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Flix Innovations Ltd v CRC, Upper Tribunal (Tax and Chancery Chamber), 5 July 2016
De minimis share rights cannot be ignored
HMRC refused to authorise the issue of enterprise investment scheme (EIS) certificates by a company for its ordinary shares because they carried a preferential right to assets in a winding up.Such rights disqualify shares for relief under ITA 2007, s 173(2)(aa).
There was no doubt that there were preferential rights, but the company argued that they could be ignored on de minimis grounds. On liquidation the holders of the ordinary shares would receive the first £933, after which the holders of the deferred shares would receive £150. Any remaining amount would go to the ordinary shareholders. The Upper Tribunal, held that the de minimis principle did not apply. Parliament had legislated that any preferential right debarred relief: ‘It was not possible to use purposive construction to give effect to a perceived wider policy in cases where the words used will not bear that meaning.’
