Income Tax Act 2007 section 220

Cases where maximum EIS relief not obtained

Section 220 adjusts the amount of EIS relief that must be withdrawn when an investor receives value from the company, in cases where the investor did not obtain the full rate of EIS income tax relief in the first place.

• Where the actual income tax reduction obtained (A) is less than the full EIS rate applied to the claimed amount (B), the value received figure used in the clawback calculation is scaled down by the fraction A/B
• This ensures that HMRC only claws back relief at the effective rate at which it was originally given, rather than at the full EIS rate
• If EIS relief attributable to the shares was reduced before it was obtained, the amount A is treated as though that earlier reduction had not occurred, so the fraction is calculated on a fair basis
• This adjustment does not apply where the earlier reduction arose from the attribution of EIS relief following a bonus share issue under section 201(4)