Not too small to be ignored

The taxpayer developed and delivered digital content to cinemas. To raise funds from the shareholders the company issued ordinary shares carrying a small preferential right. The company applied for a compliance certificate so that its investors could obtain enterprise investment scheme (EIS) relief.

However under ITA 2007 s 173(2)(aa) EIS relief is not available if the shares acquired carry “any present or future preferential right to a company’s assets on its winding-up”. HMRC therefore refused the application.

The taxpayer appealed. Counsel for the company argued that the shares carried “the overwhelming majority of the risk and reward in the company’s business”. They were the kind of shares parliament intended to benefit from EIS relief. Further under the de minimis rule that applied as an aid to the construction of UK statute the preferential right was so small that it could be ignored in determining...