Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Venture Capital Schemes Manual

From
HM Revenue & Customs
Updated
, see all updates

EIS: deferral relief: shares issued on or after 6 April 1998: eligible shares

TCGA92/SCH5B/PARA19

Only ordinary shares are eligible shares. TCGA92/SCH5B/PARA19 applies ICTA88/S289(7) or ITA07/S173(2) to define eligible shares as new ordinary shares (issued on or after 6 April 1998 and before 6 April 2000) which, throughout the period of five years beginning with the date on which they are issued, carry:

  • no present or future preferential right to dividends or to a company’s assets on its winding up, and
  • no present or future right to be redeemed.

For shares issued on or after 6 April 2000, the five year period is reduced to the period:

  • beginning with the issue of the shares, and
  • ending immediately before the termination date, see VCM23070, relating to those shares.

For shares issued on or after 6 April 2012, the shares must be ordinary shares which throughout that period carry:

  • no present or future preferential right to dividends where either :

    • The rights attaching to the share include scope for the amount of the dividend to be varied based on a decision taken by the company, the shareholder or any other person. Note: this exclusion covers only those shares which carry preferential rights and does not therefore prevent the voting of dividends in respect of non-preferential shares, nor does it prevent shareholders from choosing to waive a dividend payment should they wish to do so; or
    • The right to receive dividends is ‘cumulative’ - that is, where a dividend which has become payable is not in fact paid, the company is obliged to pay it a later time, normally once funds become available.
  • no present or future preferential rights to the company’s assets on its winding up, and
  • no present or future right to be redeemed.

Ordinary shares are defined as shares forming part of the ordinary share capital of the company, within the meaning given by ICTA88/S832 (1) & ITA07/S989.

The fact that shares are eligible on issue is not the end of the matter. Shares cease to be eligible when:

  • the requirements of ICTA88/S289 (7) or ITA07/S173(2) cease to be met within the period mentioned above
  • For shares issued after 5 April 2007, the provisions of ITA07/S173(2) replace those of ICTA88/S289(7).

TCGA92/SCH5B/PARA1A

  • an event occurs after the date of issue which causes the company not to be a qualifying company, see VCM23050,
  • an event occurs after the date of issue which results in the requirements of ICTA88/S289 (1A) or ITA07/S183 not being satisfied, see VCM13080 (group companies only).

If the use of the money rule in VCM23020 (g) or (h) is not satisfied, the shares are treated as:

  • never having been eligible shares if the deferral relief claim is made after the time limit in question has expired, or
  • ceasing to be eligible at the expiry of the time limit in question if the claim is made before then.

The company and any person connected with it who has knowledge of the matter must notify the Inspector in any of the circumstances set out above, see VCM23480. Alternatively the Inspector may discover that the shares cease to be eligible because the company does not satisfy all of the conditions. In this case the Inspector notifies the company that the shares cease to be eligible on a certain date. The Inspector’s notice shall be taken to be a decision refusing a claim made by the company for the purposes of the TMA70.

Shares are treated as never having been eligible if the facts show that any of the money raised by the issue was raised for a purpose other than a qualifying business activity, see VCM12100.

The above list of events is not exhaustive when considering if shares are eligible. Anti-avoidance rules may also result in shares ceasing to be eligible, see, for example, VCM12100,VCM23260, VCM23270, VCM23280, VCM23300, VCM23440 and VCM23470.