VCM26200 - EIS: income tax relief: failure to meet conditions

Since the form of the scheme is such that relief can normally be obtained well before the termination date (see VCM20600), that is to say before it can be known for certain that it is due, it is necessary to provide that it may be withdrawn if it transpires that any of the conditions is not met. The legislation therefore provides for the withdrawal of relief if, by reason of some event, any of the conditions for the relief ceases to be satisfied. This is additional to the general power under TMA70/S29 (1)(c) to withdraw relief where HMRC discovers that the relief is excessive, which would apply if, for example, it was found that the information given on form EIS1 was incorrect.

Relief is not due, and must therefore be wholly withdrawn, where it transpires that:

• the shares are not eligible shares (see VCM12010),
• the individual is not a qualifying individual (see VCM25040),
• the company is not a qualifying company (see VCM15010), or
• the company has failed to comply with the time limits for employing the money raised by the issue (see VCM12090).

However, relief cannot be withdrawn by reason of any event occurring after the death of the individual. Similarly, any relief left following the disposal of the shares by the individual cannot be withdrawn by reason of any subsequent event unless, exceptionally, it occurs at a time when the individual is connected with the company within the meaning of VCM25050 onwards - for example, as an employee.

As regards the obligation to report events which result in relief ceasing to be due, see VCM26210.