“(1) An individual (“the investor”) is eligible for EIS relief in respect of an amount subscribed by the investor on the investor’s own behalf for an issue of shares in a company (“the issuing company”) if – … (c) the general requirements (including requirements as to the purpose of the issue of shares and the use of money raised) are met in respect of the relevant shares (see Chapter 3), …”
“The relevant shares (other than any of them which are bonus shares) must be issued in order to raise money for the purpose of a qualifying business activity.”
“(1) In this Part “qualifying business activity”, in relation to the issuing company, means— (a) activity A, or (b) activity B [which is not relevant to this case]. (2) Activity A is— (a) the carrying on of a qualifying trade which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or (b) the activity of preparing to carry on (or preparing to carry on and then carrying on) a qualifying trade— i. which, on that date, is intended to be carried on by the company or such a subsidiary, and ii. which is begun to be carried on by the company or such a subsidiary within two years after that date.” (a) activity A, or (b) activity B [which is not relevant to this case]. (a) the carrying on of a qualifying trade which, on the date the relevant shares are issued, the company or a qualifying 90% subsidiary of the company is carrying on, or (b) the activity of preparing to carry on (or preparing to carry on and then carrying on) a qualifying trade— i. which, on that date, is intended to be carried on by the company or such a subsidiary, and ii. which is begun to be carried on by the company or such a subsidiary within two years after that date.”
“(1) For the purposes of this Part, a trade is a qualifying trade if— (a) it is conducted on a commercial basis and with a view to the realisation of profits, and (b) it does not at any time in period B consist wholly or as to a substantial part in the carrying on of excluded activities. (2) References in this section and sections 192 to 198 to a trade are to be read without regard to the definition of “trade” in section 989.”
“If the Company without good reason takes any action that terminates the prequalification status of the Project prior to the Auction date (being6th December 2016 ), then unless the previous paragraphs apply, subject to the Company being repaid all deposits and sums excluding Applicant Credit Cover paid by it in respect of the Project, the Company shall (as far as it is lawful and reasonably possible to do so) transfer any project rights to AGR (or an entity nominated by AGR) and pay AGR an amount equal to£20,000.00 per MW(as stated in the prequalification application).”
“Then they entered into agreements for the purchase of products. Those are the agreements which I have already referred to which formed the substratum of the company, but no materials came in nor were any sausage skins made from the 20th June. They waited, and I suppose in October, the date they refer to in their Minutes, having looked round, and having got their machinery and plant, and having also employed their foreman, and having got their works erected and generally got everything ready, then they began to take the raw materials and to turn out their product.”
“There have been several cases recently upon the Corporation Profits Tax and the Excess Profits Duty in which the companies liable are defined as companies carrying on any trade or business. I think it is practically the same definition in both Acts. Now several cases came before me, and I took rather a narrow view of those words which define the sort of company. I did not pay much attention to the internal activities of the company - its functional activities as carrying on its own life, and I laid some stress on "carrying on" and on " business", but the Court of Appeal have taken a freer view of, the words than I did, and they have certainly taken into consideration the circumstances that the company was performing its internal functions, that is to say, holding its meetings and so on, as indicative, if not alone sufficient, to establish the fact that it was carrying on a business. If I might perhaps paraphrase it without any disrespect, they have treated it as a business company carrying on. And, of course, that is putting a more liberal interpretation on the words. … So that I confess I approach this case with the feeling that perhaps I have been inclined to take a too narrow view of the word "business", but I cannot help thinking that the question before me in this Income Tax case is rather different from the question under the Corporation Profits Tax cases. The question there always was: Is what this company is doing the carrying on of a trade or business? Here the question seems to be: Is what this Company is doing carrying on a trade or business, or nothing at all? There is no question about it being anything else but a trade or business if it is carrying on anything.”
“The Income Tax Acts have never defined trade or trading farther than to provide that trade includes every trade, manufacture, adventure or concern in the nature of trade. As an ordinary word in the English language 'trade' has or has had a variety of meanings or shades of meaning. Leaving aside obsolete or rare usage it is sometimes used to denote any mercantile operation but it is commonly used to denote operations of a commercial character by which the trader provides to customers for reward some kind of goods or services.”
“Bearing all this in mind the question still arises, what did Mr Higgs do? To be engaged in trade or in an adventure in the nature of trade surely a person must do something and if trading he must trade with someone. In Inland Revenue Comrs v Livingstone the Lord President (Clyde) said: 'I think the test which must be used to determine whether a venture such as we are now considering is, or is not, "in the nature of trade" is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made.' All that Mr Higgs did was to pay heed to an idea which was suggested to him …, to take advice about it, to understand the purpose of it, though not to comprehend all the details of the scheme which embodied the idea, and then somehow to contrive that his wife and certain limited companies and others would act 'at his behest' and play their part in effecting the transactions which the scheme necessitated. But can this in any rational or realistic sense be described as trading or as being an adventure in the nature of trade? Quite lacking are the indicia which are common to so many forms of trading activity. Mr Higgs was not himself concerned in any buying or selling activity. He gave no services. He supplied nothing. Nor, in any real sense, was he introducing anyone or acting as a broker. What the companies did were the acts of the companies. What they did cannot be regarded as Mr Higgs's acts.”
“Trade is infinitely varied; so we often find applied to it the cliché that its categories are not closed. Of course they are not; but this does not mean that the concept of trade is without limits so that any activity which yields an advantage, however indirect, can be brought within the net of tax. Mr Higgs had no trading stock. In the whole course of these transactions he bought nothing, sold nothing, and ventured nothing. Taking each individual transaction, from first to last, not one was performed by Mr Higgs: so far as relevant, two only were carried out by Mrs Higgs; she made the settlement on discretionary trusts; she was concerned in the partnership with two Harlox companies, her interest in which she assigned to the trustees of the settlement. There are nowhere here any of the indicia of trade so far as Mr Higgs, or, if relevant, Mrs Higgs is concerned.”
“A man cannot be trading or engaged in an adventure in the nature of trade unless there is someone with whom he is trading—someone to whom he supplies something such as goods or services for some return. Here there was no one with whom Mr Higgs can fairly be said to have 'traded'. Counsel for the Crown said that his 'role' was analogous to that of a broker. A broker procures other people to enter into transactions with one another and that—he submitted—is what Mr Higgs did. But a broker has a customer; one or other or both of the parties to the transaction in question pays or pay him for bringing them together. Mr Higgs, by contrast, simply told the parties concerned to carry out the transaction which the scheme which he had adopted required them to carry out.”
“The question in the present case is not whether the parties ‘had so far advanced towards the establishment of a restaurant as properly to be described as having entered upon the trade of running a restaurant’, for it does not matter how the enterprise should properly be described. The question is whether they had actually embarked upon the venture on which they had agreed. The mutual rights and obligations of the parties do not depend on whether their relationship broke up the day before or the day after they opened the restaurant, but on whether it broke up before or after they actually transacted any business of the joint venture. The question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. Once the judge found that the assets had been acquired, the liabilities incurred and the expenditure laid out in the course of the joint venture and with the authority of all parties, the conclusion inevitably followed.”
“The restaurant was not open for business. There was nothing for the first respondent to manage, and no function for the two chefs to perform. No food had been bought or bookings taken. Everything that had been done was preparatory to the commencement of trading. … Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences. Films, for example, are commonly (for tax reasons) produced by limited partnerships. The making of a film is a business activity, at least if it is genuinely conducted with a view of profit. But the film rights have to be bought, the script commissioned, locations found, the director, actors and cameramen engaged, and the studio hired, long before the cameras start to roll. The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is undertaken with a view of profit, and may be undertaken as well by partners as by a sole trader.”
“88. Section 218 of the 1994 Act speaks of a trade `set up and commenced' before, or on or after,6 April 1994 . The words `set up' suggest that a trade can be set up without being commenced. This echoes the distinction drawn in Slater (see para 72 above), the distinction between getting ready and commencing in Birmingham Cattle, Lord Millett's observation that `the work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customer walks through the door', and the assembly of a `sufficient organisational structure' to undertake the essential preliminaries noted in Gartry v The Queen 94 DTC 1947 (T.C.C.). I conclude that a trade cannot commence until it has been set up (to the extent it needs to be set up), and that acts of setting up are not commencing or carrying on the trade. Setting up trade will include setting up a business structure to undertake the essential preliminaries, getting ready to face your customers, purchasing plant, and organising the decision making structures, the management, and the financing. Depending on the trade more or less than this may be required before it is set up. … 93. It seems to me that a trade commences when the taxpayer, having a specific idea in mind of his intended profit making activities, and having set up his business, begins operational activities—and by operational activities I mean dealings with third parties immediately and directly related to the supplies to be made which it is hoped will give rise to the expected profits, and which involve the trader putting money at risk: the acquisition of the goods to sell or to turn into items to be sold, the provision of services, or the entering into a contract to provide goods or services: the kind of activities which contribute to the gross (rather than the net) profit of the enterprise. The restaurant which has bought food which is in its kitchen and opens its doors, the speculator who contracts to sell what he has not bought, the service provider who has started to provide services under an agreement so to do, have all engaged in operational activities in which they have incurred a financial risk, and I would say that all have started to trade. 94. It does not seem to me that carrying on negotiations to enter into the contracts which, when formed, will constitute operational activity is sufficient. At that stage no operational risk has been undertaken: no obligation has been assumed which directly relates to the supplies to be made. Not until those negotiations culminate in such obligations or assets, and give rise to a real possibility of loss or gain has an operational activity taken place. Until then, those negotiations may be part of setting up the trade but they do not to my mind betoken its commencement.”
“[91] Under the relevant SLA, LLP 1 agreed to purchase a licence of the code generation software from MCashback for£7,334,000 payable on completion, which was initially scheduled to take place on30 April 2004 . In return, LLP 1 would become entitled from the date of completion to 0.66% of the gross clearing fees generated from the exploitation of the MRewards technology. It is important to note that there was never any question of the code generation software being exploited by itself, or by LLP 1 alone. It was always envisaged that the system as a whole would be operated by MCashback and the LLPs, pursuant to Collaboration and Operating Agreements. Neither the software licensed to the four LLPs nor the software retained by MCashback could function independently, and the proposed business model was for the joint exploitation and development of the technology under the direction and management of a committee with members appointed both by the LLPs and by MCashback. However, these agreements had not progressed beyond draft stage by6 April 2004 , and the Collaboration Agreement was not in fact signed until more than one year later, on16 May 2005 . Furthermore, completion of the SLA itself was also delayed and did not take place until12 January 2005 . [92] In the light of these facts alone, it is in my judgment plain that LLP 1 could not have begun to carry on a trade within the meaning of s 11 on or before5 April 2004 . All it had done was to enter into a contract to acquire an asset which it intended to use in due course for the purposes of a trade of exploiting the licensed software, on terms still to be agreed with MCashback and its fellow LLPs. The entry into the SLA was a step preparatory to the carrying on of a trade. It was not a step taken in the course of a trade which had already begun, nor was it a step which itself marked the commencement of trading. Until terms had been agreed, it could not in my view be said that LLP 1 was in a position to start turning the licensed software to account, or that it had in any meaningful sense started to trade. [93] As I read paras 90-91 of the decision, these were essentially the considerations which led the special commissioner to conclude (at the end of para 91) that the fact of having entered into the SLA `did not mean that LLP 1 had thereby commenced its trade'. He also referred to the decision of another special commissioner, Mr Charles Hellier, in Mansell v Revenue and Customs Comrs [2006] STC (SCD) 605, where it was held that the taxpayer began trading when he entered into a formal option agreement to buy an interest in land, with a view to its development and use as a motorway service station. The special commissioner in the present case distinguished Mansell's case on two grounds: first, he said that `options to acquire land are regularly traded'; and secondly, he said that the acquisition of the option `resulted in the taxpayer actually acquiring his stock-in-trade that he intended to realise.' [94] Mansell's case was not a case concerned with capital allowances, but with the different question whether the taxpayer's trade had been `set up and commenced' before6 April 1994 within the meaning of transitional provisions relating to the introduction of the change from the preceding year basis to the current year basis in assessing the trading profits of individual traders: see ss 210-218 of theFinance Act 1994 , and in particular s 218(1). In a valuable discussion in paras 88 and following of his decision, Mr Hellier referred to the fitful guidance to be obtained from earlier authorities (none of which deals directly with the question when a trade commences), and concluded that in his view a trade commences `when the taxpayer, having a specific idea in mind of his intended profit making activities, and having set up his business, begins operational activities'. He went on to say that by operational activities he meant dealings with third parties immediately and directly related to the supplies to be made which it is hoped will give rise to the expected profits, and which involve the trader putting money at risk. [95] It is unnecessary for me to say whether I would have reached the same conclusion on the facts as Mr Hellier did in Mansell's case, but in broad terms I find his test of the beginning of operational activities a useful one. Every case will turn on its own facts, but in general the test presupposes that the framework or structure for the trade will have to be set up or established before any operational activity can begin. Mr Hellier gave as examples of setting up a trade such matters as the purchase of plant, and organisation of the decision making structures, the management and the financing (see [2006] STC (SCD) 605, para 88). In my judgment a similar approach is helpful in answering the question whether a trade is being carried on for the purposes of s 11 of CAA 2001, and the present case falls clearly on the pre-trading side of the line because the SLA amounted to no more than a contract for the acquisition of plant at a time before any decision-making, financial or management structure for the intended trade had been put in place.”
“Having regard to all the circumstances of the present case, particularly by the production of Play Cards, by its dealings with retailers, by engagement with third parties regarding advertising and marketing, by its creation and testing of IT systems and sales infrastructure and purchase of lottery ball machines, Altala had, in my judgment, clearly established a framework or structure for the trade. The question is whether it progressed from this stage to begin operational activities?”
“79. As is clear from [93] of his decision, by “operational activities” the Special Commissioner in Mansell meant “dealings with third parties immediately and directly related to the supplies to be made which it is hoped will give rise to the expected profits, and which involve the trader putting money at risk”
“51. In [Ransom v Higgs], Lord Morris of Borth-y-Gest said at 1606D: "In considering whether a person " carried on " a trade it seems to me to be essential to discover and to examine what exactly it was that the person did." In the present case, the FTT quoted that statement, although they misattributed it to Lord Reid, before continuing, in terms which we would respectfully endorse, at FTT/358: "That means what the LLPs did, not their members, and not what was done by Ingenious for itself or other persons. It will involve a weighing of a number of factors, the relevance and importance of which will depend on the circumstances. There is no complete list of those factors and no rule that any one or more of them are decisive…" … 78. … On the FTT's general approach to the [trading] issue, we have already cited with approval what they said at FTT/358, and we would likewise endorse what they said at FTT/359: "Whatever else in determining whether something is a trade, the tribunal must stand back and take an unblinkered view of all the circumstances: the totality of the person's activity and enterprise. That is not a result of any particular facet of the Ramsay doctrine but of the nature of the word "trade" – archetypically whether someone is trading is a conclusion based on commercial substance rather than form. Trade is not a narrow legal concept but a broad commercial one: transactions planned and executed as a single transaction must be viewed as a whole."” "In considering whether a person " carried on " a trade it seems to me to be essential to discover and to examine what exactly it was that the person did." "That means what the LLPs did, not their members, and not what was done by Ingenious for itself or other persons. It will involve a weighing of a number of factors, the relevance and importance of which will depend on the circumstances. There is no complete list of those factors and no rule that any one or more of them are decisive…" … "Whatever else in determining whether something is a trade, the tribunal must stand back and take an unblinkered view of all the circumstances: the totality of the person's activity and enterprise. That is not a result of any particular facet of the Ramsay doctrine but of the nature of the word "trade" – archetypically whether someone is trading is a conclusion based on commercial substance rather than form. Trade is not a narrow legal concept but a broad commercial one: transactions planned and executed as a single transaction must be viewed as a whole."”
“169S(1) For the purposes of this Chapter “a business” means anything which– (a) is a trade, profession or vocation, and (b) is conducted on a commercial basis and with a view to the realisation of profits.”
“I consider that the “natural and ordinary” meaning of the definition of “a business” in s169S(1) is that it requires that an individual or partnership making the disposal is disposing of something (or anything) that is, at that time, a trade and is conducted, at that time, on a commercial basis. The trade must exist at that time – it does not extend to activities which are capable of being conducted as a trade at a point in the future.”
“(3) “Trading company” means a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities. (4) For the purposes of subsection (3) above “trading activities” means activities carried on by the company– (a) in the course of, or for the purposes of, a trade being carried on by it, (b) for the purposes of a trade that it is preparing to carry on,”
“88. Whether or not a trade has commenced will depend on a consideration of all the individual facts and it is in my view inappropriate to apply the short reasoning in Birmingham & District Cattle to all circumstances. I do not accept HMRC’s argument that because it is a simpler the test Birmingham & District Cattle is necessarily to be preferred. In my view the well-articulated and clear summary of the issues as set out in Mansell at [88] to [95] represents a better summary of the factors to take into account, at least in the current appeal. Henderson J in Tower MCashback found the “operational activities” test in Mansell “useful” and in Hunt both HMRC and the appellant agreed that the relevant test was as set out in Mansell.”
“98. As I have found, the Feedstock Agreement is a contract for the supply of materials to the LLP not a supply by the LLP. Nevertheless, I accept that the Feedstock Agreement is "immediately and directly related" to the supplies of energy and ROCs to be made by the LLP. Further, the LLP has put money at risk under the Feedstock Agreement but the contract and so future suppliers are conditional on the construction of the plant. I have been unable to make any findings as to the significance of that condition as the appellant did not produce the relevant construction contracts. 99. There are two potential sources of income to the LLP, the energy contract and the sale of ROCs. I have found that there are no contracts or other arrangements for the sale of ROCs in the relevant period and so they are in my view irrelevant in establishing whether the LLP had commenced operational activities. The appellant did not produce the energy contract and accordingly in my view the appellant has not demonstrated that the electricity contract amounted to the kind of commitment inferred in the third limb of Special Commissioner Hellier's test. 100. I am therefore not satisfied that the appellant has shown that the LLP has commenced operational activities beyond the commitments in the Feedstock Agreement which in any event are contingent on the construction of the plant.”
“101. In the absence of sales to customers, the appellant sought to rely on the principles in Mansell provides (sic) an alternative route to establishing the commencement of a trade. Special Commissioner Hellier's principles do not apply readily to the current circumstances, in particular the assumption that a business must be set up before it can commence operational activities. 102. However, even applying the principles loosely on the basis that each case must be decided on its own facts, I am not satisfied that the appellant has demonstrated that the LLP has commenced trading in the period.”
“We have concluded that ‘set-up’ does not require full, 100% completion. In reaching this decision, we refer to and rely on the wording of Mansell which qualifies ‘set-up’ with the words “to the extent it needs to be set up”, which suggest to us that there is a threshold level at which ‘set-up’ can be achieved although incomplete. We consider that this view is supported by Microfusion where the Mansell test was satisfied in the absence of the DCMS certification and Hunt where the Mansell test was satisfied in the absence of the Gambling Licence. Accordingly, Step 2 requires the setting up of the business, to the extent it needs to be set up which is a fact-sensitive analysis and what is required to set up one business to the requisite level will vary (potentially greatly) from what is required to set up another. Further to Judge Hyde’s comment in Wardle 2, §101, we also consider that, perhaps depending on the trade in question, set-up can co-exist with operational activity in that there is not necessarily a bright line moving between the two, but that, in reality, the two could proceed hand-in-hand.”
“Whilst it is true that the suite of agreements could possibly have been terminated, we consider this unlikely as very significant work had been undertaken, the counterparties had a common goal and, from at least Financial Close all parties were committed. Fourth, on24 August 2015 notices to proceed were issued, as detailed at paragraph 38 above. In summary, the train was on the tracks travelling to its destination. Its journey appears to us rather like a continuum, and having a genuine and very substantial commercial underpinning and purpose. It was being conducted under the integrated suite of agreements determining many aspects of its activity, including operational activities as described below. These were inter-related and had been drawn up to a high degree of complex legal, financial and technical detail. For the avoidance of doubt, we have given anxious scrutiny to the fact that as at28 February 2018 the G59 certificate was not obtained and Clause 2.2 of the PPA was not satisfied, as not all of the pre-conditions were met. However, for the reasons given in paragraph 115 above, we are satisfied that this does not preclude Step 2 from being satisfied. We note that the level of ‘set up’ in this case is commensurate with the level of set up in Hunt, albeit we have taken into account that these are different businesses and, therefore, that the decision in Hunt is not determinative.”
“In [57], the FTT gave no reasons for disagreeing with decision of the FTT in Brandbros, a case in which Mr Cannon had appeared for the taxpayer and deployed the same argument based on scintilla temporis, but where the panel reached the opposite conclusion to the FTT in this case. Of course, the decision of one FTT is strictly not binding on another FTT as a matter of precedent, but the principle of judicial comity, or horizontal stare decisis, requires that a FTT should follow the decision of a previous tribunal of co-ordinate jurisdiction unless ‘convinced’ or ‘satisfied’ (there is no practical difference between the two) that the earlier decision was wrong (see Gilchrist v HMRC[2014] UKUT 169 (TCC) at [91] to [94]). There are good reasons for this practice: it promotes consistency in judicial decisions and predictability of outcomes thereby avoiding re-litigation of identical legal issues, and it builds public confidence in the appeals process by ensuring that similar cases are treated similarly over time. If a later FTT considers that a previous decision of the FTT on materially identical facts and/or law was wrong, then it should set out why. It need not do so at great length but simply stating, as the FTT did in this case, that other decisions not on the same point are preferred leaves the reader in the dark. We consider that, where a FTT decides not to follow the decision of another FTT on the same or a materially similar point, it should explain why it has taken a contrary view.”
“[T]he train was on the tracks travelling to its destination. Its journey appears to us rather like a continuum, and having a genuine and very substantial commercial underpinning and purpose. It was being conducted under the integrated suite of agreements determining many aspects of its activity, including operational activities as described below. These were inter-related and had been drawn up to a high degree of complex legal, financial and technical detail. For the avoidance of doubt, we have given anxious scrutiny to the fact that as at28 February 2018 the G59 certificate was not obtained and Clause 2.2 of the PPA was not satisfied, as not all of the pre-conditions were met. However, for the reasons given in paragraph 115 above, we are satisfied that this does not preclude Step 2 from being satisfied. We note that the level of ‘set up’ in this case is commensurate with the level of set up in Hunt, albeit we have taken into account that these are different businesses and, therefore, that the decision in Hunt is not determinative.”