EIS: income tax relief: withdrawal or reduction of EIS relief: overview
The legislation provides for the complete withdrawal of any relief attributable to shares if, by reason of some event, any of the conditions for the relief ceases to be satisfied. This is additional to the general power to withdraw relief under TMA70/S29(1)(c) where an HMRC officer discovers that the relief is excessive, which would apply if, for example, it was found that the statement given by the company on form EIS1 was incorrect.
Relief is not due, and must therefore be wholly withdrawn, where it transpires that:
- the shares are not eligible shares (see VCM12020),
- the individual is not a qualifying individual (see VCM11020),
- the company is not a qualifying company (see VCM13010), or
- the company has failed to comply with the time limits for employing the money raised by the issue (see VCM12060).
However, relief cannot be withdrawn by reason of any event occurring after the death of the individual. Similarly, any relief left following the disposal of the shares by the individual cannot be withdrawn by reason of any subsequent event unless, exceptionally, it occurs at a time when the individual is connected with the company within the meaning of VCM11050+, for example, as an employee.
As regards the obligation to report events which result in relief ceasing to be due, see VCM14210.
The legislation also provides for the amount of relief obtained, or otherwise available, to be reduced where during the relevant qualification period:
- the subscriber disposes of his or her shares,
- the subscriber receives value from the company or a connected person,
- the company purchases any of its own shares from a member who has not had relief,
- the subscriber disposes of any share capital or securities of the company to a person connected with the company.
Guidance on the procedure to be followed when the officer dealing with the company finds that relief falls to be reduced is given at VCM15130+.
Withdrawal of relief is usually by Special Assessment, but if the individual makes an amendment (in time) to his self assessment that can be accepted, and any assessment already made can be vacated.