Unemployed funds

The taxpayer company had two restaurant-pubs which were running at a loss. In December 2001 one of the directors subscribed for shares in the company so that it could buy another pub and use the profits from that establishment to fund the losses from the other premises.

The sale fell through just before exchange and completion of the contract so the directors decided to concentrate on improving the existing restaurants. The first director claimed enterprise investment scheme relief in respect of the 2001 share subscription.

HMRC refused the claim on the grounds that the company could not have employed 80% of the funds raised in that subscription in its business because the relevant accounts showed that the firm still had £1.2 million on deposit with its bankers and this was not therefore employed in the trade.

The company and director appealed claiming that Skye...