In Putney Power Limited and Piston Heating Services Limited v HMRC [2026] UKUT 00105, the Upper Tribunal (UT) found that Enterprise Investment Scheme (EIS) relief was not available on shares issued by the companies, as neither was trading before the relevant deadline.
Putney Power Limited (Putney) and Piston Heating Services Limited (Piston) both issued shares on 4 April 2016.
- Putney had obtained Advance assurance from HMRC that the shares would qualify for Enterprise Incentive Scheme (EIS) relief.
- Its EIS1 explained its trade as the 'provision of heat to businesses' with a commencement date in December 2016, at which point HMRC believed it was building an energy centre.
- In fact, its only activity had amounted to leasing two customers' Dyson fans.
- Piston submitted an EIS1 in June 2017, similarly explaining its trade when, in reality, its only activity was also to lease a Dyson fan to one customer.
- To be eligible for EIS, the companies had to begin to Carry on a qualifying trade by the two-year EIS deadline of 4 April 2018.
- HMRC argued that neither company was Trading because the power stations constructed were not producing and supplying electricity by the deadline. They argued that the explanation of the trade in the EIS1 was not pivotal, as the nature of trade often changes during the early period in a company's life.
- In October 2016, Putney entered into heads of terms with a company in respect of a site for a peaking supply (when the national grid does not have sufficient electricity).
- After doing due diligence, the agreement was finalised in May 2017 with construction work commencing in September 2017.
- The work should have been completed in December 2017, but was not completed until August 2018.
- Putney received liquidated damages as compensation for the delay.
- Piston's first target site was aborted by July 2016, but an alternative was found, and heads of terms were signed in October 2016. This was also for supply in the capacity market.
- The lead constructor for a new site was appointed in April 2018, and Piston had not commenced construction by the EIS deadline.
- Construction began in October 2018, and the site started producing electricity in August 2019.
- HMRC said the caveat 'to the extent that' from the case of Mansell v HMRC [2006] had been misunderstood in the case of John Douglas Wardle v HMRC [2024] TC09213.
- It makes no sense for a business to be considered operational whilst challenging whether it has been set up.
- Similarly, in the case of Towers MCashback LLP v HMRC [2011], it is clear that 'set-up' must have been completed before a trade can begin. The Wardle decision was not consistent with the test developed in Khan v Miah [2001] of being ready to face customers.
- Putney argued that it was ready to face and find customers by 4 April 2018, as it had already entered into a relevant contract. Construction did not need to be completed.
- Piston pointed to dealings with third parties, which were immediately and directly related to the supplies to be made.
- It argued that whilst it had further steps to take, it had reached a point of engaging with customers with the real possibility of profit by 4 April 2018.
The First Tier Tribunal (FTT) found that:
- It was possible to be open for business and thus trading whilst having no customers, rather like a restaurant that is open but without diners. The failure to supply electricity by the EIS deadline date of 4 April 2018 did not necessarily mean the appellants were not trading. That said, the companies did need to be ready to trade, so set-up must be complete.
- The contracts Putney had entered into by the deadline date gave rise to a real possibility of future loss or gain at an operational level, so from Mansell, the third stage was met, albeit the conditionality of the contracts meant the activity was suspended until the plant was commissioned.
- By contrast, the heads of terms Piston had signed enabled it to walk away from the project without penalty, so there was no real possibility of future operational risk or reward at the key date.
- Nonetheless, from all the case law examined, a trade is not set up before the time when the intending trader can supply whatever goods or services that will form the subject matter of the trade. The trading infrastructure must actually be assembled, and not just contractually, before a trade can be said to have commenced. This infrastructure needs to be operational even if not wholly complete.
The Upper Tribunal (UT) found that:
- The FTT made a material error of law by treating concepts like 'infrastructure' and 'operational ability' as legal tests rather than factors.
- The UT set aside the FTT decision but remade it on the existing facts.
- Putney could not generate electricity or earn capacity-market income by the deadline: the Copse Road plant was incomplete and non-operational, and Putney's first actual capacity allocation did not occur until August 2018.
- Although Putney had entered into contractual arrangements that, if performed, would lead to a functioning plant, those contracts formed part of its preparation to trade, not the commencement of trade itself.
- Analogies with forward-sale models or bespoke manufacturing examples should be rejected, noting that Putney's electricity-generation trades required the plant to be operational before income-generating activity could truly begin.
- Piston's position was even weaker.
- By 4 April 2018, it had no operational site, no construction contracts, no gas or electricity agreements and had not even settled on a site capable of development.
- Arguments based on Micro Fusion should be rejected, noting that Piston had assumed no binding commitments that would result in financial risk or reward. Its activities remained preliminary and exploratory.
- Neither Putney nor Piston had begun to carry on their trades by 4 April 2018.
Both appeals were dismissed.
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External link
Putney Power Limited and Piston Heating Services Limited v HMRC [2026] UKUT 00105