EIS case – did the investment qualify?
A recent tribunal case examined an appeal by a taxpayer as to whether he was entitled to relief under the Enterprise Investment Scheme (EIS) in respect of a subscription for share capital in a company.
The monies were intended to be used by the company for the purpose of a pub and restaurant business in Surrey. As the taxpayer was claiming EIS relief for his investment it was important that at least 80% of the share capital subscribed for was invested in the company’s trade within 12 months from the subscription date.
In fact the monies were due to be invested in new premises. Unfortunately the owner of the property backed out of the sale 48 hours before simultaneous exchange and completion. Thus the purchase was never ultimately completed. HMRC informed the taxpayer that the investment did not meet the requirement that 80% of the funds had been ‘employed’ in the business and it indeed appeared that the majority of the monies invested by the taxpayer remained in an instant access deposit account.
The tribunal judge accepted that this was an unfortunate case and was not swayed by the taxpayer’s many arguments that his investment qualified for EIS relief. The tribunal commented that had contracts been exchanged the taxpayer might have had a stronger argument but the agreement to buy the property was weak and ultimately nothing the company did employed a high enough percentage of the investment to allow the taxpayer EIS relief.
The taxpayer’s appeal was dismissed.