VCM12060 - The investment process: purpose of issue of shares
ICTA/S289 (1) & (6); ITA/S174; ITA/S178; TCGA92/SCH5B/PARA1 (2)(d) & (f): ITA/S261(3)
FA00/SCH15/PARA38
EIS: share issues before 17 March 2004
Prior to 17 March 2004, and under the EIS only, in order to attract relief the shares, together with all other shares in the same issue, had to be issued for the purpose of raising money. This effectively extended the condition at ICTA/S289 (1)(a) and (aa) about their being fully paid up in cash (see VCM12050). An issue of shares is defined at ICTA/S312 (4A) as meaning all shares of the same class issued on the same day.
EIS: share issues on or after 17 March 2004
The same day rule has been removed for share issues on or after 17 March 2004 - from that date share subscriptions satisfied partly by non-cash consideration do not affect the entitlement to relief of those investors who do subscribe wholly in cash (FA04/SCH18/PARA1).
Raising money
The issue of shares in consideration for the liquidation of a
loan, or by the 'conversion' of loan stock, does not raise money
for the company.
If the issue of shares does in fact raise money it can
normally be accepted that that was the purpose of their issue. But
that is not always the purpose, and in particular is unlikely to be
the purpose where the shares are issued as a result of the exercise
of a share option.
Commerciality and tax avoidance
In addition, for both the EIS and the CVS, the shares must not be issued other than for bona fide commercial purposes, and must not be issued as part of a scheme or arrangement whose main purpose, or one of whose main purposes, is the avoidance of tax. The scope of the latter rule cannot be described precisely. However, the reduction of an investor's tax liability which flows from the schemes in the circumstances intended by Parliament is obviously not a tax advantage at which this rule is aimed. Before any case is challenged solely on these grounds a report should be made to CT&VAT (Technical). A report should also be made before any notice requiring information regarding any suspected scheme or arrangement is issued under ICTA/S310 (5) or ITA/S243.
