VCM26000 - EIS: income tax relief: reduction and withdrawal of relief

The legislation provides for the complete withdrawal of any relief attributable to shares if, by reason of some event, any of the conditions for the relief ceases to be satisfied (see VCM26200). This is additional to the general power to withdraw relief under TMA70/S29 (1)(c) where an HMRC officer discovers that the relief is excessive, which would apply if, for example, it was found that the statement given by the company on form EIS1 was incorrect.

The legislation also provides for the amount of relief obtained, or otherwise available, to be reduced where during the relevant qualification period:

• the subscriber disposes of his or her shares (see VCM26010 onwards),
• the subscriber receives value from the company or a connected person (see VCM26300 onwards),
• the company purchases any of its own shares from a member who has not had relief (see VCM26400),
• the subscriber disposes of any share capital or securities of the company to a person connected with the company (see VCM26330).

Guidance on the procedure to be followed when the officer dealing with the company finds that relief falls to be reduced is given at VCM26510.

Where relief is claimed on the return which, if it had been obtained, would have had to be withdrawn or reduced, the return should be amended accordingly. If the period in which the return can be amended has expired, and the relief needs to be withdrawn or reduced, an assessment to income tax needs to be made; see VCM26530.