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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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SEIS: withdrawal or reduction of relief: value received by the investor: calculation of reduction of relief

ITA07/S257FE, S257FJ, S257FK, S257FL

Where relief falls to be reduced because the investor has received value from the company, the amount of the reduction is the amount of the value received multiplied by the SEIS rate of 50%, or the amount of relief attributable to the shares, whichever is the smaller.

Where the investor has not had the maximum amount of relief on his investment, possibly because he had insufficient income in the year, relief is reduced in proportion to the amount originally obtained.

Where value is received in respect of more than one issue of shares, the receipt is related to the earliest share issue as far as possible.

Example 1

In May 2013 Mr Potter was issued with shares for which he had subscribed £10,000 and received £5,000 relief. On 1 June 2014 he receives value of £7,500. £7,500 at the SEIS rate of 50% is £3,750 and that is the amount of relief withdrawn as that is less than the £5,000 relief originally obtained.

Example 2

If Mr Potter 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/S257FL. The formula is the amount of the relief obtained (£1,000) divided by the amount claimed (£5,000), giving an apportioned value received figure of £1,500. That figure is then multiplied by the SEIS rate of 50% 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.

Example 3 - multiple share issues

In May 2012 Mr Shah was issued with shares for which he had subscribed £3,000, and he obtained full relief of £1,500 for this. In May 2013 he subscribed £10,000 for further shares in the same company. Because his Income Tax liability for 2013-14 was small he obtained relief of £4,000 only for this subscription.

In August 2014 he receives value from the company of £4,000. In this circumstance the value received must be apportioned to each share issue by multiplying it by the ratio of that share issue to the total of all the share issues. On the first issue the apportioned amount of value received is £4,000 x £3,000 / £13,000 = £923, so the relief withdrawn is the lesser of £923 x 50% = £462 or £3,000 x 50% = £1,500, meaning relief of £462 is withdrawn.

On the second issue the apportioned amount of value received is £4,000 x £10,000 / £13,000 = £3,077. The relief withdrawn is the lesser of £3,077 x 50% = £1,538 multiplied by £4,000 / £5,000 = £1,209, or £4,000, meaning relief of £1,209 is withdrawn.

Example 4 - value received 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.