If you need to know how to claim EIS income tax relief and enjoy what is...
There have been a number of Tribunal cases concerning the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). So here's a synopsis of two recent cases.
Case 1: GDR Food Technology Ltd v HMRC
The First-Tier Tribunal examined an appeal by GDR Food Technology Ltd. HMRC had refused to authorise the issue of a compliance certificate under the SEIS. The appellants’ accountants had made an expensive mistake by completing and submitting forms to HMRC asking for EIS approval. In fact, the company was seeking approval for an SEIS scheme.
Realising their mistake, the accountant wrote to HMRC stating that they wished to withdraw their application: ‘… the wrong form was completed and signed by my client. It was purely a simple error and form Seed Enterprise Investment Compliance Statement should have been completed.’
The Tribunal had some sympathy for the taxpayer and accepted that this could have been a genuine mistake. However, the length of time that elapsed before the mistake was discovered was significant and the Tribunal upheld HMRC’s decision to refuse to authorise the change in application from an EIS to SEIS. This was a costly error that means the investors only received Income Tax relief at 30% (rather than 50%).
Case 2: Flix Innovations Ltd v HMRC
In another recent case, the taxpayer Flix Innovations Limited, appealed HMRC’s decision that EIS relief was not available as one class of ordinary shares issued carried a preferential right to assets on a winding up. The First-Tier Tribunal agreed that HMRC were correct in its refusal to issue certificates confirming that the ordinary shares in question could benefit from EIS relief.
The decision was made on the grounds that the shares did carry a present or future preferential right to the company’s assets on a winding up and were therefore non-qualifying. The taxpayer appealed this decision to the Upper Tribunal. The decision was confirmed by the Upper Tribunal who reached the same conclusion as the First-Tier Tribunal and for similar reasons. Yet again, in this case the EIS rules have not been properly considered and the taxpayer has lost his case.
If you are looking to raise money using either the SEIS or EIS, please get in touch with us. We are very experienced in ensuring that the process is handled effectively and that the right structures are in place to ensure the scheme in question is compliant with the legislation and HMRC’s rules.
As such, make sure you use an expert. Key Business Consultants will get the process and applications correct from the outset. We look forward to hearing from you.