York SD Limited & Ors v The Commissioners for HMRC [2025] UKFTT 877 (TC)

[2025] UKFTT 00877 (TC)Case No TC09589
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 14-24 May 2024Date Judgment date: 16 July 2025
[Taylor House, London]
Appeal references: TC/2022/02503
TC/2022/02505 TC/2022/02514
TC/2022/02515 TC/2022/02517
TC/2022/02519
ENTERPRISE INVESTMENT SCHEME – whether relief requirements under Income Tax Act 2007 were met – no – whether a “deemed group trade” should be recognised for the purposes of satisfying the requirements – no – whether the doctrines of waiver and estoppel by convention precludes withdrawal of relief – no – whether a decision released after the hearing should be considered – yes – appeals dismissed
Before
TRIBUNAL JUDGE KIM SUKULTRIBUNAL MEMBER JOHN WOODMAN
Between
YORK SD LIMITEDAppellantWARWICK SD LIMITEDAppellantBRISTOL SD LIMITEDAppellantCARDIFF SD LIMITEDAppellantLANCASTER SD LIMITEDAppellantMANCHESTER SD LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentRobert Venables KC and Rebecca Sheldon of counsel, instructed by RW Blears LLP for AppellantsChristopher Stone KC and Thomas Westwell of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for RespondentsDECISION

Introduction

[1]The six Appellants appeal against decisions issued by the Respondents (‘HMRC’) dated 28 January 2020 that shares issued by each of them between 18 December 2015 and 31 March 2016 were no longer eligible shares for the purpose of enterprise investment scheme relief (‘EIS relief’), pursuant to section 234(3)(b) Income Tax Act 2007 (‘ITA 2007’) and paragraph 1A of Schedule 5B of the Taxation of Chargeable Gains Act 1992 (‘TCGA 1992’).[2]There is no tax effect on the Appellants from the decisions, although there may be a tax effect on individuals that subscribed for the Appellant’s shares. This appeal is not concerned with the tax affairs of the individual investors in the Appellants.[3]The hearing lasted 9 days. The documents to which we were referred were contained within 8 hearing bundles (totalling 7,858 pages), a bundle of authorities (976 pages), supplementary bundle, statement of agreed facts, written submissions and skeleton arguments. We also have the benefit of transcripts of the hearing and further written representations from the parties received after the hearing.[4]Each of the decisions has been appealed on identical grounds that, in relation to the shares:(1) The Appellant did meet the "trading requirement" (see section 181) throughout Period B.(2) The Appellant did meet the "purpose of the issue requirement (see section 174). In particular, the Appellant issued the "relevant shares" for the purpose of a qualifying business activity (within the meaning of section 179) [so as to promote business growth and development].(3) Further and in the alternative to 2., HMRC, by authorising the issue of compliance certificates (see section 204) have waived this requirement and / or are estopped from alleging that it was not complied with.(4) The Appellant complied with section 175 (The use of the money raised requirement) by employing all of the money raised by the issue of the relevant shares no later than the time mentioned in section 175(3), wholly for the purpose of the qualifying business activity for which it was raised.(5) Further and in the alternative to 4., HMRC, by authorising the issue of compliance certificates have waived this requirement and / or are estopped from alleging that it was not complied with.(6) The Appellant did meet the requirement at section 205(4) Income Tax Act 2007 when signing the compliance statement.(7) Further and in the alternative to 4., HMRC, by authorising the issue of compliance certificates have waived any requirement of section 205(4) and / or are estopped from alleging that it was not complied with.(8) HMRC cannot, in resisting the appeals against the section 234 notices, rely on any ground not properly duly specified in the notices.(9) In the alternative to 8., The Appellant complied with the minimum period requirement (section 176).(10) In the alternative to 8., The Appellant complied with the issuing company to carry on the qualifying business activity requirement (section 183).[5]The appeals turn on a number of provisions in Part 5 ITA 2007. HMRC submit that a key theme of their case is that none of the Appellants or their subsidiaries carried on a “qualifying trade” under section 189 ITA 2007 within the time-periods required by the legislation. They argue that in none of the appeals had the Appellant or its subsidiary, by the relevant dates:(a) set up its business, by completing the construction of the solar plant necessary for it to carry on its trade; or(b) commenced operational activities, by engaging in dealings with third parties which were immediately and directly related to the supply of electricity and which involved the company putting money at risk.[6]HMRC accept that the activities of each Appellants’ subsidiary prior to the relevant deadlines were legitimate business activities, but contend that these amounted to nothing more than getting ready to trade. They also argue that the Appellants failed to satisfy a number of other requirements in the legislation.[7]Although the facts of each appeal are distinct, each Appellant engaged in similar activities and entered into similar (and sometimes the same) agreements. HMRC’s case is that the statutory requirements were not satisfied in any of the appeals.[8]Having carefully considered all the submissions made by the parties and the evidence adduced during the hearing, we have decided to dismiss these appeals. Our conclusions regarding the key arguments are set out below.

new decision post-hearing

[9]On 26 September 2024, the First-tier Tribunal (‘FTT’) decision in Putney Power Limited & Anor v HMRC [2024] UKFTT 00870 (‘Putney Power‘) was released and a procedural disagreement arose between the parties regarding whether the Tribunal should consider a decision which had been released after the hearing had concluded but before judgment has been delivered.[10]HMRC submitted that, whilst not binding, the decision is relevant and potentially helpful in determining when a trade is considered to have commenced under the Enterprise Investment Scheme (‘EIS’) rules. They argued that it is entirely appropriate and not unusual to bring such decisions to the Tribunal’s attention post-hearing, especially when they may aid in achieving consistency in judicial reasoning.[11]The Appellants objected to the Tribunal considering the new decision. They argued thataccepting new decisions post-hearing could delay judgments unnecessarily, and that the submissions were closed, no sufficient reason has been shown to reopen them, the decision in Putney Power is not binding, and the issue of when trade commences should be decided independently by the Tribunal based on the original submissions. They also commented that HMRC has not explained how the new decisions relate to the arguments already made and that if the Tribunal does consider the decision, they request that HMRC explain the relevance in context and that the Appellants must be given a right of reply.[12]Having considered these submissions, on 27 November 2024, we issued the following direction:
“It is not unprecedented for a relevant decision, released after a substantive hearing, to be addressed when a judgment is being drafted. Although the decision in Putney Power is not binding on us, we consider the decision to be on the same or a materially similar point. This raises the principle of judicial comity, which promotes consistency in judicial decisions. Should we decide not to follow the decision, we should explain why we have taken a contrary view (see HMRC v Suterwalla [2024] UKUT 00188 at [23]). We consider it to be in the interests of fairness and justice, in the circumstances of this appeal, to invite the parties to provide further representations for our consideration. We therefore direct that: 1. HMRC shall provide to the Tribunal and the Appellant, within 14 days from the date of this direction, their detailed representations on the decision in Putney Power, or confirm that they have none. 2. The Appellant shall provide to the Tribunal and HMRC, within 28 days from the date of this direction, their detailed representations on the decision in Putney Power, or confirm that they have none. After 28 days, any submissions made by the parties will be considered. Our conclusion that the decision in Putney Power should be considered in this appeal, and our consideration of the decision itself, will be recorded in our final judgment.”
[13]We received further representations on the decision in Putney Power on 11 December 2024 from HMRC and on 24 December 2024 from the Appellants. The decision and the representations from the parties have been considered below, at [80] onwards.

the legislation

[14]The relevant legislation is contained in sections 155 – 257 ITA 2007 which confers a relief from income tax where shares in “the issuing company” are subscribed by, and issued to, “the investor” subject to certain requirements. Subsequent references to statutory provisions in this decision are therefore in respect of ITA 2007, unless stated otherwise. The requirements relevant to this appeal are to be found in the following sections:[15]Section 174 provides the purpose of the issue requirement, as follows:
“(1) The relevant shares...must be issued in order to raise money for the purpose of a qualifying business activity so as to promote business growth and development. (2) For this purpose “business growth and development” means the growth and development of- ... (b) if the issuing company is a parent company, what would be the business of the group if the activities of the group companies taken together were regarded as one business.”
[16]The term “qualifying business activity” (‘QBA’) is defined by section 179, which provides:
“(1) In this Part “qualifying business activity”, in relation to the issuing company, means- (a) activity A, ... if it is carried on by the company or a qualifying 90% subsidiary of the company. (2) Activity A is- ... (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. ... (7) References in subsection (2)(b)(i) ... to a qualifying 90% subsidiary of the company include references to any existing or future company which will be such a subsidiary at any future time.”
[17]Section 175 provides the use of the money raised requirement as follows:
“(1) The requirement of this section is that all of the money raised by the issue of the relevant shares ... is, no later than the time mentioned in subsection (3), employed wholly for the purpose of the qualifying business activity for which it was raised. ... (3) The time referred to in subsection (1) is- (a) the end of the period of two years beginning with the issue of the shares, or (b) in the case of money raised only for the purpose of an activity to which section 179(2) applies, the end of the period of two years beginning with- (i) the issue of the shares, or (ii) if later, the time when the company or a qualifying 90% subsidiary of the company begins to carry on the qualifying trade. (4) In determining for the purposes of subsection (3)(b) when a qualifying trade is begun to be carried on by a qualifying 90% subsidiary of a company, any carrying on by it of the trade before it became such a subsidiary is ignored.”
[18]Section 176, the minimum period requirement, provides:
“(1) The issue of shares which includes the relevant shares must meet- (a) the requirement of subsection (2) in a case where the money raised by an issue of shares is raised wholly for the purpose of a qualifying business activity falling within section 179(2), … (2) The requirement is that- (a) the trade concerned must have been carried on for a period of at least 4 months ending at or after the time of the issue, and (b) throughout that period- (i) the trade must have been carried on by the issuing company or a qualifying 90% subsidiary of that company, and (ii) the trade must not have been carried on by any other person.”
[19]Section 181 provides the following trading requirement:
“(1) The issuing company must meet the trading requirement throughout period B. (2) The trading requirement is that- (a) the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, or (b) the company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities. (3) If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades- (a) the company is treated as a parent company for the purposes of subsection (2)(b), and (b) the reference in subsection (2)(b) to the group includes the company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect. This subsection does not apply at any time after the abandonment of that intention. (4) For the purpose of subsection (2)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business. (5) For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose. (6) For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in- (a) the holding of shares in or securities of a qualifying subsidiary of the parent company, (b) the making of loans to another group company, (c) the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or (d) the holding and managing of property used by a group company for the purpose of research and development from which it is intended- (i) that a qualifying trade to be carried on by a group company will be derived, or (ii) that a qualifying trade carried on or to be carried on by a group company will benefit. (7) Any reference in subsection (6)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time. (8) In this section- “incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the company in question, “mainly trading subsidiary” means a qualifying subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly, and “non-qualifying activities” means- (a) excluded activities, and (b) activities (other than research and development) carried on otherwise than in the course of a trade. (9) This section is supplemented by section 189 (meaning of “qualifying trade”) and sections 192 to 199 (excluded activities).”
[20]The definition of “Period B” under section 159(3) is:
“(3) “Period B” means the period- (a) beginning with the issue of the shares, and (b) ending immediately before the termination date relating to the shares.”
[21]The meaning of “termination date” is provided in section 256 as follows:
“(1) In this Part “the termination date”, in relation to any shares issued by a company, means- (a) the third anniversary of the issue date, or (b) if- (i) the money raised by the issue was raised wholly or mainly for the purpose of a qualifying business activity within section 179(2) (the issuing company or a qualifying 90% subsidiary of that company carrying on or preparing to carry on a qualifying trade), and (ii) neither the issuing company nor any of its qualifying 90% subsidiaries had begun to carry on the trade in question on the issue date, the third anniversary of the date on which the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.”
[22]Section 204 concerns compliance certificates and provides:
“(1) A “compliance certificate” is a certificate which– (a) is issued by the issuing company in respect of the relevant shares, (b) states that, except so far as they fall to be met by or in relation to the investor, the requirements for EIS relief are for the time being met in relation to those shares, and (c) is in such form as the Commissioners for Her Majesty’s Revenue and Customs may direct. (2) Before issuing a compliance certificate in respect of the relevant shares, the issuing company must provide an officer of Revenue and Customs with a compliance statement in respect of the issue of shares which includes the relevant shares. (3) The issuing company must not issue a compliance certificate without the authority of an officer of Revenue and Customs. … (5) If an officer of Revenue and Customs– (a) has been requested to give or renew an authority to issue a compliance certificate, and (b) has decided whether or not to do so, the officer must give notice of the officer’s decision to the issuing company.” the officer must give notice of the officer’s decision to the issuing company.”
[23]Section 205 concerns compliance statements and provides:
“(1) A “compliance statement” is a statement, in respect of an issue of shares, to the effect that, except so far as they fall to be met by or in relation to the individuals to whom shares included in that issue have been issued, the requirements for EIS relief (see section 157)– (a) are for the time being met in relation to the shares to which the statement relates, and (b) have been so met at all times since the shares were issued. (2) In determining for the purposes of subsection (1) whether the requirements for EIS relief are met at any time in relation to the issue of shares, references in this Part to “the relevant shares” are read as references to the shares included in the issue. (3) A compliance statement must be in such form as the Commissioners for Her Majesty’s Revenue and Customs direct and must contain– (a) such additional information as the Commissioners reasonably require, including in particular information relating to the persons who have requested the issue of compliance certificates, (b) a declaration that the statement is correct to the best of the issuing company’s knowledge and belief, and (c) such other declarations as the Commissioners may reasonably require. (4) The issuing company may not provide an officer of Revenue and Customs with a compliance statement in respect of any shares issued by it in any tax year– (a) before the requirement in section 176(2) or (3) (trade etc must have been carried on for 4 months) is met, or (b) later than two years after the end of that tax year or, if that requirement is first met after the end of that tax year, later than two years after the requirement is first met.”
[24]Section 234 concerns relief subsequently found not to have been due and provides: “(1) Any EIS relief obtained by the investor which is subsequently found not to have been due must be withdrawn. (2) EIS relief obtained by the investor in respect of the relevant shares may not be withdrawn on the ground–(a) that the requirements of sections 174 and 175 (the purpose of the issue and use of money raised requirements) are not met in respect of the shares, or(b) that the issuing company is not a qualifying company in relation to the shares (see Chapter 4), unless the requirements of subsection (3) are met. (3) The requirements of this subsection are met if either– (a) the issuing company has given notice under section 241, or paragraph 16(2) or (4) of Schedule 5B to TCGA 1992, (information to be provided by issuing company etc) in relation to the relevant issue of shares, or (b) an officer of Revenue and Customs has given notice to that company stating the officer’s opinion that, because of the ground in question, the whole or any part of the EIS relief obtained by any individual in respect of shares included in the relevant issue of shares was not due. (4) In this section “the relevant issue of shares” means the issue of shares in the issuing company which includes the relevant shares.”

the issues

[25]We consider the issues to be determined in this appeal are:(1) Whether the Appellants met all requirements of the EIS, in particular: (a) The purpose of the issue requirement (section 174). (b) The use of the money raised requirement (section 175). (c) The minimum period requirement (section 176). (d) The trading requirement (section 181).(2) Whether HMRC can advance arguments that were not explicitly made in their decision notice of 28 January 2020.(3) Whether HMRC waived any requirement to comply with any EIS requirement.(4) Whether estoppel precludes HMRC from alleging that the Appellant did not comply with any EIS requirement.

burden of proof

[26]The Appellants have the burden to show that they complied with all EIS requirements (by virtue of section 50(6) Taxes Management Act 1970). The Appellants also have the burden on the issues regarding estoppel, whether HMRC waived any EIS requirements, and any limits on the submissions HMRC can make in their response to this appeal.[27]The standard of proof is the civil standard, namely on the balance of probabilities.

statement of agreed facts

[28]The statement agreed by the parties set out the following matters relevant to all Appellants:
“1. This is the Statement of Agreed Facts ("SOAF") in respect of the above between the Appellants and the Respondents (the "Parties"). AGREED FACTS Matters Relevant to All Appellants 2. Each of York SD Limited, Warwick SD Limited, Bristol SD Limited, Cardiff SD Limited, Lancaster SD Limited and Manchester SD Limited (together, “the Appellants”), issued on 18th December 2015, 22nd January 2016, 29th February 2016, 30th March 2016 and 31st March 2016 shares to a nominee for certain investors ("the Investors"). Each Appellant filed on May 10th 2017 with HMRC a "compliance statement" in respect of each issue of shares, pursuant to Income Tax Act 2007 ("ITA") section 205. Between 3rd July and 24th July 2017, HMRC authorised, pursuant to ITA section 204(3), each Appellant to issue a "compliance certificate" (as defined in section 204(1)) to its Investors, which it duly did. 3. Each Investor, being thereby so entitled (see ITA section 203(1)), made claims for relief from income tax pursuant to ITA Part 5 (Enterprise Investment Scheme). Such relief is referred to in Part 5 as "EIS Relief". Such claims were duly allowed. 4. By letter dated January 28th 2020 to each of the Appellants, Edward Neale, employed by HMRC as a "Venture Capital Scheme Specialist" within its Wealthy/Mid-sized Business Compliance department, stated: "I am of the view that the shares issued on [sic] are no longer eligible for EIS purposes. The company is considered to have breached [sic] the following statute: - Section 176 Income Tax Act 2007, the minimum period requirement - Section 174 Income Tax Act 2007, the purpose of the issue requirement - Section 175 Income Tax Act 2007, the use of money raised requirement - Section 189 Income Tax Act 2007 the meaning of 'qualifying trade'" 5. After stating his reasons, Mr Neale concluded: "In light of the above reasons, it is necessary that relief is withdrawn from the company's investors and, on that basis, I will be issuing assessments to them under s.29(1) of the Taxes Management Act 1970. I have also issued the company a notice, under separate cover, confirming that the shares issued are no longer eligible shares for EIS purposes for the reasons explained above." 6. Each notice read: “I hereby give notice under S234(3)(b) Income Tax Act (ITA) 2007 and Para16 Sch5B TCGA 1992 that the shares issued on the 18th December 2015, 22nd January 2016, 29th February 2016, 30th March 2016 and 31st March 2016 are no longer eligible shares for EIS purposes. The grounds for this decision are as follows • The company did not meet the trading requirement at section 181 Income Tax Act 2007 throughout period B • The company did not have a qualifying business activity as defined at section 179 Income Tax Act 2007 and neither did its subsidiary. • The purpose of issue requirement at section 174 Income Tax Act 2007 was not met by virtue of the fact the activity for which the funds were raised was not a qualifying business activity. • The use of the money raised requirement at section 175 Income Tax Act 2007 was not met as the funds were employed on an activity that was not a qualifying business activity. • The company did not meet the requirement at section 205(4) Income Tax Act 2007 when signing the compliance statement on 10th May 2017 as the trade for which the funds were raised, in this case the ground mounted solar arrays, had not been trading for 4 months.” 7. Each Appellant duly appealed against each such notice, pursuant to ITA section 236. 8. Following correspondence between the parties and a statutory review by HMRC, each Appellant filed a Notice of Appeal with the First-Tier Tribunal. The appeals were later consolidated. 9. All references below to statutory provisions are to the provisions of the ITA unless otherwise indicated.”
AGREED FACTS Matters Relevant to All Appellants • The company did not meet the trading requirement at section 181 Income Tax Act 2007 throughout period B • The company did not have a qualifying business activity as defined at section 179 Income Tax Act 2007 and neither did its subsidiary. • The purpose of issue requirement at section 174 Income Tax Act 2007 was not met by virtue of the fact the activity for which the funds were raised was not a qualifying business activity. • The use of the money raised requirement at section 175 Income Tax Act 2007 was not met as the funds were employed on an activity that was not a qualifying business activity. • The company did not meet the requirement at section 205(4) Income Tax Act 2007 when signing the compliance statement on 10th May 2017 as the trade for which the funds were raised, in this case the ground mounted solar arrays, had not been trading for 4 months.” witness evidence Mr David Hughes Witness Statement[29]The witness statement of Mr David Hughes was provided in connection with his role as Chief Investment Officer of Foresight Group LLP (‘Foresight’), a subsidiary undertaking of Foresight Group Holdings Limited which is an investment company listed on the London Stock Exchange. He has been a partner at Foresight for the past 15 years and during his tenure, he has overseen a wide range of sustainable infrastructure investments across Europe and Australia, including projects in solar, wind, hydrogen, and geothermal energy.[30]Mr Hughes explains that Foresight played a central role in managing the Foresight Energy Infrastructure EIS Fund, which invested approximately £5 million in each of the six Appellant Companies between December 2015 and March 2016. The fund was structured such that private investors appointed Foresight to manage their investments in companies that qualified for EIS. This structure allowed Foresight to direct capital into early-stage businesses with the potential for high growth, while also ensuring that the investments met the criteria for EIS tax relief.[31]To initiate trading, each of the six Appellant Companies installed a single rooftop solar panel in the UK. These installations were accompanied by agreements to sell electricity to homeowners, serving as a demonstration of genuine trading activity. This initial step was designed to satisfy the EIS requirement that trading must commence within a specified timeframe.[32]Building on this foundation, the companies expanded their operations by establishing subsidiaries in Spain and Portugal. These subsidiaries were tasked with developing ground-mounted solar plants, marking a significant scale-up in operations. Foresight provided comprehensive support throughout this process, including operational oversight, technical guidance, and financial structuring. Their involvement extended to sourcing viable projects, negotiating engineering, procurement, and construction (‘EPC’) contracts, and arranging power purchase agreements (‘PPAs’) with energy buyers.[33]Mr Hughes states that, in 2016, detailed business plans were submitted to HMRC. These plans outlined a phased approach to trading, with modest initial activity followed by substantial revenue generation expected from 2018 onward. HMRC reviewed and accepted these plans, subsequently issuing EIS2 authorisations in 2017, meaning that investors were entitled to claim the associated tax reliefs.[34]Despite the careful planning and execution, the projects encountered several external challenges that caused delays. In Spain, bureaucratic hurdles related to planning permissions and grid connection processes slowed progress. Additionally, a government-imposed moratorium on new solar permits further impeded development. The onset of the COVID-19 pandemic introduced further disruptions, affecting supply chains, construction timelines, and regulatory processes. Nevertheless, several of the projects eventually became operational and began generating revenue.[35]Each company focused on specific solar projects, with detailed timelines for securing permits, constructing facilities, and connecting to the grid. For instance, York SD Limited (‘York’) developed the TC03 project in Spain, which became operational by 2021. Warwick SD Limited (‘Warwick’) completed the Vale Matanças project in Portugal, which was operational by early 2019. Cardiff SD Limited (‘Cardiff’) pursued the TC01 and AL02 projects, with the AL02 project becoming operational by 2022.[36]Foresight’s compensation for managing these investments followed a standard fee structure. This included an initial fee of 5.5%, an annual management fee of 1.5%, and a secretarial fee of 0.3%. In addition, performance incentives were built into the structure, with rewards based on the returns generated by the investments.[37]Mr Hughes states that the fund operated in full compliance with the regulatory frameworks established by the Financial Conduct Authority and HMRC. Its structure was carefully designed to avoid classification as a collective investment scheme under UK law, ensuring that it remained within the bounds of permissible investment vehicles. The Appellants relied on HMRC’s authorisation to issue compliance certificates. Had authorisation not been granted, the Appellants would have had the opportunity to answer any questions and alter its activities to ensure the requirements were met. In particular, they would have expanded their rooftop solar activities in the United Kingdom to a level that would have satisfied HMRC’s newly apparent qualitative threshold for trading.[38]While acknowledging the external challenges that delayed revenue generation, Mr Hughes states that they were genuinely engaged in trading activities focused on the generation of solar electricity and highlights the strategic planning, operational execution, and regulatory compliance that underpinned the Appellants’ activities.

Timeline of Events

[39]Mr Hughes’s witness statement sets out the development of their solar energy operations. He states that this timeline reflects a deliberate and phased approach to business development, beginning with modest domestic operations and expanding into more ambitious international projects. Each milestone demonstrates the Appellants’ commitment to building viable, revenue-generating renewable energy businesses.[40]The key dates set out in the statement can be summarised as follows: Company Incorp. EIS Share Issue Rooftop Install Subsidiary Formation EPC Agreed Grid Connection Revenue Generation York 16-Dec-15 18 Dec 2015 – 31 Mar 2016 02-Nov-16 08-Aug-18 18-Oct-18 01-Jul-21 Late Summer 2021 Warwick 17-Dec-15 18 Dec 2015 - 31 Mar 2016 25-Oct-16 05-Apr-17 20-Oct-17 10-Dec-18 Jan-19 Bristol 16-Dec-15 18 Dec 2015 – 31 Mar 2016 20-Oct-16 26-Apr-17 18-Oct-18 04-Jun-20 Jul-20 Cardiff 17-Nov-15 18 Dec 2015 – 31 Mar 2016 08-Dec-16 26-Apr-17 04-Dec-17 09-Nov-18 Jan-19 Lanc. 16-Dec-15 18 Dec 2015 – 31 Mar 2016 09-Dec-16 26-Apr-17 18-Oct-18 27-Sep-21 May-22 Man. 16-Dec-15 18 Dec 2015 – 31 Mar 2016 25-Oct-16 26-Apr-17 15-Jan-19 03-Nov-20 May-21

Oral Testimony

[41]During the hearing, Mr Hughes gave detailed testimony under oath regarding the formation, intentions, and operations of the appellant companies. Although not a direct board member of the companies, Mr Hughes was closely involved in their oversight and strategic direction through his role at Foresight.[42]Mr Hughes was questioned regarding this evidence that the primary purpose of the share issues by each of the six companies was to fund investments in solar energy projects, both in the UK and overseas. He explained that the strategy was to begin with rooftop solar panel installations in the UK to initiate trading and satisfy the requirements of the EIS. These installations, while not expected to be profitable on their own, were intended to demonstrate commercial activity and start the EIS clock. From the outset, the companies planned to establish wholly owned subsidiaries in countries such as Spain and Italy to develop larger, ground-mounted solar projects. This approach was consistent with Foresight’s standard practice of using subsidiaries for overseas investments.[43]The companies submitted EIS1 compliance statements to HMRC in May 2017, believing that all EIS requirements had been met. Mr Hughes noted that while the EIS1 forms did not explicitly mention the use of subsidiaries, due to limitations in the form design, the accompanying business plans and covering letters clearly outlined the intention to operate through such structures. He emphasised that if HMRC had refused to authorise the compliance certificates, the companies would have redirected their investments into alternative opportunities, such as rooftop solar projects in Italy, which could have been implemented more quickly.[44]Mr Hughes expressed that the companies relied heavily on HMRC’s authorisation of the EIS3 certificates. He considered this reliance was reasonable and that the companies would suffer significant detriment if HMRC were now permitted to invalidate those certificates. The potential consequences included lost investment opportunities, litigation costs, reputational damage, and dissatisfaction among investors.[45]During cross-examination, Mr Hughes acknowledged that some early documentation, such as investment memoranda and director appointment letters, referenced smart metering and reserve power rather than solar energy. He attributed this to evolving market opportunities and regulatory changes. He also accepted there were some discrepancies between the documents and his evidence, such as York’s accounts stating its principal activity was smart meter ownership. He said these were clerical errors made by junior staff unfamiliar with the companies’ actual operations.[46]Mr Hughes explained the use of some of the raised capital for inter-company loans to other Foresight entities, such as Foresight Metering Limited, as a form of prudent cash management while awaiting deployment into solar projects. He maintained that the companies began operational activities shortly after incorporation, including scouting for solar opportunities, even though formal board meetings were not documented until later in 2017.[47]He also addressed the issue of trading and revenue generation, reiterating that the rooftop installations marked the beginning of their trading activity and that the companies were actively pursuing overseas projects thereafter. Although there were delays and some projects did not materialise as planned, due to bureaucratic hurdles, regulatory moratoriums, and the COVID-19 pandemic, Mr Hughes insisted that the companies consistently acted with the intention to trade and generate electricity.[48]Finally, Mr Hughes expressed his surprise and frustration at HMRC’s decision to withdraw EIS relief. He highlighted that the companies had acted in good faith, based on HMRC’s earlier authorisation, and he considered the withdrawal to be unjustified given the companies’ consistent efforts to comply with EIS requirements and pursue legitimate trading activities. Mr Carlos Rey Micolau Witness Statement

Mr Carlos Rey Micolau

[49]In his witness statement as a managing director at Foresight, Mr Carlos Rey Micolau, who also manages Foresight’s Madrid office and co-directs Foresight Group Iberia, outlines his professional background and his role in managing solar investments in Southern Europe, particularly in Spain and Portugal. He explains that from late 2015 to early 2016, approximately £5 million was invested in each of the six appellant companies, with the funds ultimately used to finance unsubsidised ground-mounted solar plants in Iberia. He states that these investments were made with the intention of generating revenue through electricity sales, either to the wholesale market or via long-term PPAs with private entities.[50]Mr Rey’s statement details the development and commercialisation of eight solar plants by the subsidiaries of the appellant companies, despite facing significant challenges such as intense market competition, regulatory delays, and the COVID-19 pandemic. He provides a timeline of events and identifies the specific plants developed by each subsidiary and describes the Iberian solar market’s stagnation between 2008 and 2018 due to the global financial crisis and the withdrawal of government subsidies. Foresight was among the first to identify the viability of unsubsidised solar investments in the region, driven by high solar irradiation, falling technology costs, and favourable electricity prices.[51]Mr Rey emphasises the importance of local presence and relationships in navigating the complex regulatory and planning environment. He outlines the extensive due diligence and partnership-building efforts undertaken with local developers, legal advisors, and technical consultants. These efforts included evaluating over 100 potential projects and engaging with numerous counterparties and advisors. He also explains the contractual framework for solar projects, including EPC agreements and O&M (operations and maintenance) contracts, as well as the negotiation of PPAs. The first investments were made in 2017, with the first operational plant connected to the grid in late 2018.[52]The statement concludes by detailing the challenges faced from 2018 onward, including increased competition, government auctions favouring subsidised projects (which the Appellants could not pursue due to EIS restrictions), administrative bottlenecks, and pandemic-related delays. Despite these obstacles, the projects eventually became operational and generated returns reflective of the significant effort and capital invested.

Oral Testimony

[53]In his testimony given under oath during the hearing, Mr Rey stated that, from the outset, the intention was for each appellant company to establish a wholly owned subsidiary to carry out overseas solar activities. This was standard practice for Foresight, which never used UK companies to invest directly in foreign projects.[54]He explained that the decision to focus on solar energy investments in Spain and Portugal was made in late 2015, with a clear mandate from Foresight’s management committee in early 2016. This decision followed the rejection of initial investment plans and the identification of new opportunities in unsubsidised solar projects in Iberia. Mr Rey was tasked with originating greenfield solar developments in Spain and Portugal, shifting his focus from the Italian market. He emphasised that the commitment to solar was solidified when Foresight’s investment committee approved the Spanish projects, which he interpreted as a directive to proceed with solar investments on behalf of the appellant companies.[55]Mr Rey clarified that while discussions about solar investments began in late 2015, the formal and focused effort to pursue these projects began in January 2016. He noted that the companies began operational activities shortly after incorporation, including scouting for solar opportunities, although formal board meetings were not documented until later in 2017.[56]He also addressed the issue of forward contracts for electricity sales. While most subsidiaries chose to sell electricity at spot prices once operational, two of the Appellants (Cardiff and Warwick) entered into long-term PPAs before their plants were operational. These agreements carried risks, including penalties for delayed energy delivery, which were realised in Cardiff’s case. Mr Rey explained that the decision to avoid such agreements in later projects was a strategic response to these risks.[57]Regarding the timeline of project development, Mr Rey described the process from identifying a site, incorporating a subsidiary, securing land and grid access, obtaining planning permissions, and finally entering into EPC agreements. He noted that while EPC contracts were sometimes signed before final planning approvals, construction would not commence until all necessary permits were obtained. This approach allowed Foresight to lock in prices and secure resources in advance.[58]Mr Rey also discussed the financial management of the companies. He acknowledged that some capital was loaned to other Foresight entities, such as Foresight Metering Limited, as a form of prudent cash management. He considered this practice to be consistent with the companies’ objectives and noted that excess funds were sometimes reallocated between companies to meet varying capital needs.[59]In terms of documentation, Mr Rey admitted that while decisions were made at the board level, not all were formally minuted. He emphasised that the subsidiaries acted under the direction of their parent companies and did not operate autonomously. The lack of formal records was attributed to administrative oversight rather than a lack of governance.[60]Mr Rey’s evidence also highlighted the challenges and risks inherent in solar project development, including planning delays, grid access issues, and the need for detailed financial modelling. He described how KPMG was engaged in late 2016 to validate the financial viability of the projects, providing a robust business model that supported investment decisions. Comments on the

witness evidence

[61]Having considered the detailed written and oral evidence given by the witnesses, it is our finding that Mr Hughes and Mr Rey were both in a position to give reliable testimony as to the actions taken by the Appellants and the decisions the Appellants made in relation to their activities. We found the evidence given by both witnesses to be clear, comprehensive, honest and credible, and we therefore place significant weight on that evidence in arriving at our findings of fact at [76] below. We are grateful to both witnesses for assisting in our understanding of the Appellants’ operations.

Key Documents

[62]We considered evidence and submissions regarding various documents which provide insight into the investment strategy, corporate structure, and the nature of the business activities undertaken by the Appellants.[63]The first of such documents is the Information Memorandum issued in July 2015 by Foresight Group. This memorandum was designed to attract investors to the Foresight Energy Infrastructure EIS Fund. It outlined the fund’s focus on energy infrastructure, specifically highlighting reserve power and smart metering as the primary investment targets. Although, there was no mention of solar electricity generation specifically, investment opportunities listed in the Memorandum included “other infrastructure assets that generate attractive and sustainable returns”.[64]Following legislative changes that excluded reserve power from EIS eligibility, an Addendum to the Information Memorandum was issued on 30 November 2015. This addendum indicated that the Fund would continue to focus on smart metering, while also considering foreign solar investments. It states that the “Fund will continue to invest in companies that generate and sell data derived from the ownership and operation of smart data assets and other infrastructure assets that generate attractive and sustainable returns, including foreign solar that does not benefit from subsidy”.[65]On 18 December 2015, Letters of Appointment were issued to independent directors of the newly incorporated appellant companies. These letters referred to “infrastructure projects which may include the generation and sale of data from the ownership and operation of smart metering assets in the UK or any other energy infrastructure project which the Directors from time to time may choose to pursue subject to compliance with the EIS rules”.[66]Investment and Shareholder Agreements were executed on 18 December 2015 between each Appellant, Foresight Fund Managers Limited, and Foresight Group. These agreements outlined the terms of investment and described the Appellants’ intended trade in broad terms as infrastructure projects, allowing for flexibility in the type of infrastructure pursued, including solar.[67]Between October and December 2016, the Appellants entered into rooftop solar panel agreements with individual UK homeowners. These agreements were not commercially profitable, as the revenue generated was minimal compared to the cost of installation. The purpose of these agreements, as acknowledged by Mr Hughes, was to initiate trading activity to support EIS relief claims rather than to generate meaningful profit.[68]The Appellants engaged KPMG, by letter dated 29 November 2016, to provide a proof of concept for the viability of unsubsidised solar in Iberia.[69]On 10 May 2017, the Appellants submitted business plans and EIS1 compliance statements to HMRC. The business plans discussed potential investments in ground-mounted solar installations in Spain and Portugal and rooftop solar in Italy. However, they did not indicate that a final decision had been made. A business plan noted that York was “in the early stages of reviewing a number of possible projects” but was “in advanced negotiations in respect of a 12 MW project located in Espinheiro in the municipality of Evora in south eastern Portugal”. This project ultimately did not proceed. Other projects were then considered. The EIS1 forms declared that the trade had already commenced with the rooftop panel installations.[70]Subsequently, on 24 July 2017, HMRC issued EIS2 authorisations allowing the Appellants to issue compliance certificates. These authorisations explicitly stated that they did not guarantee the availability of EIS relief and that relief could be withdrawn if requirements were not met.[71]Also on 24th July 2017, Foresight made a non-binding offer to a Spanish company, Ansasol S.L. (“Ansasol”), for the acquisition of rights over four potential solar electricity plant projects (called the ‘Al Andalus Portfolio’).[72]The annual accounts signed in September 2017 for the period ending December 2015 described the principal activity of the companies as the ownership of residential electricity and gas smart meters. The description was signed off by directors. We note that there is an absence of evidence, as highlighted by HMRC, in that the Appellants have not included in the hearing bundles any board meeting minutes or evidence of presentations or discussions with Foresight between their incorporation and September 2017.[73]The annual accounts for the Appellants set out that York lent £780,000 to Foresight Metering in October 2018. This was repaid in 2019. Manchester lent £790,000 to Foresight Metering in 2018. This remained outstanding as at 1 January 2019 but was repaid during 2019. Lancaster lent £150,000 to Foresight Metering in 2018. This was repaid during 2019.[74]Land agreements, including the Asset Purchase Agreement for Manchester’s El Caliche project refers to the acquisition of their solar plant and is dated 4 June 2020.[75]Finally, planning and permit documents show the regulatory approvals necessary for the generation of electricity and approvals for the Iberian solar projects, including the dates planning approval and exploitation permits were granted.

findings of fact

[76]Having considered evidence, including the witness evidence and the documents set out at [3] and at [62] to [75] above, we make the following findings on the facts:(1) The Appellants intended to trade in solar electricity generation overseas since their incorporation in December 2015. (a) Although HMRC highlight various documents which suggest, in their submission, that the Appellants did not settle on solar electricity generation until after the EIS shares were issued, we make this finding on the basis of the detailed evidence given by Mr Hughes and Mr Rey, regarding the intentions of the Appellants. (b) We accept Mr Rey’s evidence that from the start of January 2016 the decision was made that he, on behalf of Foresight, would focus on solar and we find this to be broadly consistent with Mr Hughes’s evidence that the point of incorporation of the Appellants in December 2015 is when Mr Rey and others started to go out looking for opportunities, building their network in Spain. We also accept his evidence that Foresight had been investing in solar funds since 2010 and that Iberian solar would give the best returns. (c) We consider it more likely than not that references to smart meters in some of the documentation was simply because that had previously been a potential area of consideration and the reference to smart meters in the accounts was an error and oversight. We therefore find that the focus of the Appellants was on unsubsidised solar electricity generation, as confirmed by Mr Rey. (d) We accept the evidence given by Mr Hughes that the intention of each Appellant was always to invest in solar and that the phrase “other infrastructure activities” in the documents was intended to mean “unsubsidised solar”.(2) The Appellants intended to incorporate subsidiaries to trade in solar electricity generation overseas since their incorporation in December 2015. (a) We accept Mr Rey’s evidence that Spain and Portugal were identified in 2015 as attractive locations to invest in the local solar market and we accept the evidence given by Mr Hughes that it was always intended that there would be wholly owned subsidiaries, which were required to operate in Iberia to obtain various certificates and planning permissions.(3) UK residential rooftop panels were not installed with a view to profit and were materially different from Iberian solar plant activity. (a) We make this finding on the basis that, between October and December 2016, the Appellants entered into rooftop solar panel agreements with individuals in the UK which were not initially profitable. The agreement entered into by York was for a monthly charge of £9.20 (subject to adjustment) and their accounts for the year ending 31 December 2018 show fixed assets, being the rooftop panel equipment, at £3,650. We find that each of the Appellant Companies entered into rooftop solar panel agreements not with the intention of generating profit, but rather to initiate trading activity in order to accelerate the process of obtaining EIS relief. Mr Hughes gave evidence that the rooftop panels were installed to “kickstart the business of the group” and to begin generating income, albeit modest. He acknowledged that one of the primary motivations was to meet the requirements for EIS relief and to align with investor expectations. (b) Despite the use of solar panels in both the UK rooftop installations and the Iberian ground-mounted solar projects, the two activities were fundamentally different. Mr Hughes and Mr Rey both accepted that the scale and cost of the UK rooftop installations were significantly lower, and Mr Rey further described the execution of the two types of projects as “materially different”. He also noted that Foresight’s expertise was not necessary for the relatively simple task of installing a few panels on residential rooftops. (c) Mr Hughes conceded that the installation of a single rooftop panel in the UK did not contribute to or support the subsidiaries’ later ventures in Iberia. This was further evidenced by the fact that the rooftop activity was not mentioned in Foresight’s offer letter to Ansasol concerning the Al Andalus portfolio of Iberian solar projects, indicating that the rooftop installations were not considered relevant to the broader commercial strategy.(4) When HMRC gave authorisation in July 2017 to issue compliance certificates there was no common understanding that EIS relief would never be withdrawn. (a) We make this finding on the basis that it was made clear to investors in the July 2015 Investment Memorandum that relief might be given and then withdrawn. The EIS2 authorisations issued by HMRC made it explicitly clear that they did not guarantee the availability of EIS relief to any particular investor. These authorisations included a condition that, up until the termination date, the shares and the company must continue to meet all the requirements of the EIS scheme as outlined in the EIS1 compliance statement. If those requirements were not met, the authorisation warned that income tax relief would be withdrawn and any deferred chargeable gains would be brought back into charge. (b) Although HMRC did not ask questions or raise concerns that relief may not be due prior to granting authorisation, we do not accept the Appellants’ submissions that by authorising them to issue compliance certificates, HMRC accepted the Appellants’ position regarding the concept of a deemed group trade, waived any statutory requirements, showed that HMRC held a view that the Appellants had already met those requirements so as to give rise to a shared common assumption that such requirements had been met, or that they accepted the Appellants’ business plans for the purpose of confirming EIS relief.(5) HMRC issued the EIS2 authorisations based on the declarations made in the EIS1 compliance statements, rather than on the contents of the business plans submitted alongside them. (a) Mr Hughes acknowledged that HMRC would clearly rely on the declarations made in the EIS1 form when deciding whether to grant authorisation. There was nothing in the EIS2 authorisations to suggest that HMRC had reviewed or verified the accuracy of the claims made in the EIS1 statements.(6) When HMRC gave authorisation in July 2017 to issue compliance certificates there was no acceptance by HMRC that the statutory requirements had been met. (a) Had we found that HMRC granted the authorisations based on the business plans rather than the EIS1 forms, the covering letters submitted with the EIS1 statements made it clear that the companies were still in the process of deploying their capital in pursuit of their new trade as solar electricity generators. They stated that this deployment was expected to be completed by 17 December 2017, there was therefore no understanding or acceptance that all the money raised had already been employed for the relevant trade. (b) The Appellants argue that because the business plans projected revenue generation beginning in 2018, HMRC must have accepted that the subsidiaries would not begin trading until then. However, the EIS1 compliance statements were based on the representation that the trade had already commenced, specifically with the rooftop solar panel agreements in the UK. Therefore, when HMRC issued the EIS2 authorisations, the Appellants had no basis to assume that HMRC was endorsing the business plans related to Iberian solar projects or waiving the requirement that trade must have commenced by the QBA deadline. (c) Further, the EIS1 compliance statements included a clear instruction, reiterated in the EIS2 authorisations, that the company must inform HMRC within 60 days if any event occurred before the termination date that would render the declarations in the EIS1 form inaccurate. Despite this, the Appellants failed to notify HMRC when key expectations outlined in the business plans did not materialise. For example, York did not inform HMRC when the Espinheiro project, which was expected to close in June 2017, failed to do so, nor did it notify HMRC when the project was later abandoned. Similarly, none of the Appellants informed HMRC when the expected EPC agreements, which were also projected to be finalised in June 2017, were not entered into as planned. (d) We find that the business plans would have led HMRC to believe that the Appellants or their subsidiaries would soon acquire rights in the solar plants and proceed to develop them so that they would be operational by the end of 2017. Had we found that the Appellants were initially entitled to infer from the EIS2 authorisations that HMRC accepted the commencement of trade or the employment of capital for a QBA, that inference could no longer reasonably be maintained after June 2017, when it became clear to the Appellants that the plans were not unfolding as anticipated.(7) PPAs did not create unconditional obligations on the Appellants to provide electricity on a certain date regardless of whether the plant had been constructed. (a) In his evidence, Mr Rey referred to Cardiff having entered into a PPA on 19 December 2017. On 6 March 2024, the FTT ordered the Appellants to provide certified translations of any foreign language documents they intended to rely on. The Appellants failed to produce a translation of any PPA. (b) Mr Hughes stated in evidence that while Foresight could have sold electricity forward before plant construction was complete, it chose not to due to the risks involved. We infer from this that any PPAs would have been conditional on the plants being operational. (c) In the absence of a translated PPA, we are not satisfied that the PPA created unconditional obligations on the Appellants to provide electricity on a certain date regardless of whether the plant had been constructed.

key dates and deadlines for York

[77]Having considered the relevant statutory provisions and the evidence, we have determined the key dates and deadlines for York.[78]Our findings are as follows: Date Event / Deadline Details 18 Dec 2015 First issue of EIS shares by York First of five tranches of EIS shares issued per Statement of Agreed Facts (‘SOAF’) 22 Jan 2016 Second issue of EIS shares SOAF 29 Feb 2016 Third issue of EIS shares SOAF 30 Mar 2016 Fourth issue of EIS shares SOAF 31 Mar 2016 Fifth and final issue of EIS shares As per SOAF. Establishes the latest possible QBA deadline. 2 Nov 2016 Rooftop solar panel agreement signed York entered into a 25-year agreement to install a rooftop solar panel. 11 Jan 2017 Section 205(4) Deadline York must show that a qualifying trade had been carried on for at least 4 months by this date to validly submit a compliance statement on 10 May 2017. 10 May 2017 Compliance statements submitted York submitted EIS1 forms to HMRC for all five share issues. 24 Jul 2017 HMRC authorised issue of compliance certificates Certificates were issued based on the rooftop panel agreement. 30 Mar 2018 QBA Deadline Latest date by which a qualifying trade must have commenced (i.e. two years after the last share issue on 31 Mar 2016). 8 Aug 2018 Subsidiary incorporated York incorporated Las Torres de Cotillas Fotovoltaica, S.L. 18 Oct 2018 EPC Agreement signed Subsidiary entered into an EPC agreement for the TC03 solar plant. 30 Mar 2020 Use of Money Deadline (s. 175(3)(b)(ii)) Latest date by which money raised must have been employed for the qualifying business activity (two years after deadline for QBA commencement on 30 Mar 2018). Late Summer 2021 TC03 began generating electricity According to Mr Hughes’s evidence. 3 May 2022 TC03 became “fully operational” As per Mr Rey’s witness evidence. 28 Jan 2020 HMRC issued withdrawal decisions Notices under s. 234(3)(b). 4 April 2022 Appeal to the FTT In-time appeal lodged following a statutory review completed on 9 March 2022 upholding HMRC’s decision. legal issues Statutory Requirements Section 174

legal issues

[79]The submissions by the parties concerning section 174 revolve around whether the shares issued by the Appellant Companies were issued “for the purpose of a qualifying business activity so as to promote business growth and development”. This requirement is central to the eligibility of shares for EIS relief.[80]The requirement is that the shares must be issued for the purpose of carrying on a “qualifying business activity”, as defined in section 179, which requires the Appellants to have begun a “qualifying trade”, as defined in section 189, within two years of the date the relevant shares were issued.

Commencement of Trade

[81]Although the FTT decision in Putney Power is not binding on us, we consider the decision to be on the same or a materially similar point. In that case, Putney Power and Piston Heating Services each issued shares in April 2016 with the intention that investors would qualify for EIS relief. To meet the statutory requirements, each company needed to begin carrying on a “qualifying trade” within two years of the share issue, by 4 April 2018. The central dispute was whether either company had commenced such a trade by that deadline.[82]Putney Power initially planned to build a combined heat and power plant but later shifted to developing a gas-peaking power plant. It entered into a series of contracts in May 2017, including agreements for the supply of engines, construction, gas and electricity connections, and a framework agreement for the sale and purchase of electricity and gas. However, construction was delayed, and the plant did not become operational until August 2018, after the EIS deadline. Although Putney Power had entered into contracts and incurred capital expenditure, the FTT found that it had not yet begun operational activities or put itself at real financial risk in relation to the supply of electricity by the deadline.[83]Piston Heating Services was even less advanced. It had explored several potential sites for a power plant and signed heads of terms for one project, but by the EIS deadline, it had not committed to a specific site or entered into any binding operational contracts. Construction of its plant did not begin until October 2018.[84]The FTT concluded that neither company had commenced a qualifying trade by the statutory deadline on the basis that a trade begins only when a business is “open for business”, meaning it has assembled the necessary infrastructure and is ready to provide goods or services. Preparatory steps, such as planning, contracting, or incurring capital expenditure, are not sufficient. As a result, the FTT dismissed both appeals, holding that the shares issued were not eligible for EIS relief. The FTT commented on its overall conclusion as follows: “202. For the reasons set out above, we consider that:(1) A trade commences when the putative trader is “open for business”.(2) A putative trader cannot be “open for business” until they are ready to provide the goods or services or carry out the other dealings which form the subject matter of their intended trade. This requires the putative trader to have assembled whatever infrastructure (if any) is necessary for them to provide those goods or services or carry out those dealings.(3) Assembly of the trade infrastructure does not need to have been completed before trading starts as long as the infrastructure is operational (i.e. the trader needs to be able to operate/use it to provide whatever goods or services or carry out the dealings they are concerned with, even if not on the scale or in the manner ultimately planned).(4) Once the trader has assembled their operational infrastructure (if required), they “open for business” by taking a step which exposes them to real operational risk and reward (for example, producing goods “on spec”, buying food for a restaurant or other raw materials, incurring the staff or other costs of opening a restaurant or being ready to provide some other service, with or without a booking or client signed up, contracting to supply goods or services now or in the future).(5) If (as we find was the case here with Putney, but not Piston) a putative trader takes an operational step (of the type discussed in (4)) in anticipation of finishing assembling their trade infrastructure, that will not accelerate the commencement of their trade. 203. As neither Putney nor Piston had completed the assembly of their trade infrastructure by the EIS Deadline, neither Appellant had begun to carry on a “qualifying trade” (as defined in section 189 ITA) by that time, as required by section 179(2)(b)(ii) ITA.” (2) A putative trader cannot be “open for business” until they are ready to provide the goods or services or carry out the other dealings which form the subject matter of their intended trade. This requires the putative trader to have assembled whatever infrastructure (if any) is necessary for them to provide those goods or services or carry out those dealings. (3) Assembly of the trade infrastructure does not need to have been completed before trading starts as long as the infrastructure is operational (i.e. the trader needs to be able to operate/use it to provide whatever goods or services or carry out the dealings they are concerned with, even if not on the scale or in the manner ultimately planned). (4) Once the trader has assembled their operational infrastructure (if required), they “open for business” by taking a step which exposes them to real operational risk and reward (for example, producing goods “on spec”, buying food for a restaurant or other raw materials, incurring the staff or other costs of opening a restaurant or being ready to provide some other service, with or without a booking or client signed up, contracting to supply goods or services now or in the future). (5) If (as we find was the case here with Putney, but not Piston) a putative trader takes an operational step (of the type discussed in (4)) in anticipation of finishing assembling their trade infrastructure, that will not accelerate the commencement of their trade.[85]In arriving at this conclusion, the FTT examined several earlier decisions, including some of the judgments we were referred to in this appeal, to determine when a trade is considered to have commenced for tax purposes. These cases span over a century and reflect evolving judicial thinking on the distinction between preparatory steps and actual trading activity.[86]The earliest case discussed was the decision in Birmingham & District Cattle By-Products Co Ltd v IRC (1919) 12 TC 92, where the court held that a trade begins only when the company starts producing its product. Activities such as acquiring premises, installing machinery, or entering contracts were deemed preparatory. This strict view was later questioned by the same judge, Rowlatt J, in Kirk and Randall Limited v Dunn (1924) 8 TC 663, where he acknowledged that internal company functions and efforts to seek business might indicate that a business was being carried on, even if no actual trading had occurred.[87]The House of Lords in Khan v Miah [2001] 1 All ER 20 (‘Khan v Miah’) considered a case involving a group of individuals who had agreed to open a restaurant and had taken significant steps, such as leasing premises, buying equipment, and advertising, before the restaurant opened. The Court held that the business had commenced even though serving food had not yet begun. Lord Millett emphasised that the key question was whether the parties had embarked on their joint venture, not whether they had started trading in the narrow sense.[88]In Mansell v Revenue and Customs Commissioners (2006) Sp C 551 (‘Mansell’), the Special Commissioner developed a three-part test to determine when a trade begins:(1) the trader must have a clear idea of the intended profit-making activity,(2) the business must be set up to the extent necessary, and(3) the trader must begin operational activities, meaning dealings with third parties directly related to the intended trade, involving financial risk. This test has since been widely cited and applied.[89]The High Court in Tower MCashback LLP 1 v HMRC [2008] STC 3366 (‘Tower MCashback’) endorsed the Mansell test, emphasising that merely entering into a contract to acquire an asset (in that case, software) was not enough to constitute the start of a trade. The court stressed the need for a trader to be in a position to turn the business to account.[90]In Hunt v HMRC [2019] UKFTT 515 (‘Hunt’), the FTT found that a lottery company had commenced trading even though it never launched its lottery due to a licensing issue. The company had built the necessary infrastructure, entered into contracts, and incurred substantial costs. The FTT held that these actions amounted to operational activity and thus the commencement of trade.[91]Ingenious Games LLP v HMRC [2021] EWCA Civ 1180, dealt with whether certain limited liability partnerships (‘LLPs’) involved in film financing schemes were genuinely trading. The Court of Appeal emphasised that determining whether a trade was being carried on required a close examination of the LLPs' own activities, not those of their members or associated entities. The Court adopted a broad, commercial understanding of "trade," stressing that it should be assessed based on the totality of the LLP’s operations and commercial substance rather than legal form.[92]The next three cases involved Mr John Wardle, who made repeated attempts to claim relief under section 169H(2)(a) of the TCGA 1992 in relation to disposals of partnership interests.[93]In Wardle 1 (Wardle v HMRC [2021] UKFTT 0124), he argued that a partnership engaged in pre-trading activities, developing renewable energy plants, qualified as a business under the TCGA 1992. However, the FTT rejected this, holding that the business must be trading at the time of disposal, and pre-trading activities did not meet the statutory definition.[94]Mr Wardle returned in Wardle 2 (Wardle v HMRC [2022] UKFTT 00158), this time concerning an LLP involved in constructing a biomass power plant. He claimed that trading had commenced at the point of “financial close”, when the LLP entered into numerous contracts. The FTT applied the Mansell test and concluded that while the LLP had made significant contractual commitments, it had not yet begun operational activities. The FTT found no evidence of actual sales or revenue-generating activity and thus determined that trading had not commenced.[95]In the case of Wardle v HMRC [2024] UKFTT 00543 (‘Wardle 3’), released on 19 June 2024 (after the end of the hearing of these appeals), Mr Wardle once again pursued Entrepreneurs’ Relief (now known as Business Asset Disposal Relief) for the disposal of his remaining interest in a LLP involved in a waste-to-energy project. This time he presented more detailed and comprehensive evidence regarding the LLP’s activities at the point of financial close. The FTT applied the three-step Mansell test and found that the LLP had indeed commenced trading by the time of financial close in August 2015. At that point, the LLP had entered into a complex suite of interdependent contracts, including a PPA, secured funding, drawn down loans, and issued notices to proceed. The FTT found that these actions demonstrated that the business had both the structure and the commercial commitment necessary to begin trading, and that full infrastructure completion was not required; rather, the business needed to be sufficiently established for its specific trade. Although electricity generation did not begin until June 2019, the FTT accepted that the LLP’s activities, including the PPA and despite certain conditions precedent not being met, constituted operational activity and held that these activities involved real financial risk, sufficient to mark the commencement of trade. Consequently, the FTT rejected HMRC’s argument that trading could not have begun until the plant was physically operational. As a result, the FTT concluded that the LLP had been trading during the two years prior to Mr Wardle’s disposal of his interest in 2020, thereby entitling him to the relief.[96]The binding authorities on the issue were considered in Putney Power at [168] to [171] of the FTT’s decision. We agree with the comments they made at [172]:
“172. The conclusion we draw from these cases is that a trade starts when operational activities start (for example, when my restaurant is open for business or when my factory starts to make things). To get to that point a trader will need to have set up their business infrastructure (for example, bought or leased a restaurant and fitted it out or bought or leased a factory and the necessary manufacturing equipment) and taken operational steps (for example, buying food for the restaurant or raw materials for the manufacturing process). The cases do not suggest that it is necessary to have achieved a sale, but it is necessary to be “open for business”, to be ready, willing and able to supply the relevant goods or services.”
[97]Having considered the relevant authorities, we have taken into consideration the following core principles distilled from those cases:(1) Trade begins when the business is “open for business”: This means the trader must be ready, willing, and able to provide goods or services. It does not require that a sale has occurred, but the infrastructure and readiness to trade must be in place.(2) Preparatory steps are not enough: Activities such as acquiring premises, installing equipment, or entering into contracts to build infrastructure are considered preparatory. These do not, by themselves, amount to the commencement of a trade.(3) Operational activity is essential: A trade begins when the business engages in operational activities—dealings with third parties that are directly and immediately related to the supply of goods or services and that involve financial risk. This includes entering into binding contracts to supply goods or services, even if those supplies are to be made in the future.(4) Conditional contracts may not suffice: If a contract is conditional on future events (e.g., plant construction), it may not count as operational activity unless it exposes the trader to real financial risk and is part of a broader, committed commercial framework.(5) Commercial substance over legal form: Courts and tribunals take a holistic, fact-sensitive approach. They look at the commercial reality of the arrangements rather than just the legal form of contracts.(6) Infrastructure must be operational: The business infrastructure must be in place and functional to support the trade. 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.(7) No need for actual sales: While actual sales are not required, the business must be in a position to make them. For example, a restaurant that has opened its doors but has not yet served a customer may still be considered to have started trading.(8) Each case is fact-specific: The threshold for what constitutes “set up” and “operational activity” varies depending on the nature of the trade. A personal trainer may need very little infrastructure, while a power plant requires extensive setup.[98]In determining whether the Appellants’ trade commenced by the latest QBA deadline of 30 Mar 2018, we have also considered the Mansell test as follows:

Has the trader identified a specific profit-making activity?

[99]Having considered the evidence before us, including the evidence given by the witnesses on behalf of the Appellants, we find that subsidiaries had a clear and specific commercial objective to act as “Prime Builders and Operators of Solar Plants”. The subsidiaries had therefore identified their intended profit-making activity of solar electricity generation by the relevant deadline. Their clearly defined commercial purpose involved not merely selling electricity, but also financing, constructing, owning, and operating solar energy infrastructure. We consider this specific and detailed business model satisfies the first limb of the Mansell test.

Has the business been set up to the extent necessary to carry out that activity?

[100]The Appellants contend that the subsidiaries had set up their businesses to the extent necessary for their trade. They point to the engagement of Foresight Group to identify and develop overseas solar sites, the acceptance of site recommendations and the commencement of site-specific development work, the execution of contracts with energy professionals and EPC contractors, the incurring of substantial financial obligations and the acquisition of assets necessary for the trade. They argue that, consistent with Mansell, the level of set-up required depends on the nature of the trade. For a capital-intensive trade like solar energy generation, the set-up phase includes securing land, permits, and construction contracts. The Appellants submit that these steps were completed well before electricity was generated, and that the business was “set up” in a commercial and operational sense.[101]We have found in York’s case that their subsidiary did enter into contracts (e.g. EPC agreements), secure sites, engage contractors, and incur substantial financial obligations prior to the deadline. However, we also found they had not completed construction of the solar plants or the necessary infrastructure to begin generating electricity. They were not yet, as HMRC argue, “ready to face and find customers” (see Johnson v HMRC [2016] UKFTT 010 at [45]). We agree with HMRC that setting up a trade in a capital-intensive industry like solar energy generation requires the physical infrastructure necessary to carry out the trade to be in place. The subsidiary had not completed construction of the solar plant and had not conducted the necessary tests to ensure the plant could safely generate and supply electricity. We consider that the business infrastructure must be in place and functional to support the trade. 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. Unlike Mansell, where the trade involved paper-based transactions in land options, and Hunt, where the taxpayer had already built and tested the infrastructure necessary to operate a lottery, we do not consider York could be said to have set up its trade by the QBA deadline to the extent necessary to carry out its identified, specific profit-making activity.

Has the trader begun operational activities involving real financial risk?

[102]The Appellants assert that the subsidiaries undertook operational activities involving financial risk and third-party dealings before generating electricity, which included entering into binding EPC agreements, committing to site development and construction, and incurring liabilities and obligations that directly related to the future supply of electricity. They were in a position to enter forward contracts for the sale of electricity, even if such contracts were not executed. They argue that these activities meet the Mansell definition of operational activity; dealings with third parties that are directly and immediately related to the supplies to be made and which involve putting money at risk. They also draw analogies with Hunt, where trading was found to have commenced despite never launching the lottery due to licensing issues, because the company had incurred substantial operational expenditure and entered into relevant contracts.[103]HMRC contends that the subsidiaries had not begun operational activities because the EPC agreements were not with customers and did not involve the supply of electricity. These were preparatory and amounted to overheads, not operational trading. Even if the trade had been set up, the subsidiary had not yet undertaken operational activities. The only agreement entered into by the QBA deadline was an EPC contract, which related to building the plant but not to supplying electricity. This contract was not with a customer and did not involve the kind of third-party dealings directly tied to the supply of electricity that would indicate the commencement of trade. The expenditure under the EPC agreement was therefore preparatory and in the nature of overheads, not operational trading activity.[104]We have considered that in Khan v Miah, on the question of whether the restaurant had commenced trading, once the assets had been acquired, the liabilities incurred and the expenditure laid out, the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. We have also considered that in Micro Fusion 2004-1 LLP v HMRC [2008] STC (SCD) 952 the film production company was held to have began trading before filming started, based on contractual and preparatory steps, and in Hunt, trade was found to have begun in the absence of any ticket sales where financial risk had been incurred.[105]Although in Wardle 3 the FTT found that the trade involving a power plant had commenced at the time of financial close before the plant was physically operational, we are mindful that the decision is not binding and, importantly, every case will turn on its own facts (per Henderson J in Tower MCashback). In this appeal, we are not satisfied that the PPA created unconditional obligations on the Appellants to provide electricity on a certain date regardless of whether the plant had been constructed, and the EPC agreement entered into by the subsidiary was not with a customer and did not involve the supply of electricity. We agree with HMRC that the EPC agreement was related to the construction of the plant, not the trade itself, and we consider that, in the absence of a constructed plant or circumstances which created an immediate obligation to purchase raw materials and supply its product, no operational activities involving real financial risk had begun.[106]In the absence of any authority on the point, we do not accept the Appellants’ submission that the fact that they were in a position to enter into forward contracts to sell electricity they were planning to produce in future means that they had already begun trading. Without completing the essential steps necessary to begin generating electricity, such as constructing the plant or completing safety tests, and therefore without the necessary physical infrastructure in place, we do not consider the subsidiary was in a position to begin trading by the QBA deadline. We have therefore concluded that the Appellants have failed to meet the section 174 requirement .[107]As considered in Putney Power, at [199], the Upper Tribunal in HMRC v Suterwalla [2024] UKUT 00188 emphasised that tribunals of equal standing should follow earlier decisions unless they are convinced that the earlier ruling was incorrect. Although we have arrived at a different conclusion on the specific facts in this appeal to that reached by the FTT in Wardle 3, we consider that the analysis at [176]-[180] of the FTT in Putney Power is correct and that, in this appeal, the trading infrastructure must be actually (not just contractually) assembled, so that it can be used to deliver the trading activity, before a trade can be said to have commenced.

Deemed Group Trade

[108]Section 174(2)(b) provides that, in the case of a parent company, “business growth and development” includes what would be the business of the group if the activities of the group companies were regarded as one business. As the shares were issued with the intention of funding a group-wide solar energy business, which was to be carried out through wholly owned subsidiaries, the Appellants contend that the statutory language in section 174(2)(b), when read purposively and in conjunction with section 179 (which defines a QBA), supports the concept of a “deemed group trade” which should be recognised for the purposes of satisfying the statutory requirements. They submit that the activities of the parent and subsidiary companies should therefore be treated as a single business when determining whether the purpose of the share issue was to fund a QBA.[109]The Appellants also contend that the statutory framework, particularly section 174(2)(b), must be interpreted in light of the broader legislative purpose of the EIS regime, namely to promote investment in small businesses with growth potential. They submit that a narrow, literal interpretation that ignores the group structure would frustrate this purpose. They refer to the decision in American Leaf Blending Co Sdn Bhd v Director General of Inland Revenue [1979] AC 676 where the court determined that "business" is a wider concept than "trade" in support of their argument that a deemed group business necessarily includes a deemed group trade.[110]HMRC’s submission on the concept of a deemed group trade is that the legislation consistently refers to a trade being carried on by either the company or a qualifying subsidiary, but never both. They submit that section 174(2)(b) merely defines “business growth and development” and does not create a new legal concept of a group trade. HMRC argue that the Appellants’ interpretation is a leap of logic unsupported by the statutory language or any case law and that the purpose of the share issue must be assessed at the time of issue and must relate to a QBA that is actually carried on within two years, as required by section 179(2)(b)(ii). They submit that the Appellants’ contention that intention alone is sufficient would render the two-year requirement meaningless and that the statutory scheme requires actual commencement of trade within the specified timeframe, not merely an intention to do so.[111]In response, the Appellants argue that section 174 should be satisfied if, at the time of the share issue, there was a genuine intention to commence a qualifying trade within two years. They accept that this interpretation required a slight gloss on the statutory language but argue that it is necessary to make the legislation coherent and workable, and that the EIS1 compliance statement, which must be submitted after four months of trading, provides a safeguard to ensure that the trade has actually commenced.[112]The Appellants further submit that the statutory language in section 179(2)(b)(i) and (ii), when read with subsection (7), supports the inclusion of future subsidiaries in the assessment of whether a QBA is being carried on. They contended that this reinforces the permissibility of a deemed group trade, as it allows for the inclusion of entities that do not yet exist at the time of the share issue but are intended to carry on the trade.[113]Having carefully considered the submissions made by the parties, we do not consider section 174 includes the concept of a deemed group trade. We accept that the statutory language in section 174(2) explicitly requires that the activities of both the issuing company and its subsidiaries be considered together when assessing whether the purpose of the share issue is for “business growth and development.” This is however in contrast to sections 174(1) and 179, which contain no such express language. Other provisions within Part 5, such as sections 181(2)(b), 181(4), and 186(3), do make specific provision for aggregating the activities of multiple companies. The deliberate inclusion of such language in some sections, and its absence in others, strongly suggests to us that where no such provision is made, as in sections 174(1) and 179, the activities of each company must be assessed independently. This supports the interpretation that Parliament intended a separate evaluation of the issuing company’s and its subsidiaries’ activities in those contexts.[114]We do not agree with the Appellants’ assumption that the terms “business” and “trade” are interchangeable, as a basis for reliance on section 181(2)(b) to support the idea of a group trade being implied throughout Part 5. The Appellants suggest that because section 181 refers to “the business of the company’s group,” other references to “trade” in the legislation should be interpreted as referring to a group-wide trade. However, we consider this conflation to be incorrect. The concepts of “business” and “trade” are distinct in law and are treated as such depending on the statutory context. For instance, in Mansell, the Special Commissioner made clear that a business can be set up and functioning before a trade has actually commenced, with trade beginning only when operational activities start (see Mansell at [93] “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”). Further, a group may carry on a single business that encompasses multiple distinct trades. The legislation reinforces this distinction: where Parliament intends “trade” and “business” to be synonymous, it says so explicitly, as in section 232(7), which states that “trade” includes any business or profession. The need for such clarification confirms that the two terms are not inherently equivalent and should not be treated as such in interpreting Part 5.[115]The Appellants argue that a purposive interpretation of the legislation supports their position that the activities of a group of companies should be treated as a single, deemed group trade. However, this argument appears to concede that such a reading does not align with the ordinary meaning of the statutory language. The structure of Part 5, which contains detailed provisions and expressly aggregates the activities of group companies only in specific sections, indicates that Parliament intended such aggregation to occur only where explicitly stated. Therefore, applying a purposive construction to imply a group trade in provisions where no such language exists would go beyond the statutory text and undermine the deliberate legislative design.[116]Section 179, which defines “qualifying business activity” and is referenced in section 174(1), clearly distinguishes between the activities of the issuing company and those of its qualifying 90% subsidiary. The statutory language repeatedly uses the word “or” not “and” to describe the entities whose activities may satisfy the definition of a QBA. Specifically, section 179(2) defines “Activity A” as either the carrying on of a qualifying trade by “the company or a qualifying 90% subsidiary,” or the preparatory activity of carrying on such a trade, which is intended to be carried on “by the company or such a subsidiary,” and which is in fact begun “by the company or such a subsidiary” within two years of the share issue.[117]We consider the repeated use of “or” in these provisions to be deliberate and significant, indicating that Parliament intended the activities of the company and its subsidiary to be assessed independently. Had the intention been to treat their activities collectively or cumulatively, the statute would have used the word “and” or otherwise expressed that the combined efforts of both entities could satisfy the requirement. In our view, the statute is clear: the company or its subsidiary must individually meet the requirement; their activities cannot be aggregated.[118]We do not accept the Appellants’ argument that having an intention to commence trade is enough to satisfy the statutory requirements. We agree with HMRC that if intention alone were sufficient, it would undermine the purpose of the two-year deadline set out in the legislation. We consider the statutory scheme clearly requires that the trade must actually begin within the specified timeframe, not just be intended.[119]We therefore agree with HMRC’s submission that the relevant question under section 174 in relation to York’s appeal is whether the EIS shares were issued for the purpose of York’s QBA, being either a qualifying trade by York which commenced by the QBA deadline, or a qualifying trade by York’s subsidiary which commenced by that deadline.[120]If we are wrong in our conclusion, and section 174 does incorporate the concept of a deemed group trade, the question becomes whether York and its subsidiary together had begun carrying on a qualifying trade by the QBA deadline. Although both entities were involved in the generation of solar electricity, we do not consider that this superficial similarity to satisfy the statutory requirement, which is concerned with the substance of the activities.[121]We have found that the activities of York and its subsidiary were fundamentally different in nature. While both involved converting sunlight into electricity using solar panels, the similarities ended there. The two operations did not interconnect or rely on each other in any meaningful way. York’s rooftop solar panel activity could have ceased without affecting the subsidiary’s solar power plant operations, and vice versa. Moreover, the scale, infrastructure, location, and technical expertise required for each activity were so distinct that they could not reasonably be considered parts of a single trade. There was also no evidence that the solar power plant operations evolved organically from the rooftop panel activity.[122]Specifically, by the QBA deadline, the trade was not being conducted on a commercial basis with a view to profit, as required by section 189(1)(a). The installation of a single rooftop solar panel on a private residence was not a commercially viable activity, and the Appellants have not demonstrated that any serious commercial operator would pursue such a model. In fact, the evidence suggested that the installation was done solely to meet the formal requirements for EIS relief, rather than to initiate a genuine profit-making enterprise. Even if the activities of both companies were treated as a single trade, we consider the group still fails to meet the statutory requirements.[123]We have therefore concluded that the Appellants failed to meet the purpose of the issue requirement in section 174.

Section 175

[124]This provision requires the money raised by the issue of EIS shares was employed wholly for the purpose of the QBA for which it was raised within the statutory timeframe, here the later of the two-year period from the issue of the shares, or the two-year period from when the company or its qualifying 90% subsidiary begins to carry on the qualifying trade under section 175(3)(b).[125]We do not consider section 175 to incorporate the concept of a deemed group trade for the reasons set out above.[126]We have considered the comments made in Richards and anor v HMRC [2012] STC 174 (‘Richards’), in relation to a predecessor to this statutory provision, that:
“[28] The word ‘employed’ in para 1(2)(g) of Sch 5B and s 289(1)(c) of the Taxes Act is not defined in the legislation. In my view, it is a word which requires the money in question actually to be used in some way for the purposes of carrying on the qualifying activity within the relevant one-year period. Clearly, if the moneys are spent in carrying out the qualifying activity in that period, they will have been ‘employed’ for the purposes of that activity; but, as the tribunal correctly recognised, the concept of being ‘employed’ for the purpose of an activity extends more widely than this. [29] Moneys will also be ‘employed’ for the purposes of an activity if the company has earmarked them in the relevant period for some specific purpose (which does not necessarily have to be a purpose calling for expenditure in that period) and is keeping them in reserve for that purpose. In such a case, the company may be found to have ‘employed’ the moneys for that purpose within the relevant period. Whether moneys have been notionally set aside with sufficient precision for a specific purpose so that they can be said to have been ‘employed’ for the purpose of a qualifying activity at the time they are so notionally set aside will be a matter for assessment by a tribunal on the particular facts of an individual case.”
[127]The Appellants argue that the funds were “employed” for the QBA within the required timeframe, relying on the extended deadline in section 175(3)(b)(ii). They contend that the funds were earmarked for use in solar energy projects, which constituted a QBA and that even if the funds were not immediately spent, they were set aside for a specific purpose and thus “employed” within the meaning of the statute and the funds were ultimately used for the intended purpose, including through subsidiaries, and any temporary investment or inter-company loan did not negate the earmarking. They also contend that the concept of “employment” should be interpreted broadly, in line with the judgment in Richards, which accepted that earmarking funds for a specific purpose could satisfy the requirement, and that the statutory scheme should be interpreted purposively. They maintained that the legislation was designed to encourage investment in early-stage businesses and that a narrow interpretation of “employed” would frustrate that purpose.[128]HMRC submit that the statutory language requires actual use or commitment of funds, not just an intention or general allocation and that the Appellants’ interpretation would undermine the enforceability of the two-year deadline and create uncertainty. They argue that the funds were not “employed” within the statutory timeframe because the qualifying trade had not commenced within two years, and merely setting aside funds or holding them in reserve is insufficient unless the funds were actually used or committed to a specific qualifying activity. The funds were in some cases loaned to other Foresight entities, which could not be considered employment for the purpose of the Appellants’ qualifying trade.[129]We accept that internal accounting or intentions alone are not enough to meet the requirements of the provision. We are mindful that the requirement is that all of the money raised by the issue of the relevant shares is “employed” wholly for the purpose of the qualifying business activity for which it was raised within the required time, and we are guided by the Upper Tribunal’s comments in Richards that ‘employed’ for the purposes of an activity includes moneys being earmarked in the relevant period for some specific purpose and keeping them in reserve for that purpose. Whether moneys here have been notionally set aside with sufficient precision for a specific purpose so that they can be said to have been ‘employed’ for the purpose of the qualifying activity is a matter for our assessment on the particular facts of this case.[130]We consider temporary diversions (like loans or investments) are not fatal if the funds are still employed in time and for a qualifying purpose, and having considered the particular facts of this case, we agree with the Appellants that money was set aside for a specific qualifying purpose and thus “employed” within the meaning of the statute, and that the funds were ultimately used for the intended purpose.[131]Therefore, in our view, the requirement that the money raised be employed for a QBA within the statutory timeframe has been met.

Section 176

[132]This provision sets out the “minimum period requirement” for shares issued under the EIS. The provision ensures that a qualifying trade has been carried on for a sufficient period before a company can claim EIS relief.[133]Section 176(1)(a) applies where the money raised by the issue of shares is raised wholly for the purpose of a QBA falling within section 179(2). In such cases, subsection (2) requires that:(1) The trade must have been carried on for a period of at least four months ending at or after the time of the issue of the shares; and(2) Throughout that period: (a) The trade must have been carried on by the issuing company or a qualifying 90% subsidiary; and (b) The trade must not have been carried on by any other person.[134]This requirement is closely linked to section 205(4), which prohibits the submission of a compliance statement (EIS1) unless the trade has been carried on for at least four months.[135]The Appellants submit that the statutory language should be interpreted purposively, in line with the broader objective of encouraging investment in early-stage businesses, and the minimum period requirement was satisfied because the group, viewed as a single economic entity, had carried on a qualifying trade for at least four months before the EIS1 compliance statements were submitted. They rely on the concept of a deemed group trade, asserting that the activities of the parent and subsidiary companies should be treated as one continuous trade and that even if the parent company’s rooftop solar panel installation was modest, it marked the beginning of trading activity, which continued through the subsidiaries’ development of ground-mounted solar projects.[136]We are not satisfied the minimum period requirement has been met. Again, we do not consider the concept of a deemed group trade to be supported by the statutory language to aggregate the activities of the parent and subsidiary companies. Many of the subsidiaries had not even been incorporated four months before the relevant compliance statements were filed and the rooftop solar panel installations by the parent companies did not constitute a qualifying trade carried on with a view to profit, and thus could not satisfy the requirement.[137]Our conclusion is that the trade had not been carried on for four months by the time the EIS1 compliance statements were submitted.

Section 181

[138]This provision sets out the “trading requirement” for companies seeking to qualify for EIS relief. The requirement ensures that the company (or group) is genuinely engaged in qualifying trading activities throughout a defined period.[139]Section 181(1) requires that the issuing company meet the trading requirement throughout period B. Period B is defined in Section 159(3) as beginning with the issue of the shares, and ending immediately before the “termination date” (typically the third anniversary of the share issue, or later if the trade starts later).[140]Under Section 181(2), the trading requirement is met if:(a) The company exists wholly for the purpose of carrying on one or more qualifying trades (ignoring incidental purposes), or(b) If the company is a parent company, the business of the group must not consist wholly or substantially of non-qualifying activities.[141]Section 181(3) extends this to companies that intend to have qualifying subsidiaries in the future.[142]Section 181(4)-(7) provides rules for determining what counts as the “business of the group,” including ignoring certain holding or financing activities and focusing on the group’s activities as if they were one business.[143]The Appellants rely on Section 181(2)(b), arguing that each company was a parent company of a qualifying 90% subsidiary, the group’s business, viewed as a whole, consisted of qualifying trading activities (solar energy generation), preparatory activities (e.g., site scouting, EPC contracts) should be treated as part of the qualifying trade and the concept of a deemed group trade should apply, treating the parent and subsidiary’s activities as one trade.[144]We do not agree with the Appellants’ submissions. We have found that the rooftop solar panel installations were not conducted on a commercial basis or with a view to profit, the preparatory activities (e.g., planning, permitting, EPC contracts) do not constitute trading and the “deemed group trade” concept has no basis in the legislation. We have also found that the parent companies were not trading, and the subsidiaries had not begun trading within the required timeframe.[145]The Appellants therefore failed to meet the trading requirement because neither they nor their subsidiaries were carrying on a qualifying trade throughout Period B.

new arguments

[146]The Appellants submit that several points now being raised, particularly in HMRC’s skeleton argument and oral submissions, had not been part of the original decision notice, earlier correspondence or statement of case.[147]We accept HMRC’s submission that their arguments had developed over time and that the statutory framework permits HMRC to withdraw relief if it is “subsequently found not to have been due,” as per section 234 and to reassess EIS relief even after compliance certificates have been issued. We considered HMRC to be entitled to raise these arguments and did not find there to be any procedural unfairness or prejudice to the Appellants, as we considered the Appellants had been given a fair opportunity to respond.

estoppel and waiver

[148]The Appellants argue that once HMRC authorised the issue of compliance certificates under section 204, it made a considered decision that the statutory requirements for EIS relief had been met. They submit that this authorisation was not a mere administrative formality but a quasi-judicial act, made after reviewing the compliance statements and accompanying materials. On this basis, they contend that HMRC cannot later reverse its position and withdraw relief on the same facts.[149]The Appellants seek to invoke the doctrines of waiver and estoppel, particularly estoppel by convention, to argue that HMRC, having induced reliance by authorising the certificates, is now precluded from asserting that the statutory requirements were not met.[150]The Appellants’ estoppel argument is grounded in the principle that both parties acted on a shared assumption that the requirements of sections 174, 175, 176, and 181 were satisfied. They argue that HMRC’s authorisation of the certificates, following the submission of compliance statements, constituted an implicit representation that the requirements for relief were met. The Appellants say they relied on this shared assumption to their detriment, notably by not filing further compliance statements or taking alternative steps to ensure compliance. They argue that this reliance satisfies the criteria for estoppel by convention as set out in the Supreme Court’s decision in Tinkler v HMRC [2021] UKSC 39 at [45] and [51], including the existence of a shared assumption, reliance, and detriment.[151]In addition to estoppel, the Appellants argue that HMRC waived its right to challenge compliance with the statutory requirements by choosing to authorise the issue of compliance certificates without raising any concerns. They assert that HMRC had the opportunity to investigate or withhold authorisation but chose not to, and that this conduct amounts to a waiver of any right to later dispute compliance with the relevant provisions.[152]We have carefully considered these submissions. However, we agree with HMRC that authorisation of compliance certificates does not preclude later withdrawing relief. We consider the statutory scheme explicitly allows for relief to be withdrawn if it is subsequently found not to have been due (by virtue of section 234) and authorisation of compliance certificates is a procedural step that does not amount to a binding acceptance of the taxpayer’s position.[153]We do not consider there was any shared assumption or representation that could give rise to estoppel. The Appellants submitted their compliance statements asserting that the statutory requirements were met, and HMRC’s authorisation did not, in our view, endorse those assertions. The language in the EIS2 authorisation letters, explicitly states that the authorisation does not guarantee the availability of relief and that the requirements of the scheme must continue to be met. We consider this negates any suggestion that it represented the requirements had been permanently satisfied. In these circumstances, we are unconvinced that HMRC waived its right to challenge compliance with the statutory requirements or that they are estopped from doing so, as relief is always subject to subsequent review and withdrawal under section 234.

conclusion

[154]We consider that the Appellants met the use of the money raised requirement (section 175) but failed to meet the purpose of the issue requirement (section 174), the minimum period requirement (section 176), and the trading requirement (section 181).[155]We also consider that, in the circumstances of this appeal, HMRC could advance arguments that were not explicitly made in their decision notice of 28 January 2020, that HMRC had not waived any requirement to comply with any EIS requirement and that the doctrine of estoppel did not preclude HMRC from alleging that the Appellant did not comply with any EIS requirement.[156]For the reasons set out above, we dismiss this appeal.

Right to apply for permission to appeal

[157]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 16th JULY 2025