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HMRC internal manual

# EIS: withdrawal or reduction of relief: value received by the investor: calculation of reduction of relief

## Amount of reduction of relief, ITA07/S213, S218, S220

Where relief falls to be reduced because the investor has received value from the company, the amount of the reduction is a sum equal to tax at the original EIS rate on the amount of the value received or the amount of relief attributable to the shares, whichever is the smaller.

Note: the EIS rate was 20% for share issues up to and including 5 April 2011. Thereafter it was 30%. The rate to be used in the calculation of the reduction is the rate which applied at the time the relevant shares were issued.

## Example 1

In March 2008 Mr Dooley was issued with shares for which he had subscribed £10000 and received £2000 relief. On 1 June 2009 he receives value of £7,500. The original EIS rate is 20%. Tax on £7500 at 20% is £1500 and that is the amount of relief withdrawn.

## Example 2

If Mr Dooley had only had tax liability for that year of £1,000, he would have received only that amount of relief. In this situation the figure of value received of £7,500 must be apportioned by applying the formula at ITA07/S220. The formula is the amount of the relief obtained (£1,000) divided by the amount claimed (£2,000), giving an apportioned value received figure of £3,750. That figure is then multiplied by the EIS rate of 20% to give the sum of £750. The reduction in relief is the smaller of that sum, and the amount of relief attributable to the shares (£1,000). So in this case the relief is reduced by £750.

The effect of this is that his relief is the same proportion as if he had been able to claim all the available relief on his subscription.

It may be that the value received falls within Period C related to more than one issue of shares. In that case the receipt is related to the earliest such issue as far as possible.

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## Example 3

In March 2011 Mr Shah was issued with shares for which he had subscribed £3000, and he obtained full relief for this. In May 2012 he subscribed £10000 for further shares in the same company. Because his Income Tax liability for 2011-12 was small he obtained relief of £400 only for this subscription.

In August 2012 he receives value from the company of £4000. On the first issue the apportioned amount of value received is £4000 x £3000 / £13000 = £923, so the relief withdrawn is the lesser of £923 x 20% = £184 or £3000 x 20% = £600, meaning relief of £184 is withdrawn.

On the second issue the apportioned amount of value received is £4000 x £10000 / £13000 = £3077, so the relief withdrawn is the lesser of £3077 x 30% = £923 multiplied by £400 / £2000 = £184, or £400, meaning relief of £184 is withdrawn.

Note: the rate at which relief is withdrawn is the rate at which relief was originally given, which in this example is 20% in respect of the first issue of shares, and 30% in respect of the second issue.

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## Example 4 - receipt of value from connected persons

Graham and Mark own Gramark Consultants Ltd. They each subscribe for a 30% holding in a new company, Ecofriendly Umbrellas Ltd, and obtain relief. Shortly afterwards Mark receives value from Gramark Consultants Ltd.

Because Graham and Mark are a group that controls each company the two companies are connected under ITA07/S993(5)(d). So, by virtue of ITA07/S221(c), Mark has received value from a company connected with Ecofriendly Umbrellas Ltd and his relief must be reduced.