What does section 226 of the Income Tax Act 2007 do?

Section 226 apportions a repayment of share capital across two or more EIS share issues when the same repayment is connected to relief on multiple issues under section 224(2). It ensures the repayment amount is split proportionately rather than applied in full against each issue separately, producing a fair allocation of the reduction in EIS relief.

How does the apportionment formula in section 226 work?

For each share issue the repayment figure R is multiplied by the fraction A divided by B. A is the amount on which EIS relief was actually obtained by the relevant individuals for that particular issue. B is the total of A across all connected share issues. This scales down R so each issue bears a proportionate share of the repayment.

Does section 226 use the total amount eligible for EIS relief or the amount actually claimed?

Section 226 uses the amount on which EIS relief was actually obtained by the individuals, not the total amount for which they were eligible. If an investor chose to claim relief on only some qualifying shares, only the amount on which relief was actually claimed counts towards the apportionment calculation under the A / B formula.

Can you give an example of how section 226 apportions a repayment across two EIS share issues?

If Issue 1 attracted £200,000 of EIS relief and Issue 2 attracted £300,000, and the company repays £100,000 connected to both, then Issue 1 bears £100,000 multiplied by 200,000 over 500,000 equalling £40,000, and Issue 2 bears £100,000 multiplied by 300,000 over 500,000 equalling £60,000. The apportioned amounts total the original repayment.

Income Tax Act 2007 section 226

Amount of repayments etc. where there is more than one issue of shares

Section 226 deals with how a repayment of share capital is apportioned when it triggers a reduction or withdrawal of EIS relief across two or more separate share issues.

This section applies where the same repayment of share capital is connected to EIS relief attributable to two or more different issues of shares under section 224(2).
The repayment amount ("R") used in the section 224(2) calculation is reduced for each share issue by multiplying it by the fraction A / B, so that the repayment is split proportionately across the issues.
"A" is the amount on which EIS relief was actually obtained by the relevant individuals for shares in that particular issue (including amounts that would be attributable but for section 224(2)(b)).
"B" is the total of "A" for that issue plus the corresponding amounts for all the other share issues involved.

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