ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL Receipt of value by the investor
Section 300 of ICTA withdraws or reduces EIS relief if the investor receives an amount of value from the issuing company within a certain period. Section 300(1A)(a) says that the amount of any reduction is the amount given by section 300(1B).
The reduction given by section 300(1B) of ICTA is clear in the simplest case (i) where full EIS relief was obtained and (ii) where that EIS relief was obtained for the year in which shares were issued. In such a case, section 300(1B) effectively gives an amount of:
For more complicated cases, section 300(1B) says:
“and section 299(4) above applies for the purposes of this subsection as it applies for the purposes of [section 299(2)].”
Those words are clear enough to deal with the case where the investor obtains EIS relief for the year in which the shares were issued but at a rate lower than L.
But those words are not clear as to how section 300(1B) of ICTA deals with cases where EIS relief was obtained both for the tax year in which the shares were issued and for the preceding tax year (carry back cases). In carry back cases, different lower tax rates might apply for the two years involved (and the investor may not have obtained maximum relief for one or both of the years involved).
Section 300(1B) of ICTA contains one indication that it is meant to cater for carry back cases. That indication is the reference in section 300(1B) to L being the lower rate of tax for the tax year:
“for which the relief was given.”
There is a second indication that section 300(1B) of ICTA is meant to cater for carry back cases. In the context of an investor treating part of a share issue as having taken place in the previous tax year, section 289B(5) of ICTA says:
“section[s] 299(4) …shall have effect as if that part and the remainder were separate issues.”
That second indication is (a) the reference in section 300(1B) of ICTA (quoted earlier) to section 299(4) taken with (b) the reference in section 289B(5) of ICTA to section 299(4) applying as if the issue to the investor was two deemed separate issues in the years concerned. It is unlikely that R is to be used in the withdrawal or reduction calculation for both those deemed issues. That would double count the value received. But none of section 300(1B), section 299(4) or section 289B(5) of ICTA has an explicit apportionment of R between the two deemed issues.
Section 219 of this Act deals explicitly with cases where EIS relief, obtained for two separate years, is reduced as a result of value received in a certain period by the investor. This explicit treatment prevents an alternative construction being put forward (whether adverse or favourable to taxpayers) as to what happens in such cases.