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HMRC internal manual

Venture Capital Schemes Manual

EIS: income tax relief: withdrawal or reduction of EIS relief: acquisition of a trade or trading assets

ITA07/S232; ITA07/S233

Acquisition of trade or assets from company owners

As the EIS is intended to encourage genuinely new investment in companies by outsiders (and by paid directors who were outsiders when they first invested in the company) the legislation needs to ensure that relief is not available to anyone who directly or indirectly owned the trade before it came to be owned by the company. This is done by ITA07/S232 and ITA07/S233.

Where the section applies any relief given to the individual is to be withdrawn. (Under ITA07/S257(4) this has the effect that where relief has not yet been given the individual is not eligible for it.)

To decide whether the provision might apply to an investor we have to consider whether, at any time within P

Period A (see VCM10540), either the individual or any group of persons to which he or she belongs either:

  • has more than a half share interest in the trade or part of the trade as carried on by the company or its qualifying subsidiary, or
  • controls the company.

In the first case, the provision will apply if the individual or group also had such an interest in the trade, or a part of the trade, at some previous time in the same period when it was carried on by some person other than the company. In the second case, ITA07/S232 will apply if the individual or group, at some previous time in the same period, controlled another company which was then carrying on the trade or part of the trade.

Acquisition of share capital from company owners

In addition, ITA07/S233 also cover the situation where the individual or group formerly controlled a company which then carried on the trade and that company has come to be owned by the company in which the individual has now invested.

In the case of an investor who is a paid director the references above to the previous control of the trade within the relevant period are to be read as references to previous control at any time whatsoever.

For the purpose of deciding whether anyone has a half share in a trade or can control a company the rights and powers of each person are to be taken as including the rights and powers of any associate, see VCM11100, and ‘control’ has the meaning given in CTA10/S450 (see CTM06020).

The persons to whom a trade belongs, or the extent of their interests in it, are to be determined in accordance with CTA10/S941 (see CTM06020).