)(ii).

6

For the purposes of this section, the amount of the replacement value is—

the event which gives rise to the receipt is (or includes) a subscription for shares by—

i

the investor, or

ii

any person who at any time in period C relating to the relevant shares is an associate of the investor (whether or not the person is such an associate at the material time).

4

If either of the following applies—

a

subsection (3), and

b

paragraph 13C(3) of Schedule 5B to TCGA 1992 (which makes corresponding provision in relation to relief under that Schedule in respect of re-investment under EIS),

the person who subscribes for the shares is not to be eligible for any EIS relief in relation to those shares or any other shares in the same issue.

5

In this section “the original recipient”, “the original supplier” and “replacement value” have the same meaning as in section 222.

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 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.

is in receipt of, or entitled to receive, remuneration as such a director 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 benefit or facility.

234Relief 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.

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

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 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 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 7Withdrawal or reduction of EIS relief: procedure

Assessments and appeals

235Assessments 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.

236Appeals 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 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.

237Time limits for assessments

1

An officer of Revenue and Customs may F49... —

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),

F50at any time not more than 6 years after the end of the relevant tax year.

2

In subsection (1) “the relevant tax year” means—

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.

3

Subsection (1) is without prejudice to section F5136(1A) of TMA 1970 F52(loss of tax brought about deliberately etc).

238Cases 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 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—

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 section 166.

Interest

239Date 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 F35in subsection (2), section 86 of TMA 1970 (interest on overdue income tax) has effect as if the relevant date were F3631 January next following the tax year for which the assessment is made.

F38. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F372

The provisions are—

section 163,
section 164,
section 173A,
any of F71sections 180A to 188,
section 209,
section 212(1),
section 213,
section 224,
section 232, and
section 233.

Information

240Information to be provided by the investor

1

This section applies if the investor has obtained EIS relief in respect of the relevant shares, and an event occurs as a result of which—

a

the investor is not a qualifying investor in relation to the shares,

b

the EIS relief falls to be withdrawn or reduced by virtue of section 164 (no linked loans requirement),

c

the EIS relief falls to be withdrawn or reduced under—

i

section 209 (disposal of shares),

ii

section 211 (call options), or

iii

section 212 (put options), or

d

the EIS relief falls to be withdrawn or reduced under section 213 (receipt of value by the investor), or would fall to be so withdrawn or reduced but for section 222 (receipt of replacement value).

2

The investor must within 60 days of coming to know of the event give a notice to an officer of Revenue and Customs containing particulars of the event.

3

If the investor—

a

is required under this section to give notice of a receipt of value which is within section 213, or would be within that section but for section 222, and

b

has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,

the notice must include particulars of that receipt of replacement value (or expected receipt).

4

In subsection (3) “qualifying receipt” and “replacement value” are to be read in accordance with section 222.

the issuing company, and

b

any person connected with the issuing company who has knowledge of the matters mentioned in subsection (1),

must give a notice to an officer of Revenue and Customs containing particulars of the event.

4

Any notice required to be given by the issuing company under subsection (3)(a) must be given—

a

within 60 days of the event, or

b

if the event is a receipt of value within section 216(2) from a person connected with the company (see section 221), within 60 days of the company coming to know of the event.

5

Any notice required to be given by a person under subsection (3)(b) must be given within 60 days of the person coming to know of the event.

6

If a person—

a

is required under this section to give notice of a receipt of value which is within section 213, or would be within that section but for section 222, and

b

has knowledge of any replacement value received (or expected to be received) because of a qualifying receipt,

the notice must include particulars of that receipt of replacement value (or expected receipt).

7

In subsection (6) “qualifying receipt” and “replacement value” are to be read in accordance with section 222.

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

1

This section applies if an officer of Revenue and Customs has reason to believe that a person—

a

has not given a notice which the person is required to give under section 240 or 241 in respect of any event,

b

has given or received value within the meaning of section 216(2) or (6) which, but for the fact that the amount given or received was an amount of insignificant value, would have triggered a requirement to give such a notice, or

c

has made or received any repayment within the meaning given by section 224(7) which, but for the fact that it falls to be ignored for the purposes of section 224 by virtue of section 225(1), would have triggered a requirement to give a notice under section 241.

2

The officer may by notice require the person concerned to supply the officer, within such time as the officer may specify in the notice, with such information relating to the event as the officer may reasonably require for the purposes of this Part.

3

The period specified in a notice under subsection (2) must be at least 60 days.

4

In subsection (1)(b) the reference to an amount of insignificant value is construed in accordance with section 215(2).

243Power to require information in other cases

1

Subsection (2) applies if EIS relief is claimed in respect of shares in a company, and an officer of Revenue and Customs has reason to believe that it may not be due because of any such arrangement or scheme as is mentioned in—

a

section 165 or 182(2) or (4) (no tax avoidance),

b

section 171 (persons subscribing for shares under certain arrangements),

c

section 176(4) or (5), 183(6) or 191(3), (4) or (5) (winding up, administration etc),

d

section 177(1) (no pre-arranged exits), F91...

F92da

section 178A (no disqualifying arrangements), or

e

section 185(1) or (2), 190(1) or 191(2) (conditions ceasing to be met).

The reference in paragraph (c) to subsections (3), (4) and (5) of section 191 is to be read as including those subsections as applied by section 190(2).

2

The officer may by notice require any person concerned to supply the officer within such time as may be specified in the notice with—

a

a declaration in writing stating whether or not, according to the information which that person has or can reasonably obtain, any such arrangement or scheme exists or has existed, and

b

such other information as the officer may reasonably require for the purposes of the provision in question and as that person has or can reasonably obtain.

3

The period specified in a notice under subsection (2) must be at least 60 days.

4

For the purposes of subsection (2), in a case falling within a provision listed in column 1 of the following table, the person concerned is given by the corresponding entry in column 2 of the table.

Provision	The person concerned
Subsection (1)(a)	The claimant, the company and any person controlling the company
Subsection (1)(b)	The claimant
Subsection (1)(c)	The claimant, the company, any other company in question and any person controlling the company or any other company in question
Subsection (1)(d)	The claimant, the company and any person connected with the company
F93Subsection (1)(da)	The claimant, the company, any person controlling the company and any person whom an officer of Revenue and Customs has reason to believe may be a party to the arrangements in question
Subsection (1)(e)	The company and any person controlling the company

References in this subsection to the claimant include references to any person to whom the claimant appears to have made such a transfer as is mentioned in section 245 (spouses or civil partners) of any of the shares in question.

5

If EIS relief has been obtained in respect of shares in a company—

a

any person who receives from the company any payment or asset which may constitute value received (by the person or another) for the purposes of section 213, and

c

A was married to, or was the civil partner of, B at the time of the transfer, and

d

section 209 (disposal of shares) does not apply to the transfer.

2

This Part has effect, in relation to any subsequent disposal or other event, as if—

a

B were the individual who had subscribed for the shares,

b

the amount that B had subscribed for the shares were the amount that A had subscribed for them,

c

B's liability to income tax had been reduced in respect of the shares for the same tax year as that for which A's was so reduced,

d

the amount by which B's liability to income tax had been reduced in respect of the shares were the same as that by which A's liability to income tax had been so reduced, and

e

that amount of EIS relief had continued to be attributable to the shares despite the transfer.

3

F95aa

next any to which SEIS relief is attributable,

b

next any to which deferral relief, but not EIS relief, is attributable,

c

next any to which EIS relief, but not deferral relief, is attributable, and

d

finally any to which both EIS relief and deferral relief are attributable.

4

Any shares within paragraph (c) or (d) of subsection (3) which are treated by section 201(6) as issued on an earlier day are treated as disposed of before any other shares falling within that paragraph of subsection (3).

5

The following—

a

any shares to which EIS relief is attributable and which were transferred to an individual as mentioned in section 245, and

b

any shares to which deferral relief, but not EIS relief, is attributable and which were acquired by an individual on a disposal to which section 58 of TCGA 1992 applies,

are treated for the purposes of subsections (2) and (3) as acquired by the individual on the day on which they were issued.

6

In a case to which section 127 of TCGA 1992 applies (including the case where that section applies by virtue of an enactment relating to chargeable gains), shares included in the new holding are treated for the purposes of subsections (2) and (3) as acquired when the original shares were acquired.

7

In this section—

“deferral relief” has the same meaning as in Schedule 5B to TCGA 1992,
“new holding” and “original shares” have the same meaning as in section 127 of TCGA 1992 (or, as the case may be, that section as applied by the enactment concerned).
F96“SEIS relief” means relief under Part 5A (seed enterprise investment scheme).

Acquisition of issuing company

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

1

This section applies if—

a

a company (“the new company”) in which the only issued shares are subscriber shares acquires all the shares (“old shares) in another company (“the old company”),

b

the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company,

c

the consideration for the new shares of each description consists wholly of old shares of the corresponding description,

d

new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings,

e

at some time before the issue of the new shares—

i

the old company issued shares which meet the requirements of section 173(2), and

ii

a compliance certificate in respect of those shares was issued by that company for the purposes of subsection (1) of section 203 and in accordance with section 204, and

f

before the issue of the new shares the Commissioners for Her Majesty's Revenue and Customs have, on the application of the new company or the old company, notified that company that they are satisfied that the exchange of shares—

i

will be effected for genuine commercial reasons, and

ii

will not form part of any such scheme or arrangements as are mentioned in section 137(1) of TCGA 1992 (schemes with avoidance purposes).

In this subsection references to shares, except in the expressions “subscriber shares” and “shares which meet the requirements of section 173(2)”, include securities.

2

Subsection (2) of section 138 of TCGA 1992 (procedure for advance clearance) applies for the purposes of subsection (1)(f) as it applies for the purposes of subsection (1) of that section.

3

For the purposes of this Part—

a

the exchange of shares is not regarded as involving any disposal of the old shares or any acquisition of the new shares, and

b

any EIS relief which is attributable to any old shares is attributable instead to the new shares for which they are exchanged.

F1403A

In section 173AB(2)(a) and in the definition of “the total relevant turnover amount” in section 175A(8), references to a company becoming a 51% subsidiary of the issuing company after the issue date do not include a company becoming such a subsidiary as a result of an exchange of shares as mentioned in subsection (1).

4

Nothing in section 185 (the control and independence requirement) applies in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1), or arrangements with a view to such an exchange.

5

For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights.

6

References in sections 248 and 249 to “old shares”, “new shares”, “the old company” and “the new company” are to be read in accordance with this section.

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

1

This section applies if, under section 247, any EIS relief which is attributable to any old shares becomes attributable instead to any new shares.

2

This Part has effect as if anything which, under—

a

section 203(1) (entitlement to claim),

b

section 234(3) (relief subsequently found not to be due), or

c

sections 241 to 244 (information to be provided),

has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company.

3

Any appeal brought by the old company against a notice under section 234(3)(b) may be prosecuted by the new company as if it had been brought by that company.

249Substitution of new shares for old shares

251Approved F168knowledge-intensive fund as nominee

1

F170This section applies if an individual claims EIS relief in respect of shares in a company at a time when—

a

the shares have been issued to the managers of F171an approved knowledge-intensive fund as nominee for the individual,

b

the fund has closed, that is to say, no further investments in the fund are to be accepted, F172...

c

the amounts which the managers have, as nominee for the individual, subscribed for shares issued within F1312 months after the closing of the fund represent at least F16950% of the individual's investment in the fund.

F173d

the amounts which the managers have, as nominee for the individual, subscribed for shares issued within 24 months after the closing of the fund represent at least 90% of the individual’s investment in the fund,

e

within that 24 month period at least 80% of the individual’s investment in the fund is represented by shares in companies which are knowledge-intensive companies at the time the shares are issued, and

f

7

Section 207 (penalties for fraudulent certificate or statement etc) does not apply in relation to any certificate issued by the managers of F179an approved knowledge-intensive fund for the purposes of subsection (4).

F1678

In this section “HMRC Commissioners” means the Commissioners for Her Majesty’s Revenue and Customs.

F109Powers to amend

Annotations:

Amendments (Textual)

F109

S. 251A and cross-heading inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), Sch. 5 para. 18

1

For the purposes of this Part, the issuing company is a “knowledge-intensive company” at the time the relevant shares are issued if the company meets—

a

one or both of the operating costs conditions (see subsections (2) and (3)), and

b

one or both of—

i

the innovation condition (see subsection (5)), and

ii

the skilled employee condition (see subsection (8)).

2

The first operating costs condition is that in at least one of the relevant three preceding years at least 15% of the relevant operating costs constituted expenditure on research and development or innovation.

3

The second operating costs condition is that in each of the relevant three preceding years at least 10% of the relevant operating costs constituted such expenditure.

4

In subsections (2) and (3)—

“relevant operating costs” means—
1. a
  if the issuing company is a single company at the time the relevant shares are issued, the operating costs of that company, and
2. b
  if the issuing company is a parent company at the time the relevant shares are issued, the sum of—
  1. i
    the operating costs of the issuing company, and
  2. ii
    the operating costs of each company which is a qualifying subsidiary of the issuing company at that time;
“the relevant three preceding years” F141means, subject to subsection (4A), the three consecutive years the last of which ends immediately before the beginning of the last accounts filing period.

F1434A

If the last accounts filing period ends more than 12 months before the date on which the relevant shares are issued, the relevant three preceding years are the three consecutive years the last of which ends 12 months before the date on which the relevant shares are issued.

5

“The innovation condition” is—

a

where the issuing company is a single company, that—

i

the issuing company is engaged in intellectual property creation at the time the relevant shares are issued, and

ii

it is reasonable to assume that, within 10 years of the issue of the relevant shares, one or a combination of—

a

the exploitation of relevant intellectual property held by the company, and

b

business which results from new or improved products, processes or services utilising relevant intellectual property held by the company,

will form the greater part of its business;

b

where the issuing company is a parent company, that—

i

the parent company or one or more of its qualifying subsidiaries (or both that company and one or more of those subsidiaries) is or are engaged in intellectual property creation at the time the relevant shares are issued, and

ii

it is reasonable to assume that, within 10 years of the issue of the relevant shares, one or a combination of—

a

the exploitation of relevant intellectual property held by the parent company or any of its qualifying subsidiaries, and

b

b

if the issuing company is a parent company, the FTE group skilled employee number is at least 20% of the FTE group employee number.

9

But, in subsection (8), the reference to period B does not include any period during which the issuing company, by virtue of section 182 (companies in administration or receivership), is not regarded as having ceased to meet the trading requirement.

10

In this section—

“FTE employee number” for a company is the full-time equivalent employee number determined in accordance with section 186A(3);
“FTE group employee number” means the sum of—
1. a
  the FTE employee number for the issuing company, and
2. b
  the FTE employee number for each of its qualifying subsidiaries;
“FTE group skilled employee number” means the sum of—
1. a
  the FTE skilled employee number for the issuing company, and
2. b
  the FTE skilled employee number for each of its qualifying subsidiaries;
“FTE skilled employee number” for a company is determined in accordance with section 186A(3) in the same way as the full-time equivalent employee number except that only employees of the company who—
1. a
  hold a relevant HE qualification, and
2. b
  are engaged directly in research and development or innovation activities carried on—
  1. i
    if the issuing company is a single company, by that company, or
  2. ii
    if the issuing company is a parent company, by that company or any qualifying subsidiary of that company,
are to be taken into account;
“independent expert”, in relation to an evaluation of activity of a company, means an individual who—
1. a
  is not connected with the issuing company,
2. b
  holds a relevant HE qualification, and
3. c
  is an expert in the area of research and development or innovation being or to be pursued by the company in question;
“intellectual property” has the meaning given by section 195(6);
“the last accounts filing period” means the last period for filing (within the meaning of section 442 of the Companies Act 2006) for the issuing company which ends before the date on which the relevant shares were issued;
“operating costs”, of a company for a period of account, means expenses of the company which are recognised as expenses in the company's profit and loss account or income statement for that period, other than expenses relating to transactions between that company and another company at a time when both companies are members of the same group (but see also subsection (11));
“relevant HE qualification” means—
1. a
  a qualification which is at level 7, or a higher level, of the framework for higher education qualifications in England, Wales and Northern Ireland (as that framework may be amended or replaced from time to time),
2. b
  a qualification which is at level 11, or a higher level, of the framework for qualifications of higher education institutions in Scotland (as that framework may be amended or replaced from time to time), or
3. c
  a comparable qualification to one within paragraph (a) or (b).

11

Such apportionments as are just and reasonable are to be made to amounts recognised in a company's profit and loss account or income statement for the purpose of determining the company's operating costs for a year.

12

When determining whether an individual is connected with the issuing company for the purposes of this section, section 168 is to be ignored.

13

The Treasury may by regulations amend this section for the purposes of adding, amending or removing a condition which must be met for a company to be a knowledge-intensive company.

14

A statutory instrument containing regulations under subsection (13) may not be made unless a draft of it has been laid before and approved by a resolution of the House of Commons.

252BF162Knowledge-intensive company reaching turnover of £200,000

1

This section has effect for the purposes of section 175A(2)(a)(ii) (alternative initial investing period in case of knowledge-intensive company).

2

Where—

a

the annual turnover of the issuing company in relation to an accounting period (see subsection (3)) is £200,000 or more, and

b

253Meaning of “associate”

1

In this Part “associate”, in relation to a person, means—

a

any relative or partner of that person,

b

the trustee or trustees of any settlement in relation to which that person, or any relative of that person (living or dead), is or was a settlor, and

c

if that person has an interest in any shares or obligations of a company which are subject to any trust or are part of the estate of a deceased person—

i

the trustee or trustees of the settlement concerned or, as the case may be, the personal representatives of the deceased, and

ii

if that person is a company, any other company which has an interest in those shares or obligations.

2

In subsection (1)(a) and (b) “relative” means spouse or civil partner, ancestor or lineal descendant.

254Meaning of “disposal of shares”

256AF63Meaning of “the EIS original rate”

In this Part “the EIS original rate”, in relation to EIS relief, means the EIS rate for the tax year for which the EIS relief was obtained.

257Minor definitions etc

1

In this Part—

F72“arrangements” includes any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable);
“bonus shares” means shares which are issued otherwise than for payment (whether in cash or otherwise),
“director” is read in accordance with F53section 452 of CTA 2010,
“group” means a parent company and its qualifying subsidiaries,
“group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries,
“ordinary shares” means shares forming part of a company's ordinary share capital,
“parent company” means a company that has one or more qualifying subsidiaries and “single company” means a company that does not,
“period A”, “period B” and “period C” have the meaning given by section 159, and
“research and development” has the meaning given by section 1006.

2

Section 993 (connected persons) does not apply for the purposes of Chapter 2 (other than section 168(4)).

3

Section 995 (control) does not apply for the purposes of the following provisions—

section 185(1)(a),
section 199(3)(a) and (b)(ii),
section 232(3),
section 233(2), and
section 243(4),

and in those provisions “control” is to be read in accordance with F54sections 450 and 451 of CTA 2010.

4

In this Part—

a

references in any provision to the reduction of any EIS relief attributable to any shares include a reference—

i

to the reduction of the relief to nil, and

ii

if no relief has yet been obtained, to the reduction of the amount which apart from that provision would be the EIS relief, and

b

references to the withdrawal of EIS relief in respect of any shares are—

i

to the withdrawal of the EIS relief attributable to those shares, or

ii

if no relief has yet been obtained, to ceasing to be eligible for EIS relief in respect of those shares.

5

For the purposes of this Part shares in a company are not treated as being of the same class unless they would be so treated if dealt in on F14a recognised stock exchange.

6

For the purposes of this Part the market value at any time of any asset is the price which it might reasonably be expected to fetch on a sale at that time in the open market free from any interest or right which exists by way of security in or over it.

7

In this Part—

a

references to EIS relief obtained by an individual in respect of any shares include references to EIS relief obtained by the individual in respect of those shares at any time after the individual has disposed of them, and

b

references to the withdrawal or reduction of EIS relief obtained by an individual in respect of any shares include references to the withdrawal or reduction of EIS relief obtained by the individual in respect of those shares at any such time.

8

In the case of requirements that cannot be met until a future date, references in this Part to requirements being met for the time being are to nothing having occurred to prevent their being met.