VCM25060 - EIS: income tax relief: connection with the company: directors

ICTA/S291A (1) & (2); ITA/S168 (1) & (4)

An individual is connected with a company as a director at a time in the period mentioned at VCM25040 only if he receives a payment from the company other than a ‘permitted payment' (see VCM25070), or becomes entitled to receive such a payment in respect of any part of that period. Similarly, where an associate of the individual is a director of the company, that individual is connected with the company only if that associate receives, or becomes entitled to receive, a payment other than a permitted payment.

This rule is extended to cover payments made to the individual indirectly or made to his order or for his benefit.

The rule is also extended to cover payments made by any ‘related person' - that is:

• any company of which the individual or his associate is a director and which is either a subsidiary or a partner of the first company or of any subsidiary of it,

and

• any person connected (under ICTAITA/S993) with any such company or with the company which the director has invested in.

Example

Andrew, Brian, Catherine and David each subscribe for 25% of the share capital of a new company called Organic Parsnips Ltd, of which they all become unpaid directors. They are also the owners of a company called Just Carrots Ltd, a company of which they have been paid directors for many years.

Any three of those individuals can control each company, so the two companies are connected by virtue ofITA/S993. Because the four individuals each receive payments from a company connected with Organic Parsnips Ltd, they do not qualify for relief on their subscriptions.