What is a qualifying activity?

The taxpayer company issued shares in November 2003 to raise funds to increase its investment in a partnership that made dairy products and then paid the money to the partners.

The company applied to HMRC under TA 1988 s 306(4) to issue enterprise investment scheme (EIS) certificates in respect of the share issue because an investor’s taxable gains under the EIS can be set against sums paid for shares in a qualifying company for the purpose of a qualifying business activity.

HMRC refused the application and the taxpayer appealed.

The First-tier Tribunal said the trade of the partnership was carried on by each partner (Partnership Act 1890 s 5): the company was trading because the partnership was doing the same.

But the conditions in TCGA 1992 schedule 5B para 1(2)(f) and (g) required the purpose of the share issue to be to raise money...