The UK tax system permits taxpayers to submit numerous claims and elections, but the law doesn’t always specify exactly what form that election or claim should take. Some claims can be made verbally by telephone to HMRC, others must be in writing but can be submitted in any free-hand format.
Permission to issue shares and certificates under the SEIS or EIS schemes, which will in turn allow investors to claim income tax and/or CGT relief, must be applied for on a specific form: SEIS1 for the SEIS scheme, or the EIS1 for the EIS scheme. The two schemes must not be muddled up as SEIS cannot be used after permission to use EIS has been granted.
There have been two cases reported at the First-tier Tax Tribunal (FTT) where companies used the EIS1 form when applying to issue certificates under SEIS, and both taxpayers lost. A third case has just been reported which follows the same pattern.
The advisers for JS Commissioning Ltd wisely used the advanced assurance service provided by HMRC before formally applying for SEIS. This service allows the company to check if its trade meets the qualifying conditions for SEIS before issuing the shares.
HMRC responded to the advisers to confirm the company would meet the SEIS conditions, and invited the company to download and complete an SEIS1 form.
One year later, when the company had changed its name to Innovate Commissioning Services Ltd, it submitted an EIS1 form showing an investment of £150,000. HMRC replied querying whether the company wanted to apply for EIS or SEIS. That letter was sent to 1 Mariner Court, but in the meantime the company had moved to 5 Mariner Court, although it had not informed HMRC of this move.
As HMRC had not received a reply to the letter querying whether SEIS or EIS was the desired scheme, EIS permission was issued on form EIS2. The advisers tried to sort out this mess by asking for the EIS permission to be withdrawn. HMRC confirmed that this was not possible.
The lessons to be learned from this case are:
- Inform HMRC promptly about any change in address for clients
- Apply for advanced assurance for SEIS or EIS
- Don’t let clients submit SEIS or EIS forms without supervision.
Our corporation tax experts can assist you with any EIS or SEIS queries, as its essential to get the forms right first time.
For further details please contact DFC Accountants in Cardiff, Wales.