In Hoopla Animation Ltd v HMRC [2025] UT00028, the Upper Tribunal (UT) dismissed an appeal relating to the eligibility of shares in a pre-school film venture's Special Purpose Vehicle (SPV) for EIS relief purposes. A member of a group of companies who had provided subcontracting services to the SPV was 'party to' the arrangements. 

Childcare 2

Hoopla Animation Limited, (HAL), a Special Purpose Vehicle (SPV) had been part of a group of companies known as the CHF group which had been formed to exploit the Intellectual Property (IP) rights in a pre-school animated film project called 'Daisy & Ollie'. CHF raised funds from third-party investors who subscribed to shares that held IP rights to the show.

HAL appealed against an Earlier decision by the First Tier Tribunal (FTT) which deemed the shares a ‘disqualifying arrangement’ meaning Enterprise Investment Scheme (EIS) relief could not be claimed.

Shares qualifying for EIS relief must meet various conditions and HAL did not meet the provision of ‘Condition A’, s.178A Income Tax Act (ITA) 2007 which stipulates a condition is a disqualifying arrangement if the money raised by the issue of the shares is ‘paid to or for the benefit of a relevant person’.  

A relevant person is defined in s.178(6) ITA2007 as:

  • ‘A person party to the arrangements or a person connected with such a party’.

Arrangements are defined in s.275(1) ITA 2007 as including:

  • ‘Any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable)’.

A significant amount of the funds raised had been paid to a member of the same group in return for ‘arm’s length’ subcontracting services.  

HAL argued that the FTT had erred in law by:

  • Misinterpreting and misapplying s.178(6), particularly in relation to the words ‘party to’.
  • Misunderstanding the concept of paying an amount ‘to or for the benefit of the relevant person’ in regard to the arm’s length subcontracting services provided by a member of the same group.

Additionally, they argued:

  • The group member who provided the subcontracted production services was not ‘party to the arrangements’.
  • The FTT had not defined what ‘party’ to the arrangements meant.
  • Payments made to the group member for services were not for the benefit of that member.

A similar case, Coconut Animated Island Ltd v HMRC [2024] UT/2022/00123, addressed the interpretation of condition A and although that case had not been heard at the time the FTT made their decision in HAL, the UT agreed that the FTT had still applied the correct legal principles to dismiss the appeal.

The UT in Coconut Animated Island Limited (CAIL) decided:

  • 'Party to’ should be determined by the context of each situation.
  • In this case, it can be determined to mean having sufficient involvement in the arrangements, that is appropriate to treat them as participating for those purposes.

The UT concluded:

  • Where an earlier UT case has been decided, the principles should be followed unless there is reason to believe that the decision was wrong, therefore the principles in CAIL should be followed.
  • They agreed with the principle in CAIL that a person having sufficient involvement in an arrangement should be treated as participating in that purpose.
  • Although the FTT in HAL did not have the decision in the CAIL UT case to rely on as it had not at that time been heard, the analysis made by the FTT in initial proceedings, was still in line with the statutory interpretation of ‘party to’ found in CAIL.  
  • HAL’s case fell ‘squarely’ within Condition A with the group member being ‘party to’ making the disqualifying arrangements for the purpose of the EIS relief.

Useful guides on this topic

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

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

SEIS & EIS: Qualifying trades and activities
What is a qualifying trade or activity for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) relief? Which trades do not qualify for relief? What are excluded activities?

Risk to capital: EIS, SEIS and VCTs
This is a freeview 'At a glance' guide to the risk-to-capital condition for the Enterprise Investment Scheme (EIS).

EIS or SEIS Advance Assurance from HMRC
HMRC offers an advance assurance application service for both the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). How do I apply? What information is needed? 

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link  

 Hoopla Animation Ltd v HMRC [2025] UT0028

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