Schedule 15 - Enterprise investment scheme: amendments
Finance Bill
4:30 pm
Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)
The amendment seeks to make a change to measures introduced by the Bill that improve the way in which the enterprise investment scheme operates. They were introduced because the Government listened to representatives of users of the EIS and the changes have been warmly welcomed, some of them by the hon. Member for Arundel and South Downs (Mr. Flight).
We intend to knock some of the sharp edges off the EIS ``value received'' rules that were introduced by the Conservative Government in 1994. We have provided a de minimis limit of £1,000 below which the ``value received'' rules will generally not apply. In addition, where the total amount is exceeded, the value can still be treated as ``insignificant'' if the amount is insignificant in relation to the amount that was subscribed for the shares in question. The amendment seeks to introduce a definition of ``insignificant'' as any amount up to 5 per cent. of the amount subscribed for the shares, and I shall explain why I am not happy about it.
The use of ``insignificant'' is not new in this context. The same wording is used in the corporate venturing scheme which was introduced last year and which has not caused any difficulties in practice. It would certainly not be appropriate to treat a 5 per cent. return of value as being ``insignificant'' in relation to the amount subscribed. That would mean that someone investing £100,000 for example, would be able to get a return of £5,000 without losing any relief. The hon. Gentleman's body language seems to indicate that he believes that that might cause problems.
The purpose of the £1,000 limit is to ease the compliance burden of the ``value received'' rules, so that small amounts of money can, in effect, be ignored provided they do not exceed £1,000 in total. Where a larger amount is returned, it would need to be very small in relation to the amount subscribed if it is to be treated as being an amount of insignificant value, and we do not expect many cases where that applies to arise in practice.
The current wording allows the facts and circumstances of any particular case to be taken into account in a way that a fixed percentage would not. The Inland Revenue will, of course, be prepared to issue guidance in the future, should it be needed, but that guidance should be based on experience, and not on hypothetical cases.
For the reasons I have given, I have no hesitation in asking the Committee to reject the amendments.