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Accountants’ ‘innocent error’ costs firm’s SEIS appeal

27th Jul 2016
Practice Editor AccountingWEB
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Accountant mistake

An accounting firm submitted the wrong form when applying for the seed enterprise investment scheme (SEIS), causing “significant financial consequences” for their client, GDR Food Technology.

WDM Chartered Accountants are the latest SEIS mishap victim, mirroring the mistake made by wind turbine manufacturer X-Wind Power, which had its appeal dismissed by a tax tribunal after inadvertently completing the enterprise investment scheme (EIS) form instead of the intended SEIS document – a mistake that is becoming increasingly common.

As with the X-Wind Power case, WDM requested HMRC withdraw their incorrect EIS application after realising that it too had made a “simple error”.

When HMRC refused WDM’s re-submitted SEIS compliance statement, GDR Food Technology appealed the decision. The gluten free food company contested that the EIS form was submitted by mistake, and presented emails contending that their shareholdings were structured to qualify for the more favourable SEIS relief.

Tax tribunal judge Jonathan Richards rejected this, deciding that the company’s intention was “imperfectly communicated to, or imperfectly understood by” their accountants, who used the EIS forms and referred to the scheme throughout, and in their cover letters, as ‘EIS relief’.

Dismissing the appeal, Richards said: “s257DK makes it clear that the “EIS investment” is regarded as complete when the company provides a compliance statement under s205 of ITA 2007. The section does not invite any consideration of whether or not HMRC subsequently authorise the issue of a compliance certificate.”

The company believed that since it discovered its mistake a month after HMRC authorised the initial EIS compliance certificate, it should be separated from the X-Wind Power case. However, Richards did not deem the length of time it took to discover the mistake relevant.

With this being the second public dispute regarding SEIS form confusion, WDM argued for some mechanism to correct an error when the wrong form has been submitted to HMRC.

While Richards expressed sympathy for the company, he reasoned that parliament has “not made any provision to relieve taxpayers who inadvertently submit the wrong form”. He added: “I agree with Judge Bishopp (the chamber president) in X-Wind Power that the legislation does not ask why a compliance statement under s205 ITA 2007 has been made; it simply asks whether it is has been made.”

What do you think? Is this an easy mistake to make? Should there be a mechanism in place to correct errors of this kind if an incorrect form has been submitted?

Replies (7)

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By Duhamel
27th Jul 2016 11:59

Looking at the accountants website and their team page, they seem to do a lot of audit and not much tax. I guess its a reasonable mistake for an auditor.

Thanks (1)
By jon_griffey
27th Jul 2016 12:19

This is just an example of the fact that the UK tax system has got so complicated that there are trip wires everywhere.

If seasoned professionals are getting caught out, how on earth are taxpayers expected to it themselves?

We can all have a laugh at some other firm's misfortune but in reality there but for the grace of God, go I.

Thanks (15)
By ianthetaxman
01st Aug 2016 12:10

Many clients wish to undertake advance assurance prior to the actual SEIS/EIS application being made. The advance assurance paperwork provides for both SEIS and EIS, so only one form is required.

Perhaps, if the SEIS and EIS forms were combined, this may prevent the risks outlined, as you would need to specify which type of relief you were applying for, rather than assuming the paperwork being completed was for the correct relief. Obviously, no guarantees this would prevent similar errors?

I agree that the rulings do seem harsh, but this predicament highlights the fundamental concept of 'SEIS before EIS'. If an advisor is not clear on what type of shares have been issued, they should clarify this before going down a route that clearly cannot be reversed.

Thanks (0)
By hiu612
01st Aug 2016 13:55

I've got some sympathy for the accountant's here, as the forms (and the regimes) are very similar. That sympathy is lessened by the judges' suggestion that it was not just an inadvertent mistake at the last juncture, but that the firm referred to EIS throughout the process. It does seem as though the legislation could do with some flexibility to allow a compliance statement to be withdrawn, especially prior to the issue of the forms EIS3 to the investors.

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By CJMaslen
01st Aug 2016 14:36

An unfortunate situation, in which the confusing state of the UK's over complicated taxation system is at least a contributory factor. One of those situations in which, in the good old days, a bit of bureaucratic common sense could have saved all the trouble.
The tribunal had all the facts before them and appear to have reached the only decision open to them. There are too many pitfalls and the authorities generally have become over eager to exploit them. The contest has become very one-sided.

Thanks (2)
By Ian McTernan CTA
02nd Aug 2016 10:57

I think the problem here is that the firm compounded the error by referring to EIS rather than SEIS in the covering letter, which sounds like a less qualified person did the work and was then signed off by a partner or similar who wasn't all that up on the client. This is not unusual in many practices but will lead to the sort of mistake made here.

Simple rule for all those firms operating as above, is to have an expert review of any of these sort of claims (you're no doubt charging the earth for it, get it right), and double check you are claiming the correct relief.
The legislation might be complex but the process isn't- and advance clearance makes it very clear.

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By AndrewV12
19th Nov 2016 14:27

Forms, forms and more bloody forms, clients should take more responsibility and fill in their own forms, than just getting their Accountant to do it and hope the Accountant wont charge them.

Obliviously i feel sorry for the Accountants, but you cannot send in forms, and later on say ooohhh i sent the wrong one in, anyone could wriggle out of anything.

The trouble is contacting HMRC for clarification for forms, it should be taken into consideration if you have tried (for say) 3 reasonable times to contact HMRC for advice and you have not go where.

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