Enterprise Investment Scheme Relief Requirements
The case of Abingdon Health Limited v HMRC involved the First-tier Tribunal considering the requirements for qualifying for relief under the enterprise investment scheme (EIS). EIS is essentially in place to encourage investment in smaller or high risk companies by providing significant tax relief to investors. To qualify a company must have no more than 250 employees and gross assets not exceeding £15 million immediately before the share issue.
The case considered the provisions of the Income Tax Act 2007 regarding one of the clear conditions for tax relief that the EIS shares must not carry any preferential rights to company assets on a winding up. In this case the Tribunal decided that there was such a preferential right carried by the ordinary shares due to the creation of a new class of “growth” shares. As a result the Tribunal agreed with HMRC’s position to refuse the issue of a compliance certificate in respect of the third issue of ordinary shares, and furthermore to withdraw relief in respect of the first two issues of ordinary shares. This is a reminder as to the need to ensure that the company’s articles of association and the issues of shares, including any share restructuring, comply with the EIS legislation and HMRC guidance in order to obtain the tax relief for the investors.