In Jacqueline Potter and Neil Potter v HMRC [2019] TC7348 the First Tier tribunal allowed a claim for Entrepreneurs relief where the business had not raised an invoice for 5 years; its activities were directed at reviving the trade so its non-trading activities were not 'substantial'.

The conditions to be met for Entrepreneurs Relief (ER) to apply when a company is liquidated are:

  • Within 3 years immediately before the shares are disposed of the company ceased to be a trading company and
  • For the year before the disposal (2 years from 6 April 2019) the company was a trading company.
  • “Trading activities” includes activities carried on by the company for the purposes of a trade that it is preparing to carry on, or with a view to its acquiring or starting to carry on a trade.

Mr and Mrs Potter were director shareholders of Gatebright Ltd, which acted as an introducing broker and dealer at the London Metal Exchange.

  • Following the 2008-09 financial crash Mr Potter invested £800,000 of the company cash reserves in 6 year investment bonds, the interest from which was paid out as dividends. The remaining £200,000 cash was retained as working capital.
  • Due to the crash, a lack of appetite in the market for investment, a home invasion and Mr Potters ill-health, the company had not issued an invoice since March 2009. Mr Potter continued to work his network of contacts despite losing his regulatory licences and provided evidence to show there was no intention to cease trading until June 2014.
  • The company went into voluntary liquidation in June 2015. ER was claimed which HMRC denied on grounds that the company ceased trading in 2009, more than 3 years before the 2015 disposal date.

The FTT held ER was available; despite no invoices being issued after 2009 the company met the trading condition requirements up to November 2012.

  • The investment in the bonds was not ‘substantial’ non trading activity despite their effect on the asset and income positions of the company (which were factors against trading):
    • the expenditure incurred, and time spent by the company officers/employees on the non-trading investment activities was nil.
  • Gatebright was carrying on the trading activities for the purposes, at the very least, of preparing to carry on its old trade:
    • the activities of the company were entirely trading activities directed at reviving the company’s trade and putting it in a position to take advantage of the gradual improvement in global financial conditions.

The judge agreed with Mr Potter that “If the shop is open, but nobody buys anything, it does not change its business classification” up to a point but said if there comes a time when there is no realistic possibility that efforts to drum up business will lead to future trading transactions, it can no longer be said that the trading activities are being carried out for the purposes of a trade, or for the purposes of a trade that the company is preparing to carry on, and at that point the trading activities have ceased.


This is perhaps a surprising decision given that the company had not raised an invoice for over 5 years at the date of disposal, though the judge did say it was a finely balanced case.

There was not an abundance of written evidence to support the company’s intention to continue trading but the judge took full account of Mr Potter’s verbal evidence because it was entirely consistent with the documents he was able to produce.

The amount of tax at stake was not mentioned in the decision but would appear to be over £60,000; it will be interesting to see whether HMRC decide to appeal the decision.

Links to our useful guides:

Entrepreneurs' Relief
When does Entrepreneurs' Relief apply? What is the rate of Entrepreneurs' Relief? How to claim Entrepreneurs' Relief. Case law on Entrepreneurs' Relief. 

Entrepreneurs' Relief: disposal of shares or securities in a company
How does Entrepreneurs relief apply on the disposal of share or securities in a company? What are the conditions for relief?

VtaxP Toolbox: Entrepreneurs' Relief share disposals
Sign up for Virtual Tax Partner © 'VtaxP' © tool to check the Entrepreneurs' Relief conditions for the disposal of shares in a private company.

External link:

Jacqueline Potter and Neil Potter v HMRC [2019] TC7348




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