Wrong forms did not prevent SEIS relief

In Fashion on the Block Ltd v HMRC [2021] TC08248, the First Tier Tribunal (FTT) adjudged that completing the wrong form was not an acceptable reason for HMRC's refusal to allow the issue of SEIS qualifying shares.

• Fashion on the Block Ltd (FOTB) was a UK start-up company incorporated on 12 December 2018.
• Advance Assurance was applied for from HMRC specifically for Seed Enterprise Investment Scheme (SEIS) relief, the application form was the same for SEIS, Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) relief.
• The pre-requisite requirements were met and HMRC gave the Advance Assurance.
• An advisor for FOTB inadvertently completed forms EIS1 rather than SEIS1 when providing HMRC with the required compliance statement.
• Shares were issued to investors.
• HMRC subsequently responded providing form EIS2 confirming FOTB could issue certificates to investors claiming EIS relief (rather than the intended SEIS relief).
• The advisor contacted HMRC within 20 minutes by email highlighting the mistake and requesting authority to issue SEIS certificates to investors.
• HMRC initially appeared to be prepared to accept a replacement form SEIS1 which confirmed the applicable conditions were met in full but ultimately decided this was not possible: EIS shares had been authorised which precluded a subsequent issue of SEIS shares.
• FOTB Appealed against the refusal to authorise the issue of SEIS compliance certificates which prevented investors from claiming the relief.

The FTT allowed the appeal finding:

• The taxing statutes should be applied purposively, HMRC proposed a literal interpretation of the conditions.
• The purpose of the SEIS legislation was to allow tax relief for investors in shares in companies carrying on new business which was exactly the case here.
• HMRC have the discretion to deal pragmatically with issues such as this and their failing to do so was difficult to understand, however, the FTT had no jurisdiction over the application of this discretion.
• Viewing the facts of the case realistically, that the only block to the issue of SEIS relief was the completion of a form provided in error was unacceptable.
• The decision in X-Wind Power Limited v HMRC [2017] UKUT 0290 was not binding as it should have been clear to the HMRC officer reviewing the EIS1 form that it was SEIS relief that FOTB was intending to apply for. The Advance Assurance application and covering letter made this clear. This was not the case in X-Wind Power. Rectification, whereby the EIS1 form submitted should be deemed to be form SEIS1 was an available remedy.

Useful guides on this topic

SEIS & EIS: Share issue checklist
A Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) share issue checklist for the issue and allotment of shares.

SEIS: Seed Enterprise Investment Scheme (subscribers)
When can SEIS relief be claimed?  What are the conditions for SEIS relief?  What are the benefits of SEIS relief?

SEIS: Seed Enterprise Investment Scheme
This is a freeview 'At a glance' guide to the Seed Enterprise Investment Scheme (SEIS).

EIS: Enterprise Investment Scheme (Subscriber)
When can EIS relief be claimed?  What are the conditions for EIS relief?  What are the benefits of EIS relief?

EIS or SEIS: Advanced assurance from HMRC
This is a freeview 'At a glance' guide to Advance Assurance for EIS and SEIS. 

SEIS case: File the correct forms!
In X-Wind Power Limited v HMRC [2017] UKUT 0290, the Upper Tribunal (UT) considered whether relief under the SEIS was blocked because the company filed an EIS (rather than SEIS) compliance statement in error.

External links

Fashion on the block Ltd v HMRC [2021] TC08248