In York SD Limited and Ors v HMRC [2025] TC09589, the First Tier Tribunal (FTT) denied the taxpayers’ Enterprise Investment Scheme (EIS) relief claim, ruling that preliminary work without a profit motive was not genuine trading. Main projects which were still incomplete at the two-year deadline could not be treated as qualifying business activities.
In November and December 2015, the six taxpayer companies were incorporated. The companies were overseen by an external investment group that was used by private investors to manage their investments in companies that qualified for Enterprise Investment Scheme (EIS) relief.
- Between 18 December 2015 and 31 March 2016, approximately £5 million was invested into each company, in exchange for shares.
- Between October and December 2016, each company performed a single rooftop install for a UK customer. The installation included an agreement to sell electricity. The purpose was solely to initiate trading and satisfy EIS requirements.
In April 2017 and August 2018, subsidiary companies were formed for each of the taxpayers in Spain and Portugal. These companies were used to develop ground-mounted solar plants.
- The projects experienced delays. Engineering, procurement and construction projects were agreed between October 2017 and January 2019. Grid connection took place between November 2018 and July 2021. The first company started generating revenue in January 2019, with the last starting in May 2022.
On 10 May 2017, the taxpayers submitted EIS1 compliance statements, together with business plans, to HMRC.
- In July 2017, HMRC issued EIS2 authorisations, which allowed the taxpayer companies to issue compliance certificates.
- The taxpayers considered that since HMRC had the opportunity to review the business plans, the authorisations indicated HMRC’s acceptance that all the EIS requirements had been met.
On 28 January 2020, HMRC issued a decision notice stating that the issued shares were no longer eligible shares for EIS purposes. Assessments were issued to the companies’ investors withdrawing their relief.
- The taxpayers appealed the decision. HMRC’s Statutory review upheld the decision, and the taxpayers Appealed to the First Tier Tribunal (FTT). The six appeals were consolidated into one.
The FTT heard the appeal on 14 to 24 May 2024, and after the initial hearing, on 26 September 2024, the decision in Putney Power Limited and Piston Heating Services Limited v HMRC [2024] TC09300 was released. This case also involved determining when trade commenced under the EIS rules.
The FTT decided that this case should be considered in making their judgment. They invited further representations from both parties and received these in December 2024.
The FTT found that:
- The taxpayers met the use of the money raised requirement, but failed to meet the EIS requirements for the purposes of the share issue, the minimum period and the trading requirements.
- Money raised: the FTT agreed that the funds raised had been set aside for a specific qualifying purpose. Although there were some inter-company loans made, these were temporary and did not prevent the funds from being used as intended.
- Purpose of the share issue: the activities of the company and its subsidiary could not be considered together, each company had to meet the requirements on its own.
- Minimum period: there was a lack of a profit motive in the solar panel installation, and many of the subsidiary companies had not been formed when the EIS1 compliance statements were submitted. The requirement to have been trading for at least four months before the EIS1 compliance statements were submitted had not been met.
- Trading requirements: while contracts had been entered into, the infrastructure to generate electricity was not ready within the two-year qualifying business activity deadline. The FTT’s view was that a business cannot be said to have commenced trading if it is still assembling the tools or facilities necessary to deliver its goods or services.
- It was not unfair for HMRC to raise arguments at a later stage that were not part of their original decision notice. The principle of estoppel did not prevent HMRC from withdrawing relief.
- Estoppel prevents someone from contradicting earlier statements or actions relied upon by others.
- The EIS legislation allows for relief to be withdrawn if it is later found not to be due. Authorising compliance certificates did not mean HMRC had bindingly accepted the taxpayer’s position.
The appeals were dismissed.
Useful guides on this topic
EIS: Enterprise Investment Scheme (Subscriber guide)
When can EIS relief be claimed? What are the conditions for EIS relief? What are the benefits of EIS relief?
EIS or SEIS: Advance assurance from HMRC
HMRC offers an advance assurance application service for both the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). How do I apply? What information is needed?
SEIS & EIS: Qualifying trades & activities
What is a qualifying trade or activity for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief? Which trades do not qualify for relief? What are excluded activities?
SEIS & EIS: Share issue checklist
Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) share issue checklist: Issue and allotment of shares
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