HM Revenue and Customs (HMRC) look carefully at the documentation supporting all investment schemes that have a tax advantage, such as the Enterprise Investment Scheme (EIS).
One of the rules for an investment to qualify for EIS relief is that the subscriber to the EIS shares must not possess, or be entitled to acquire, more than 30 per cent of:
- the ordinary share capital of the company;
- the loan capital and issued share capital of the company; or
- the voting power of the company.
In each case, the legislation also bites if the rules are transgressed as regards a subsidiary of the EIS company.
In a recent case, EIS relief was denied by HMRC because although the claimants each held less than 30 per cent of the shares, they also held loan stock which, when considered in aggregate with the shares, meant that they held more than 30 per cent of the capital of the company.
In the Upper Tribunal, HMRC’s view prevailed.