Income Tax Act 2007 section 222

Receipt of replacement value

Section 222 provides a safeguard that prevents EIS relief from being reduced or withdrawn where the person who received value from the investor effectively pays it back in full, so that the investor is restored to their original position.

• Where an investor would lose EIS relief because value was received from the issuing company, that relief is preserved if the recipient of the original value pays back at least an equivalent amount to the person who provided it, and the repayment qualifies under the rules in this section.
• A qualifying receipt arises where the original recipient makes a direct payment, overpays for an asset acquired from the original supplier, disposes of an asset to the original supplier at an undervalue, reverses the original value-shifting event, or repurchases share capital, securities, or rights at a price at least equal to the original value.
• Certain routine commercial payments are excluded from counting as replacement value — for example, payments at market value for goods, services, facilities, or assets, reasonable commercial interest on loans, reasonable commercial rent, ordinary trade debts, and payments for shares or securities at fair value.
• The replacement value is calculated as the total of any direct payments made plus any excess over market value paid for assets (or shortfall accepted on disposals); where the original event is simply reversed, the replacement value equals the original value; and where shares, securities, or rights are repurchased, it is the consideration the original supplier actually receives.