Corporation Tax

How to calculate the clawback of relief

Produced by Tolley
  • 19 Oct 2021 22:55

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • How to calculate the clawback of relief
  • Clawback of relief where there is a disposal of EIS shares
  • EIS rate
  • Matching rules
  • Interaction with capital gains tax
  • Receipt of value
  • Repayment or repurchase of share capital
  • Administration
  • Interest on overdue tax

How to calculate the clawback of relief

The enterprise investment scheme (EIS) encourages individuals to invest money in shares issued by qualifying unquoted companies.

A subscription for eligible shares of a qualifying EIS company is a tax efficient investment for the individual. The individual can benefit from several tax reliefs that are summarised in the Enterprise investment scheme tax relief guidance note.

In some instances, income tax relief that was originally given on a qualifying EIS investment can subsequently be withdrawn. Broadly, income tax relief is withdrawn if, within three years of subscription (or three years from the commencement of the trade, if later):

  1. the shares are gifted or sold to someone other than the spouse / civil partner

  2. the investor is granted an option binding the grantor to buy the shares or the investor grants an option which on exercise obliges him to sell the shares

  3. the investor or his ‘associate’ receives ‘value’ from the company, or a person connected with the company

  4. the company repays or repurchases share capital from any shareholder

  5. the investor carried on the trade prior to the trade, trading assets or share capital being acquired by the company

  6. the investor or an ‘associate’ of the investor becomes ‘connected’ with the company

  7. relief is subsequently found not to be due (ie use of the money raised requirements are not met or the company ceases to be qualifying)

ITA 2007, ss 159, 256, 208; VCM15010

For guidance on situations where relief is withdrawn or reduced, see the Occasions resulting in withdrawal of income tax relief guidance note.

This guidance note discusses the calculation of the amount of income tax relief that might be withdrawn or reduced in certain situations. The more common occasions resulting in the withdrawal or reduction of relief are considered below.

Clawback of relief where there is a disposal of EIS shares

If the investor disposes of his shares by gifting them within three years, all of the income tax relief originally obtained will

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