DMBM407040 - Interest: Interest Review Unit (IRU): Miscellaneous taxes and duties: Enterprise Investment Scheme (EIS) relief withdrawn

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The purpose of EIS is to encourage investment in unquoted trading companies that satisfy certain conditions. Under the scheme, individuals who buy shares in such companies can get a reduction in their income tax bill, as long as certain conditions are met and they are `qualifying individuals'. The reduction is based on the amount they have spent buying the shares. It is claimed through the Self Assessment (SA) return for the tax year in question. The claim reduces the tax payable for that year.

The main condition to be met by the investor is that (s)he is not connected with the company other than as a 'business angel' at any time in a certain period. The period ends three years after shares are issued or three years after the date when the company started trading if that is later - the exact end date will be shown on form EIS 3.

If the investor is in a breach of this condition, they are obliged by 'Section 240 ITA 2007' to make a report to the SA handling office within 60 days after the event.

Where the event takes place inside the window for a taxpayer amendment to the SA return the taxpayer should make an amendment to the return to withdraw the relief claim. If this is done any tax due is recovered through SA and normal SA rules apply in respect of interest charged. We charge interest from the 31 January next following the tax year for which the amendment is made.

Where a taxpayer amendment is not made or the event falls outside the window for doing so an assessment is made under 'S235 ITA 2007' to recover the tax that the withdrawal of the relief now brings back into charge. The due date for payment of the tax is 30 days after the date of issue of an assessment. But the date from which we charge interest is always a date earlier than the date the assessment is made.

Before the amendment introduced by Section 105 (1) to (3) FA 2009 the different interest charging dates are based on the appropriate section of 'ITA 2007' concerning the reason for withdrawal.

Where an objection is for an interest charge made on a date occurring before the amendment introduced by Section 105 (1) to (3) FA 2009 and the interest charging date is questioned, follow the guidance given in the chart to find the correct date.

Section in ITA 2007	Section in ICTA 1988	Event	Paragraph in Venture Capital Manual	Reckonable date
163	291	The claimant becomes connected with the company	VCM25040	Date of event
232/233	302	Replacement capital	VCM25310	Date of event
173A(1), 181,182, 184-188	293	The company ceases to be a qualifying company	VCM20510	Date of event
181	297	The company’s trade ceases to be a qualifying trade	VCM20500	Date of event
224	303	The company repays, redeems or re-purchases other than that of the claimant	VCM26400	Date of event
209, 212(1)	299	The individual disposes of any ordinary shares	VCM26040	Date of the disposal
213	300	A receipt of value by the individual given the relief	VCM26300	Date of receipt of value
183	289/11	Shares not subscribed for and issued for genuine commercial purposes	VCM25300	Date the relief was obtained.
164	299A	Loan made to an individual	VCM20050	Date the loan was made

The amendment introduced by Section 105 (1) to (3) FA 2009 removes the different dates based on the reason for withdrawal and introduces in all cases the use of the 31 January next following the tax year for which the assessment is made.

This ensures that the tax due by assessment is treated the same way as if it had been due as a result of amending the SA return.

Where an objection is for an interest charge made on a date occurring after the amendment introduced by Section 105 (1) to (3) FA 2009 and the interest charging date is questioned, you should ensure the relevant 31 January has been used and the interest should be maintained with an explanation of the law.

In both regimes an objection may also be made because we delayed making the assessment after the event date had been told to us. Consider the claim using the guidance at DMBM405010.