Key Facts
- •Putney Power Limited and Piston Heating Services Limited issued shares intending to qualify for EIS relief.
- •HMRC determined the shares were ineligible because the companies hadn't begun their qualifying trades within two years of the share issue.
- •The central issue was whether each appellant began carrying on a 'qualifying trade' by the EIS Deadline (April 4, 2018), as required by section 179(2)(b)(ii) ITA 2007.
- •Both companies' projects were developed by the same investment manager, Triple Point.
- •Putney's project involved constructing a gas-peaking plant, entering various contracts including one with Gazprom for gas supply and electricity purchase.
- •Piston's project was also a gas-peaking plant, but at the EIS Deadline, it hadn't finalized a site or entered into key construction contracts.
- •The Tribunal considered various case laws on the commencement of a trade.
Legal Principles
A trade commences when the putative trader is "open for business", requiring operational infrastructure and exposure to real operational risk and reward.
Tribunal's own conclusion
Expenditure on creating fixed capital (CAPEX) does not constitute the commencement of a trade; expenditure on items/materials generating profits (OPEX) may indicate commencement.
Birmingham & District Cattle By-Products Co Ltd v IRC
A trade commences when a taxpayer, having a specific idea and set up business, begins operational activities (dealings with third parties directly related to supplies, involving financial risk).
Mansell v Revenue and Customs Commissioners
Trading involves dealing with people (supplying goods or services); until ready to do so, a trade cannot have commenced.
Ransom v Higgs
The question of when a trade commences is one of commercial substance, considering all relevant facts and what's required to start a trade of that kind.
Ingenious Games LLP v HMRC & Tribunal's interpretation
Outcomes
Appeals dismissed.
Neither Putney nor Piston had completed the assembly of their trade infrastructure by the EIS Deadline; therefore, neither had begun a qualifying trade as required by section 179(2)(b)(ii) ITA.