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HMRC internal manual

Venture Capital Schemes Manual

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EIS: income tax relief: withdrawal or reduction of EIS relief: repayments of share capital to other persons

ITA07/S224

The relief obtained by an individual in respect of shares of a company may fall to be reduced where, within Period C (see VCM10540), the company redeems or repurchases shares in it belonging to another person and that person does not suffer any withdrawal of relief under either the EIS or the CVS as a result.

The rule also applies where a subsidiary of the company makes such a repayment. This is so even where the subsidiary did not become a subsidiary until after the transaction had taken place.

The aggregate amount of all reductions made under this rule in respect of a particular repayment is to be equal to the amount of tax at the EIS rate on the amount of the payment. Where more than one person suffers a reduction that amount of tax must be apportioned between them in proportion to the amounts they subscribed.

This rule is not applied where the amount of the payment made by the company is ‘insignificant’ - see VCM15050.

There are two other exceptions to this rule.

Exceptions

The first is that under ITA07/S224(3)(f) and ITA07/S230 no reduction is to be made where share capital has been issued of a nominal value equal to the authorised minimum required by the Companies Act 2006 for a public company to do business, the Registrar of Companies having issued the company with a certificate under that Section, and any of it is redeemed within 12 months of the date of its issue. (But where a holder of shares which are redeemed in these circumstances has obtained relief on other shares, this exception does not prevent the reduction of that relief under (1) of VCM15060).

The second exception is that, under ITA07/S224 (1)(a)(ii) & (4), where the company’s issued share capital includes shares in respect of which investment relief under the CVS has been given:

  • where any of that investment relief is withdrawn as a result of the payment, Income Tax relief under the EIS is not withdrawn to the extent that the payment causes the withdrawal of investment relief; and
  • where no investment relief is withdrawn, because the payment is less than £1000, Income Tax relief under the EIS is not withdrawn provided no arrangements for the purchase of the shares existed during the period from one year before the date when the shares on which investment relief was obtained were issued to the end of the day of issue.