Fashion On The Block ' Taxpayer Successful With Substance Over Form Argument

• Published date: 11 November 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Tax, Compliance, Corporate and Company Law, Trials & Appeals & Compensation, Income Tax, Tax Authorities
• Law Firm: Reynolds Porter Chamberlain
• Author: Mr Constantine Christofi

In Fashion on the Block Ltd v HMRC [2021] UKFTT 0306 (TC) the First-tier Tribunal (FTT) held that an Enterprise Investment Scheme (EIS) compliance statement (EIS1) erroneously submitted instead of a Seed Enterprise Investment Scheme (SEIS) compliance statement (SEIS1) should be rectified.

Background

Fashion on the Block Ltd (the Appellant), an online fashion start-up company, received SEIS advance assurance from HMRC. After issuing shares, the Appellant sought to complete and file an SEIS1 form with HMRC. The covering letter to HMRC stated that the SEIS1 form was enclosed with the letter but in fact an EIS1 form was enclosed in error.

HMRC authorised the Appellant to issue EIS2s (authorising EIS investment). The Appellant noticed the error and immediately notified HMRC. After initially indicating it would accept a new SEIS1 form, HMRC refused to do so. The investors in the Appellant were therefore prevented from claiming SEIS income tax relief in respect of their relevant shares.

Under section 257DK, Income Tax Act 2007, qualification for SEIS requires that a company has no previous EIS investment. HMRC interpreted this provision strictly and rejected the Appellant's request to overlook the error. HMRC relied on X-Wind Power Ltd v HMRC [2017] UKUT 290, in which it was held that an erroneous EIS submission was not a nullity. In X-Wind the taxpayer's appeal was dismissed as there is no provision in the legislation for withdrawing, setting aside, replacing or revoking an EIS compliance statement.

The Appellant appealed.

FTT decision

The appeal was allowed.

Distinguishing X-Wind from the current case, the FTT noted that HMRC had been made aware of the error (within 18 minutes of the incorrect form being submitted) and knew that the Appellant sought SEIS rather than EIS authorisation. The Appellant had cleared SEIS authorisation, made reference to the SEIS1 form in the covering letter and had no prior EIS investment.

In the view of the FTT, although it...