Seed enterprise investment scheme: Small share investments were not precluded from relief

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The appellant company was incorporated on 30 September 2014 to ‘spin-out’ technology from the University of Oxford’s Department of Engineering Science. On 29 October 2014, the University made a loan to the appellant of £110,000. In July 2015, the appellant made an application (on form SEIS1) to HMRC for authority to issue seed enterprise investment scheme (SEIS) compliance certificates in respect of 31,600 shares issued to three investors on 30 September 2014 for a total of £316.

HMRC refused the appellant’s application (under ITA 2007, s 257EC), on the basis that the shares were not issued to raise money for the purposes of the appellant’s qualifying business activities (as required by s 257CB), as the amount of £316 would not be enough to be of meaningful use to the company in its business. The appellant appealed.

The First-tier Tribunal (FTT) considered that what lay at the heart of the case was HMRC’s belief that the reason for the share issue was to derive a CGT advantage. By introducing a ‘meaningful’ requirement it appeared that it was for HMRC to decide on sufficiency and thereby remove any certainty from the legislation; SEIS relief would become entirely at the discretion of HMRC. The FTT concluded that the size of the investment made through the share issue could not be a relevant factor. The FTT also found that there was no statutory basis for HMRC to contend that because debt funding was, or may be available, SEIS relief could not apply. Finally, on the basis that the ‘no tax avoidance requirement’ (in ITA 2007, s 257CE) was met, the FTT held that it was not open to HMRC to contend that the requirements of section 257CB were not met on the basis of a desire of the investors to claim CGT relief. The appellant’s appeal was allowed.

Oxbotica Ltd v Revenue and Customs [2018] UKFTT 308 (TC)

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