York SD Limited & Ors v The Commissioners for HMRC

The witness statement of Mr David Hughes was provided in connection with his role as Chief Investment Officer of Foresight Group LLP (‘Foresight’), a subsidiary undertaking of Foresight Group Holdings Limited which is an investment company listed on the London Stock Exchange. He has been a partner at Foresight for the past 15 years and during his tenure, he has overseen a wide range of sustainable infrastructure investments across Europe and Australia, including projects in solar, wind, hydrogen, and geothermal energy.

Mr Hughes explains that Foresight played a central role in managing the Foresight Energy Infrastructure EIS Fund, which invested approximately £5 million in each of the six Appellant Companies between December 2015 and March 2016. The fund was structured such that private investors appointed Foresight to manage their investments in companies that qualified for EIS. This structure allowed Foresight to direct capital into early-stage businesses with the potential for high growth, while also ensuring that the investments met the criteria for EIS tax relief.

To initiate trading, each of the six Appellant Companies installed a single rooftop solar panel in the UK. These installations were accompanied by agreements to sell electricity to homeowners, serving as a demonstration of genuine trading activity. This initial step was designed to satisfy the EIS requirement that trading must commence within a specified timeframe.

Building on this foundation, the companies expanded their operations by establishing subsidiaries in Spain and Portugal. These subsidiaries were tasked with developing ground-mounted solar plants, marking a significant scale-up in operations. Foresight provided comprehensive support throughout this process, including operational oversight, technical guidance, and financial structuring. Their involvement extended to sourcing viable projects, negotiating engineering, procurement, and construction (‘EPC’) contracts, and arranging power purchase agreements (‘PPAs’) with energy buyers.

Mr Hughes states that, in 2016, detailed business plans were submitted to HMRC. These plans outlined a phased approach to trading, with modest initial activity followed by substantial revenue generation expected from 2018 onward. HMRC reviewed and accepted these plans, subsequently issuing EIS2 authorisations in 2017, meaning that investors were entitled to claim the associated tax reliefs.

Despite the careful planning and execution, the projects encountered several external challenges that caused delays. In Spain, bureaucratic hurdles related to planning permissions and grid connection processes slowed progress. Additionally, a government-imposed moratorium on new solar permits further impeded development. The onset of the COVID-19 pandemic introduced further disruptions, affecting supply chains, construction timelines, and regulatory processes. Nevertheless, several of the projects eventually became operational and began generating revenue.

Each company focused on specific solar projects, with detailed timelines for securing permits, constructing facilities, and connecting to the grid. For instance, York SD Limited (‘York’) developed the TC03 project in Spain, which became operational by 2021. Warwick SD Limited (‘Warwick’) completed the Vale Matanças project in Portugal, which was operational by early 2019. Cardiff SD Limited (‘Cardiff’) pursued the TC01 and AL02 projects, with the AL02 project becoming operational by 2022.

Foresight’s compensation for managing these investments followed a standard fee structure. This included an initial fee of 5.5%, an annual management fee of 1.5%, and a secretarial fee of 0.3%. In addition, performance incentives were built into the structure, with rewards based on the returns generated by the investments.

Mr Hughes states that the fund operated in full compliance with the regulatory frameworks established by the Financial Conduct Authority and HMRC. Its structure was carefully designed to avoid classification as a collective investment scheme under UK law, ensuring that it remained within the bounds of permissible investment vehicles. The Appellants relied on HMRC’s authorisation to issue compliance certificates. Had authorisation not been granted, the Appellants would have had the opportunity to answer any questions and alter its activities to ensure the requirements were met. In particular, they would have expanded their rooftop solar activities in the United Kingdom to a level that would have satisfied HMRC’s newly apparent qualitative threshold for trading.

While acknowledging the external challenges that delayed revenue generation, Mr Hughes states that they were genuinely engaged in trading activities focused on the generation of solar electricity and highlights the strategic planning, operational execution, and regulatory compliance that underpinned the Appellants’ activities.

Mr Hughes’s witness statement sets out the development of their solar energy operations. He states that this timeline reflects a deliberate and phased approach to business development, beginning with modest domestic operations and expanding into more ambitious international projects. Each milestone demonstrates the Appellants’ commitment to building viable, revenue-generating renewable energy businesses.

The key dates set out in the statement can be summarised as follows:

During the hearing, Mr Hughes gave detailed testimony under oath regarding the formation, intentions, and operations of the appellant companies. Although not a direct board member of the companies, Mr Hughes was closely involved in their oversight and strategic direction through his role at Foresight.

Mr Hughes was questioned regarding this evidence that the primary purpose of the share issues by each of the six companies was to fund investments in solar energy projects, both in the UK and overseas. He explained that the strategy was to begin with rooftop solar panel installations in the UK to initiate trading and satisfy the requirements of the EIS. These installations, while not expected to be profitable on their own, were intended to demonstrate commercial activity and start the EIS clock. From the outset, the companies planned to establish wholly owned subsidiaries in countries such as Spain and Italy to develop larger, ground-mounted solar projects. This approach was consistent with Foresight’s standard practice of using subsidiaries for overseas investments.

The companies submitted EIS1 compliance statements to HMRC in May 2017, believing that all EIS requirements had been met. Mr Hughes noted that while the EIS1 forms did not explicitly mention the use of subsidiaries, due to limitations in the form design, the accompanying business plans and covering letters clearly outlined the intention to operate through such structures. He emphasised that if HMRC had refused to authorise the compliance certificates, the companies would have redirected their investments into alternative opportunities, such as rooftop solar projects in Italy, which could have been implemented more quickly.

Mr Hughes expressed that the companies relied heavily on HMRC’s authorisation of the EIS3 certificates. He considered this reliance was reasonable and that the companies would suffer significant detriment if HMRC were now permitted to invalidate those certificates. The potential consequences included lost investment opportunities, litigation costs, reputational damage, and dissatisfaction among investors.

During cross-examination, Mr Hughes acknowledged that some early documentation, such as investment memoranda and director appointment letters, referenced smart metering and reserve power rather than solar energy. He attributed this to evolving market opportunities and regulatory changes. He also accepted there were some discrepancies between the documents and his evidence, such as York’s accounts stating its principal activity was smart meter ownership. He said these were clerical errors made by junior staff unfamiliar with the companies’ actual operations.

Mr Hughes explained the use of some of the raised capital for inter-company loans to other Foresight entities, such as Foresight Metering Limited, as a form of prudent cash management while awaiting deployment into solar projects. He maintained that the companies began operational activities shortly after incorporation, including scouting for solar opportunities, even though formal board meetings were not documented until later in 2017.

He also addressed the issue of trading and revenue generation, reiterating that the rooftop installations marked the beginning of their trading activity and that the companies were actively pursuing overseas projects thereafter. Although there were delays and some projects did not materialise as planned, due to bureaucratic hurdles, regulatory moratoriums, and the COVID-19 pandemic, Mr Hughes insisted that the companies consistently acted with the intention to trade and generate electricity.

Finally, Mr Hughes expressed his surprise and frustration at HMRC’s decision to withdraw EIS relief. He highlighted that the companies had acted in good faith, based on HMRC’s earlier authorisation, and he considered the withdrawal to be unjustified given the companies’ consistent efforts to comply with EIS requirements and pursue legitimate trading activities.

In his witness statement as a managing director at Foresight, Mr Carlos Rey Micolau, who also manages Foresight’s Madrid office and co-directs Foresight Group Iberia, outlines his professional background and his role in managing solar investments in Southern Europe, particularly in Spain and Portugal. He explains that from late 2015 to early 2016, approximately £5 million was invested in each of the six appellant companies, with the funds ultimately used to finance unsubsidised ground-mounted solar plants in Iberia. He states that these investments were made with the intention of generating revenue through electricity sales, either to the wholesale market or via long-term PPAs with private entities.

Mr Rey’s statement details the development and commercialisation of eight solar plants by the subsidiaries of the appellant companies, despite facing significant challenges such as intense market competition, regulatory delays, and the COVID-19 pandemic. He provides a timeline of events and identifies the specific plants developed by each subsidiary and describes the Iberian solar market’s stagnation between 2008 and 2018 due to the global financial crisis and the withdrawal of government subsidies. Foresight was among the first to identify the viability of unsubsidised solar investments in the region, driven by high solar irradiation, falling technology costs, and favourable electricity prices.

Mr Rey emphasises the importance of local presence and relationships in navigating the complex regulatory and planning environment. He outlines the extensive due diligence and partnership-building efforts undertaken with local developers, legal advisors, and technical consultants. These efforts included evaluating over 100 potential projects and engaging with numerous counterparties and advisors. He also explains the contractual framework for solar projects, including EPC agreements and O&M (operations and maintenance) contracts, as well as the negotiation of PPAs. The first investments were made in 2017, with the first operational plant connected to the grid in late 2018.

The statement concludes by detailing the challenges faced from 2018 onward, including increased competition, government auctions favouring subsidised projects (which the Appellants could not pursue due to EIS restrictions), administrative bottlenecks, and pandemic-related delays. Despite these obstacles, the projects eventually became operational and generated returns reflective of the significant effort and capital invested.

In his testimony given under oath during the hearing, Mr Rey stated that, from the outset, the intention was for each appellant company to establish a wholly owned subsidiary to carry out overseas solar activities. This was standard practice for Foresight, which never used UK companies to invest directly in foreign projects.

He explained that the decision to focus on solar energy investments in Spain and Portugal was made in late 2015, with a clear mandate from Foresight’s management committee in early 2016. This decision followed the rejection of initial investment plans and the identification of new opportunities in unsubsidised solar projects in Iberia. Mr Rey was tasked with originating greenfield solar developments in Spain and Portugal, shifting his focus from the Italian market. He emphasised that the commitment to solar was solidified when Foresight’s investment committee approved the Spanish projects, which he interpreted as a directive to proceed with solar investments on behalf of the appellant companies.

Mr Rey clarified that while discussions about solar investments began in late 2015, the formal and focused effort to pursue these projects began in January 2016. He noted that the companies began operational activities shortly after incorporation, including scouting for solar opportunities, although formal board meetings were not documented until later in 2017.

He also addressed the issue of forward contracts for electricity sales. While most subsidiaries chose to sell electricity at spot prices once operational, two of the Appellants (Cardiff and Warwick) entered into long-term PPAs before their plants were operational. These agreements carried risks, including penalties for delayed energy delivery, which were realised in Cardiff’s case. Mr Rey explained that the decision to avoid such agreements in later projects was a strategic response to these risks.

Regarding the timeline of project development, Mr Rey described the process from identifying a site, incorporating a subsidiary, securing land and grid access, obtaining planning permissions, and finally entering into EPC agreements. He noted that while EPC contracts were sometimes signed before final planning approvals, construction would not commence until all necessary permits were obtained. This approach allowed Foresight to lock in prices and secure resources in advance.

Mr Rey also discussed the financial management of the companies. He acknowledged that some capital was loaned to other Foresight entities, such as Foresight Metering Limited, as a form of prudent cash management. He considered this practice to be consistent with the companies’ objectives and noted that excess funds were sometimes reallocated between companies to meet varying capital needs.

In terms of documentation, Mr Rey admitted that while decisions were made at the board level, not all were formally minuted. He emphasised that the subsidiaries acted under the direction of their parent companies and did not operate autonomously. The lack of formal records was attributed to administrative oversight rather than a lack of governance.

Mr Rey’s evidence also highlighted the challenges and risks inherent in solar project development, including planning delays, grid access issues, and the need for detailed financial modelling. He described how KPMG was engaged in late 2016 to validate the financial viability of the projects, providing a robust business model that supported investment decisions.

Having considered the detailed written and oral evidence given by the witnesses, it is our finding that Mr Hughes and Mr Rey were both in a position to give reliable testimony as to the actions taken by the Appellants and the decisions the Appellants made in relation to their activities. We found the evidence given by both witnesses to be clear, comprehensive, honest and credible, and we therefore place significant weight on that evidence in arriving at our findings of fact at [76] below. We are grateful to both witnesses for assisting in our understanding of the Appellants’ operations.

We considered evidence and submissions regarding various documents which provide insight into the investment strategy, corporate structure, and the nature of the business activities undertaken by the Appellants.

The first of such documents is the Information Memorandum issued in July 2015 by Foresight Group. This memorandum was designed to attract investors to the Foresight Energy Infrastructure EIS Fund. It outlined the fund’s focus on energy infrastructure, specifically highlighting reserve power and smart metering as the primary investment targets. Although, there was no mention of solar electricity generation specifically, investment opportunities listed in the Memorandum included “other infrastructure assets that generate attractive and sustainable returns”.

Following legislative changes that excluded reserve power from EIS eligibility, an Addendum to the Information Memorandum was issued on 30 November 2015. This addendum indicated that the Fund would continue to focus on smart metering, while also considering foreign solar investments. It states that the “Fund will continue to invest in companies that generate and sell data derived from the ownership and operation of smart data assets and other infrastructure assets that generate attractive and sustainable returns, including foreign solar that does not benefit from subsidy”.

On 18 December 2015, Letters of Appointment were issued to independent directors of the newly incorporated appellant companies. These letters referred to “infrastructure projects which may include the generation and sale of data from the ownership and operation of smart metering assets in the UK or any other energy infrastructure project which the Directors from time to time may choose to pursue subject to compliance with the EIS rules”.

Investment and Shareholder Agreements were executed on 18 December 2015 between each Appellant, Foresight Fund Managers Limited, and Foresight Group. These agreements outlined the terms of investment and described the Appellants’ intended trade in broad terms as infrastructure projects, allowing for flexibility in the type of infrastructure pursued, including solar.

Between October and December 2016, the Appellants entered into rooftop solar panel agreements with individual UK homeowners. These agreements were not commercially profitable, as the revenue generated was minimal compared to the cost of installation. The purpose of these agreements, as acknowledged by Mr Hughes, was to initiate trading activity to support EIS relief claims rather than to generate meaningful profit.

The Appellants engaged KPMG, by letter dated 29 November 2016, to provide a proof of concept for the viability of unsubsidised solar in Iberia.

On 10 May 2017, the Appellants submitted business plans and EIS1 compliance statements to HMRC. The business plans discussed potential investments in ground-mounted solar installations in Spain and Portugal and rooftop solar in Italy. However, they did not indicate that a final decision had been made. A business plan noted that York was “in the early stages of reviewing a number of possible projects” but was “in advanced negotiations in respect of a 12 MW project located in Espinheiro in the municipality of Evora in south eastern Portugal”. This project ultimately did not proceed. Other projects were then considered. The EIS1 forms declared that the trade had already commenced with the rooftop panel installations.

Subsequently, on 24 July 2017, HMRC issued EIS2 authorisations allowing the Appellants to issue compliance certificates. These authorisations explicitly stated that they did not guarantee the availability of EIS relief and that relief could be withdrawn if requirements were not met.

Also on 24th July 2017, Foresight made a non-binding offer to a Spanish company, Ansasol S.L. (“Ansasol”), for the acquisition of rights over four potential solar electricity plant projects (called the ‘Al Andalus Portfolio’).

The annual accounts signed in September 2017 for the period ending December 2015 described the principal activity of the companies as the ownership of residential electricity and gas smart meters. The description was signed off by directors. We note that there is an absence of evidence, as highlighted by HMRC, in that the Appellants have not included in the hearing bundles any board meeting minutes or evidence of presentations or discussions with Foresight between their incorporation and September 2017.

The annual accounts for the Appellants set out that York lent £780,000 to Foresight Metering in October 2018. This was repaid in 2019. Manchester lent £790,000 to Foresight Metering in 2018. This remained outstanding as at 1 January 2019 but was repaid during 2019. Lancaster lent £150,000 to Foresight Metering in 2018. This was repaid during 2019.

Land agreements, including the Asset Purchase Agreement for Manchester’s El Caliche project refers to the acquisition of their solar plant and is dated 4 June 2020.

Finally, planning and permit documents show the regulatory approvals necessary for the generation of electricity and approvals for the Iberian solar projects, including the dates planning approval and exploitation permits were granted.

Having considered evidence, including the witness evidence and the documents set out at [3] and at [62] to [75] above, we make the following findings on the facts:

Having considered the relevant statutory provisions and the evidence, we have determined the key dates and deadlines for York.

Our findings are as follows:

The submissions by the parties concerning section 174 revolve around whether the shares issued by the Appellant Companies were issued “for the purpose of a qualifying business activity so as to promote business growth and development”. This requirement is central to the eligibility of shares for EIS relief.

The requirement is that the shares must be issued for the purpose of carrying on a “qualifying business activity”, as defined in section 179, which requires the Appellants to have begun a “qualifying trade”, as defined in section 189, within two years of the date the relevant shares were issued.

Although the FTT decision in Putney Power is not binding on us, we consider the decision to be on the same or a materially similar point. In that case, Putney Power and Piston Heating Services each issued shares in April 2016 with the intention that investors would qualify for EIS relief. To meet the statutory requirements, each company needed to begin carrying on a “qualifying trade” within two years of the share issue, by 4 April 2018. The central dispute was whether either company had commenced such a trade by that deadline.

Putney Power initially planned to build a combined heat and power plant but later shifted to developing a gas-peaking power plant. It entered into a series of contracts in May 2017, including agreements for the supply of engines, construction, gas and electricity connections, and a framework agreement for the sale and purchase of electricity and gas. However, construction was delayed, and the plant did not become operational until August 2018, after the EIS deadline. Although Putney Power had entered into contracts and incurred capital expenditure, the FTT found that it had not yet begun operational activities or put itself at real financial risk in relation to the supply of electricity by the deadline.

Piston Heating Services was even less advanced. It had explored several potential sites for a power plant and signed heads of terms for one project, but by the EIS deadline, it had not committed to a specific site or entered into any binding operational contracts. Construction of its plant did not begin until October 2018.

The FTT concluded that neither company had commenced a qualifying trade by the statutory deadline on the basis that a trade begins only when a business is “open for business”, meaning it has assembled the necessary infrastructure and is ready to provide goods or services. Preparatory steps, such as planning, contracting, or incurring capital expenditure, are not sufficient. As a result, the FTT dismissed both appeals, holding that the shares issued were not eligible for EIS relief. The FTT commented on its overall conclusion as follows:

“202.

For the reasons set out above, we consider that:

(1)

A trade commences when the putative trader is “open for business”.

(2)

A putative trader cannot be “open for business” until they are ready to provide the goods or services or carry out the other dealings which form the subject matter of their intended trade. This requires the putative trader to have assembled whatever infrastructure (if any) is necessary for them to provide those goods or services or carry out those dealings.

(3)

Assembly of the trade infrastructure does not need to have been completed before trading starts as long as the infrastructure is operational (i.e. the trader needs to be able to operate/use it to provide whatever goods or services or carry out the dealings they are concerned with, even if not on the scale or in the manner ultimately planned).

(4)

Once the trader has assembled their operational infrastructure (if required), they “open for business” by taking a step which exposes them to real operational risk and reward (for example, producing goods “on spec”, buying food for a restaurant or other raw materials, incurring the staff or other costs of opening a restaurant or being ready to provide some other service, with or without a booking or client signed up, contracting to supply goods or services now or in the future).

(5)

If (as we find was the case here with Putney, but not Piston) a putative trader takes an operational step (of the type discussed in (4)) in anticipation of finishing assembling their trade infrastructure, that will not accelerate the commencement of their trade.

203.

As neither Putney nor Piston had completed the assembly of their trade infrastructure by the EIS Deadline, neither Appellant had begun to carry on a “qualifying trade” (as defined in section 189 ITA) by that time, as required by section 179(2)(b)(ii) ITA.”

In arriving at this conclusion, the FTT examined several earlier decisions, including some of the judgments we were referred to in this appeal, to determine when a trade is considered to have commenced for tax purposes. These cases span over a century and reflect evolving judicial thinking on the distinction between preparatory steps and actual trading activity.

The earliest case discussed was the decision in Birmingham & District Cattle By-Products Co Ltd v IRC (1919) 12 TC 92, where the court held that a trade begins only when the company starts producing its product. Activities such as acquiring premises, installing machinery, or entering contracts were deemed preparatory. This strict view was later questioned by the same judge, Rowlatt J, in Kirk and Randall Limited v Dunn (1924) 8 TC 663, where he acknowledged that internal company functions and efforts to seek business might indicate that a business was being carried on, even if no actual trading had occurred.

The House of Lords in Khan v Miah [2001] 1 All ER 20 (‘Khan v Miah’) considered a case involving a group of individuals who had agreed to open a restaurant and had taken significant steps, such as leasing premises, buying equipment, and advertising, before the restaurant opened. The Court held that the business had commenced even though serving food had not yet begun. Lord Millett emphasised that the key question was whether the parties had embarked on their joint venture, not whether they had started trading in the narrow sense.

In Mansell v Revenue and Customs Commissioners (2006) Sp C 551 (‘Mansell’), the Special Commissioner developed a three-part test to determine when a trade begins: (1) the trader must have a clear idea of the intended profit-making activity, (2) the business must be set up to the extent necessary, and (3) the trader must begin operational activities, meaning dealings with third parties directly related to the intended trade, involving financial risk. This test has since been widely cited and applied.

The High Court in Tower MCashback LLP 1 v HMRC [2008] STC 3366 (‘Tower MCashback’) endorsed the Mansell test, emphasising that merely entering into a contract to acquire an asset (in that case, software) was not enough to constitute the start of a trade. The court stressed the need for a trader to be in a position to turn the business to account.

In Hunt v HMRC [2019] UKFTT 515 (‘Hunt’), the FTT found that a lottery company had commenced trading even though it never launched its lottery due to a licensing issue. The company had built the necessary infrastructure, entered into contracts, and incurred substantial costs. The FTT held that these actions amounted to operational activity and thus the commencement of trade.

Ingenious Games LLP v HMRC [2021] EWCA Civ 1180, dealt with whether certain limited liability partnerships (‘LLPs’) involved in film financing schemes were genuinely trading. The Court of Appeal emphasised that determining whether a trade was being carried on required a close examination of the LLPs' own activities, not those of their members or associated entities. The Court adopted a broad, commercial understanding of "trade," stressing that it should be assessed based on the totality of the LLP’s operations and commercial substance rather than legal form.

The next three cases involved Mr John Wardle, who made repeated attempts to claim relief under section 169H(2)(a) of the TCGA 1992 in relation to disposals of partnership interests.

In Wardle 1 (Wardle v HMRC [2021] UKFTT 0124), he argued that a partnership engaged in pre-trading activities, developing renewable energy plants, qualified as a business under the TCGA 1992. However, the FTT rejected this, holding that the business must be trading at the time of disposal, and pre-trading activities did not meet the statutory definition.

Mr Wardle returned in Wardle 2 (Wardle v HMRC [2022] UKFTT 00158), this time concerning an LLP involved in constructing a biomass power plant. He claimed that trading had commenced at the point of “financial close”, when the LLP entered into numerous contracts. The FTT applied the Mansell test and concluded that while the LLP had made significant contractual commitments, it had not yet begun operational activities. The FTT found no evidence of actual sales or revenue-generating activity and thus determined that trading had not commenced.

In the case of Wardle v HMRC [2024] UKFTT 00543 (‘Wardle 3’), released on 19 June 2024 (after the end of the hearing of these appeals), Mr Wardle once again pursued Entrepreneurs’ Relief (now known as Business Asset Disposal Relief) for the disposal of his remaining interest in a LLP involved in a waste-to-energy project. This time he presented more detailed and comprehensive evidence regarding the LLP’s activities at the point of financial close. The FTT applied the three-step Mansell test and found that the LLP had indeed commenced trading by the time of financial close in August 2015. At that point, the LLP had entered into a complex suite of interdependent contracts, including a PPA, secured funding, drawn down loans, and issued notices to proceed. The FTT found that these actions demonstrated that the business had both the structure and the commercial commitment necessary to begin trading, and that full infrastructure completion was not required; rather, the business needed to be sufficiently established for its specific trade. Although electricity generation did not begin until June 2019, the FTT accepted that the LLP’s activities, including the PPA and despite certain conditions precedent not being met, constituted operational activity and held that these activities involved real financial risk, sufficient to mark the commencement of trade. Consequently, the FTT rejected HMRC’s argument that trading could not have begun until the plant was physically operational. As a result, the FTT concluded that the LLP had been trading during the two years prior to Mr Wardle’s disposal of his interest in 2020, thereby entitling him to the relief.

The binding authorities on the issue were considered in Putney Power at [168] to [171] of the FTT’s decision. We agree with the comments they made at [172]:

“172.

The conclusion we draw from these cases is that a trade starts when operational activities start (for example, when my restaurant is open for business or when my factory starts to make things). To get to that point a trader will need to have set up their business infrastructure (for example, bought or leased a restaurant and fitted it out or bought or leased a factory and the necessary manufacturing equipment) and taken operational steps (for example, buying food for the restaurant or raw materials for the manufacturing process). The cases do not suggest that it is necessary to have achieved a sale, but it is necessary to be “open for business”, to be ready, willing and able to supply the relevant goods or services.”

Having considered the relevant authorities, we have taken into consideration the following core principles distilled from those cases:

In determining whether the Appellants’ trade commenced by the latest QBA deadline of 30 Mar 2018, we have also considered the Mansell test as follows:

Having considered the evidence before us, including the evidence given by the witnesses on behalf of the Appellants, we find that subsidiaries had a clear and specific commercial objective to act as “Prime Builders and Operators of Solar Plants”. The subsidiaries had therefore identified their intended profit-making activity of solar electricity generation by the relevant deadline. Their clearly defined commercial purpose involved not merely selling electricity, but also financing, constructing, owning, and operating solar energy infrastructure. We consider this specific and detailed business model satisfies the first limb of the Mansell test.

The Appellants contend that the subsidiaries had set up their businesses to the extent necessary for their trade. They point to the engagement of Foresight Group to identify and develop overseas solar sites, the acceptance of site recommendations and the commencement of site-specific development work, the execution of contracts with energy professionals and EPC contractors, the incurring of substantial financial obligations and the acquisition of assets necessary for the trade. They argue that, consistent with Mansell, the level of set-up required depends on the nature of the trade. For a capital-intensive trade like solar energy generation, the set-up phase includes securing land, permits, and construction contracts. The Appellants submit that these steps were completed well before electricity was generated, and that the business was “set up” in a commercial and operational sense.

We have found in York’s case that their subsidiary did enter into contracts (e.g. EPC agreements), secure sites, engage contractors, and incur substantial financial obligations prior to the deadline. However, we also found they had not completed construction of the solar plants or the necessary infrastructure to begin generating electricity. They were not yet, as HMRC argue, “ready to face and find customers” (see Johnson v HMRC [2016] UKFTT 010 at [45]). We agree with HMRC that setting up a trade in a capital-intensive industry like solar energy generation requires the physical infrastructure necessary to carry out the trade to be in place. The subsidiary had not completed construction of the solar plant and had not conducted the necessary tests to ensure the plant could safely generate and supply electricity. We consider that the business infrastructure must be in place and functional to support the trade. A business cannot be said to have commenced trading if it is still assembling the tools or facilities necessary to deliver its goods or services. Unlike Mansell, where the trade involved paper-based transactions in land options, and Hunt, where the taxpayer had already built and tested the infrastructure necessary to operate a lottery, we do not consider York could be said to have set up its trade by the QBA deadline to the extent necessary to carry out its identified, specific profit-making activity.

The Appellants assert that the subsidiaries undertook operational activities involving financial risk and third-party dealings before generating electricity, which included entering into binding EPC agreements, committing to site development and construction, and incurring liabilities and obligations that directly related to the future supply of electricity. They were in a position to enter forward contracts for the sale of electricity, even if such contracts were not executed. They argue that these activities meet the Mansell definition of operational activity; dealings with third parties that are directly and immediately related to the supplies to be made and which involve putting money at risk. They also draw analogies with Hunt, where trading was found to have commenced despite never launching the lottery due to licensing issues, because the company had incurred substantial operational expenditure and entered into relevant contracts.

HMRC contends that the subsidiaries had not begun operational activities because the EPC agreements were not with customers and did not involve the supply of electricity. These were preparatory and amounted to overheads, not operational trading. Even if the trade had been set up, the subsidiary had not yet undertaken operational activities. The only agreement entered into by the QBA deadline was an EPC contract, which related to building the plant but not to supplying electricity. This contract was not with a customer and did not involve the kind of third-party dealings directly tied to the supply of electricity that would indicate the commencement of trade. The expenditure under the EPC agreement was therefore preparatory and in the nature of overheads, not operational trading activity.

We have considered that in Khan v Miah, on the question of whether the restaurant had commenced trading, once the assets had been acquired, the liabilities incurred and the expenditure laid out, the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. We have also considered that in Micro Fusion 2004-1 LLP v HMRC [2008] STC (SCD) 952 the film production company was held to have began trading before filming started, based on contractual and preparatory steps, and in Hunt, trade was found to have begun in the absence of any ticket sales where financial risk had been incurred.

Although in Wardle 3 the FTT found that the trade involving a power plant had commenced at the time of financial close before the plant was physically operational, we are mindful that the decision is not binding and, importantly, every case will turn on its own facts (per Henderson J in Tower MCashback). In this appeal, we are not satisfied that the PPA created unconditional obligations on the Appellants to provide electricity on a certain date regardless of whether the plant had been constructed, and the EPC agreement entered into by the subsidiary was not with a customer and did not involve the supply of electricity. We agree with HMRC that the EPC agreement was related to the construction of the plant, not the trade itself, and we consider that, in the absence of a constructed plant or circumstances which created an immediate obligation to purchase raw materials and supply its product, no operational activities involving real financial risk had begun.

In the absence of any authority on the point, we do not accept the Appellants’ submission that the fact that they were in a position to enter into forward contracts to sell electricity they were planning to produce in future means that they had already begun trading. Without completing the essential steps necessary to begin generating electricity, such as constructing the plant or completing safety tests, and therefore without the necessary physical infrastructure in place, we do not consider the subsidiary was in a position to begin trading by the QBA deadline. We have therefore concluded that the Appellants have failed to meet the section 174 requirement .

As considered in Putney Power, at [199], the Upper Tribunal in HMRC v Suterwalla [2024] UKUT 00188 emphasised that tribunals of equal standing should follow earlier decisions unless they are convinced that the earlier ruling was incorrect. Although we have arrived at a different conclusion on the specific facts in this appeal to that reached by the FTT in Wardle 3, we consider that the analysis at [176]-[180] of the FTT in Putney Power is correct and that, in this appeal, the trading infrastructure must be actually (not just contractually) assembled, so that it can be used to deliver the trading activity, before a trade can be said to have commenced.

Section 174(2)(b) provides that, in the case of a parent company, “business growth and development” includes what would be the business of the group if the activities of the group companies were regarded as one business. As the shares were issued with the intention of funding a group-wide solar energy business, which was to be carried out through wholly owned subsidiaries, the Appellants contend that the statutory language in section 174(2)(b), when read purposively and in conjunction with section 179 (which defines a QBA), supports the concept of a “deemed group trade” which should be recognised for the purposes of satisfying the statutory requirements. They submit that the activities of the parent and subsidiary companies should therefore be treated as a single business when determining whether the purpose of the share issue was to fund a QBA.

The Appellants also contend that the statutory framework, particularly section 174(2)(b), must be interpreted in light of the broader legislative purpose of the EIS regime, namely to promote investment in small businesses with growth potential. They submit that a narrow, literal interpretation that ignores the group structure would frustrate this purpose. They refer to the decision in American Leaf Blending Co Sdn Bhd v Director General of Inland Revenue [1979] AC 676 where the court determined that "business" is a wider concept than "trade" in support of their argument that a deemed group business necessarily includes a deemed group trade.

HMRC’s submission on the concept of a deemed group trade is that the legislation consistently refers to a trade being carried on by either the company or a qualifying subsidiary, but never both. They submit that section 174(2)(b) merely defines “business growth and development” and does not create a new legal concept of a group trade. HMRC argue that the Appellants’ interpretation is a leap of logic unsupported by the statutory language or any case law and that the purpose of the share issue must be assessed at the time of issue and must relate to a QBA that is actually carried on within two years, as required by section 179(2)(b)(ii). They submit that the Appellants’ contention that intention alone is sufficient would render the two-year requirement meaningless and that the statutory scheme requires actual commencement of trade within the specified timeframe, not merely an intention to do so.

In response, the Appellants argue that section 174 should be satisfied if, at the time of the share issue, there was a genuine intention to commence a qualifying trade within two years. They accept that this interpretation required a slight gloss on the statutory language but argue that it is necessary to make the legislation coherent and workable, and that the EIS1 compliance statement, which must be submitted after four months of trading, provides a safeguard to ensure that the trade has actually commenced.

The Appellants further submit that the statutory language in section 179(2)(b)(i) and (ii), when read with subsection (7), supports the inclusion of future subsidiaries in the assessment of whether a QBA is being carried on. They contended that this reinforces the permissibility of a deemed group trade, as it allows for the inclusion of entities that do not yet exist at the time of the share issue but are intended to carry on the trade.

Having carefully considered the submissions made by the parties, we do not consider section 174 includes the concept of a deemed group trade. We accept that the statutory language in section 174(2) explicitly requires that the activities of both the issuing company and its subsidiaries be considered together when assessing whether the purpose of the share issue is for “business growth and development.” This is however in contrast to sections 174(1) and 179, which contain no such express language. Other provisions within Part 5, such as sections 181(2)(b), 181(4), and 186(3), do make specific provision for aggregating the activities of multiple companies. The deliberate inclusion of such language in some sections, and its absence in others, strongly suggests to us that where no such provision is made, as in sections 174(1) and 179, the activities of each company must be assessed independently. This supports the interpretation that Parliament intended a separate evaluation of the issuing company’s and its subsidiaries’ activities in those contexts.

We do not agree with the Appellants’ assumption that the terms “business” and “trade” are interchangeable, as a basis for reliance on section 181(2)(b) to support the idea of a group trade being implied throughout Part 5. The Appellants suggest that because section 181 refers to “the business of the company’s group,” other references to “trade” in the legislation should be interpreted as referring to a group-wide trade. However, we consider this conflation to be incorrect. The concepts of “business” and “trade” are distinct in law and are treated as such depending on the statutory context. For instance, in Mansell, the Special Commissioner made clear that a business can be set up and functioning before a trade has actually commenced, with trade beginning only when operational activities start (see Mansell at [93] “a trade commences when the taxpayer, having a specific idea in mind of his intended profit making activities, and having set up his business, begins operational activities”). Further, a group may carry on a single business that encompasses multiple distinct trades. The legislation reinforces this distinction: where Parliament intends “trade” and “business” to be synonymous, it says so explicitly, as in section 232(7), which states that “trade” includes any business or profession. The need for such clarification confirms that the two terms are not inherently equivalent and should not be treated as such in interpreting Part 5.

The Appellants argue that a purposive interpretation of the legislation supports their position that the activities of a group of companies should be treated as a single, deemed group trade. However, this argument appears to concede that such a reading does not align with the ordinary meaning of the statutory language. The structure of Part 5, which contains detailed provisions and expressly aggregates the activities of group companies only in specific sections, indicates that Parliament intended such aggregation to occur only where explicitly stated. Therefore, applying a purposive construction to imply a group trade in provisions where no such language exists would go beyond the statutory text and undermine the deliberate legislative design.

Section 179, which defines “qualifying business activity” and is referenced in section 174(1), clearly distinguishes between the activities of the issuing company and those of its qualifying 90% subsidiary. The statutory language repeatedly uses the word “or” not “and” to describe the entities whose activities may satisfy the definition of a QBA. Specifically, section 179(2) defines “Activity A” as either the carrying on of a qualifying trade by “the company or a qualifying 90% subsidiary,” or the preparatory activity of carrying on such a trade, which is intended to be carried on “by the company or such a subsidiary,” and which is in fact begun “by the company or such a subsidiary” within two years of the share issue.

We consider the repeated use of “or” in these provisions to be deliberate and significant, indicating that Parliament intended the activities of the company and its subsidiary to be assessed independently. Had the intention been to treat their activities collectively or cumulatively, the statute would have used the word “and” or otherwise expressed that the combined efforts of both entities could satisfy the requirement. In our view, the statute is clear: the company or its subsidiary must individually meet the requirement; their activities cannot be aggregated.

We do not accept the Appellants’ argument that having an intention to commence trade is enough to satisfy the statutory requirements. We agree with HMRC that if intention alone were sufficient, it would undermine the purpose of the two-year deadline set out in the legislation. We consider the statutory scheme clearly requires that the trade must actually begin within the specified timeframe, not just be intended.

We therefore agree with HMRC’s submission that the relevant question under section 174 in relation to York’s appeal is whether the EIS shares were issued for the purpose of York’s QBA, being either a qualifying trade by York which commenced by the QBA deadline, or a qualifying trade by York’s subsidiary which commenced by that deadline.

If we are wrong in our conclusion, and section 174 does incorporate the concept of a deemed group trade, the question becomes whether York and its subsidiary together had begun carrying on a qualifying trade by the QBA deadline. Although both entities were involved in the generation of solar electricity, we do not consider that this superficial similarity to satisfy the statutory requirement, which is concerned with the substance of the activities.

We have found that the activities of York and its subsidiary were fundamentally different in nature. While both involved converting sunlight into electricity using solar panels, the similarities ended there. The two operations did not interconnect or rely on each other in any meaningful way. York’s rooftop solar panel activity could have ceased without affecting the subsidiary’s solar power plant operations, and vice versa. Moreover, the scale, infrastructure, location, and technical expertise required for each activity were so distinct that they could not reasonably be considered parts of a single trade. There was also no evidence that the solar power plant operations evolved organically from the rooftop panel activity.

Specifically, by the QBA deadline, the trade was not being conducted on a commercial basis with a view to profit, as required by section 189(1)(a). The installation of a single rooftop solar panel on a private residence was not a commercially viable activity, and the Appellants have not demonstrated that any serious commercial operator would pursue such a model. In fact, the evidence suggested that the installation was done solely to meet the formal requirements for EIS relief, rather than to initiate a genuine profit-making enterprise. Even if the activities of both companies were treated as a single trade, we consider the group still fails to meet the statutory requirements.

We have therefore concluded that the Appellants failed to meet the purpose of the issue requirement in section 174.

This provision requires the money raised by the issue of EIS shares was employed wholly for the purpose of the QBA for which it was raised within the statutory timeframe, here the later of the two-year period from the issue of the shares, or the two-year period from when the company or its qualifying 90% subsidiary begins to carry on the qualifying trade under section 175(3)(b).

We do not consider section 175 to incorporate the concept of a deemed group trade for the reasons set out above.

We have considered the comments made in Richards and anor v HMRC [2012] STC 174 (‘Richards’), in relation to a predecessor to this statutory provision, that:

“[28] The word ‘employed’ in para 1(2)(g) of Sch 5B and s 289(1)(c) of the Taxes Act is not defined in the legislation. In my view, it is a word which requires the money in question actually to be used in some way for the purposes of carrying on the qualifying activity within the relevant one-year period. Clearly, if the moneys are spent in carrying out the qualifying activity in that period, they will have been ‘employed’ for the purposes of that activity; but, as the tribunal correctly recognised, the concept of being ‘employed’ for the purpose of an activity extends more widely than this.

[29] Moneys will also be ‘employed’ for the purposes of an activity if the company has earmarked them in the relevant period for some specific purpose (which does not necessarily have to be a purpose calling for expenditure in that period) and is keeping them in reserve for that purpose. In such a case, the company may be found to have ‘employed’ the moneys for that purpose within the relevant period. Whether moneys have been notionally set aside with sufficient precision for a specific purpose so that they can be said to have been ‘employed’ for the purpose of a qualifying activity at the time they are so notionally set aside will be a matter for assessment by a tribunal on the particular facts of an individual case.”

The Appellants argue that the funds were “employed” for the QBA within the required timeframe, relying on the extended deadline in section 175(3)(b)(ii). They contend that the funds were earmarked for use in solar energy projects, which constituted a QBA and that even if the funds were not immediately spent, they were set aside for a specific purpose and thus “employed” within the meaning of the statute and the funds were ultimately used for the intended purpose, including through subsidiaries, and any temporary investment or inter-company loan did not negate the earmarking. They also contend that the concept of “employment” should be interpreted broadly, in line with the judgment in Richards, which accepted that earmarking funds for a specific purpose could satisfy the requirement, and that the statutory scheme should be interpreted purposively. They maintained that the legislation was designed to encourage investment in early-stage businesses and that a narrow interpretation of “employed” would frustrate that purpose.

HMRC submit that the statutory language requires actual use or commitment of funds, not just an intention or general allocation and that the Appellants’ interpretation would undermine the enforceability of the two-year deadline and create uncertainty. They argue that the funds were not “employed” within the statutory timeframe because the qualifying trade had not commenced within two years, and merely setting aside funds or holding them in reserve is insufficient unless the funds were actually used or committed to a specific qualifying activity. The funds were in some cases loaned to other Foresight entities, which could not be considered employment for the purpose of the Appellants’ qualifying trade.

We accept that internal accounting or intentions alone are not enough to meet the requirements of the provision. We are mindful that the requirement is that all of the money raised by the issue of the relevant shares is “employed” wholly for the purpose of the qualifying business activity for which it was raised within the required time, and we are guided by the Upper Tribunal’s comments in Richards that ‘employed’ for the purposes of an activity includes moneys being earmarked in the relevant period for some specific purpose and keeping them in reserve for that purpose. Whether moneys here have been notionally set aside with sufficient precision for a specific purpose so that they can be said to have been ‘employed’ for the purpose of the qualifying activity is a matter for our assessment on the particular facts of this case.

We consider temporary diversions (like loans or investments) are not fatal if the funds are still employed in time and for a qualifying purpose, and having considered the particular facts of this case, we agree with the Appellants that money was set aside for a specific qualifying purpose and thus “employed” within the meaning of the statute, and that the funds were ultimately used for the intended purpose.

Therefore, in our view, the requirement that the money raised be employed for a QBA within the statutory timeframe has been met.

This provision sets out the “minimum period requirement” for shares issued under the EIS. The provision ensures that a qualifying trade has been carried on for a sufficient period before a company can claim EIS relief.

Section 176(1)(a) applies where the money raised by the issue of shares is raised wholly for the purpose of a QBA falling within section 179(2). In such cases, subsection (2) requires that:

This requirement is closely linked to section 205(4), which prohibits the submission of a compliance statement (EIS1) unless the trade has been carried on for at least four months.

The Appellants submit that the statutory language should be interpreted purposively, in line with the broader objective of encouraging investment in early-stage businesses, and the minimum period requirement was satisfied because the group, viewed as a single economic entity, had carried on a qualifying trade for at least four months before the EIS1 compliance statements were submitted. They rely on the concept of a deemed group trade, asserting that the activities of the parent and subsidiary companies should be treated as one continuous trade and that even if the parent company’s rooftop solar panel installation was modest, it marked the beginning of trading activity, which continued through the subsidiaries’ development of ground-mounted solar projects.

We are not satisfied the minimum period requirement has been met. Again, we do not consider the concept of a deemed group trade to be supported by the statutory language to aggregate the activities of the parent and subsidiary companies. Many of the subsidiaries had not even been incorporated four months before the relevant compliance statements were filed and the rooftop solar panel installations by the parent companies did not constitute a qualifying trade carried on with a view to profit, and thus could not satisfy the requirement.

Our conclusion is that the trade had not been carried on for four months by the time the EIS1 compliance statements were submitted.

This provision sets out the “trading requirement” for companies seeking to qualify for EIS relief. The requirement ensures that the company (or group) is genuinely engaged in qualifying trading activities throughout a defined period.

Section 181(1) requires that the issuing company meet the trading requirement throughout period B. Period B is defined in Section 159(3) as beginning with the issue of the shares, and ending immediately before the “termination date” (typically the third anniversary of the share issue, or later if the trade starts later).

Under Section 181(2), the trading requirement is met if:

Section 181(3) extends this to companies that intend to have qualifying subsidiaries in the future.

Section 181(4)-(7) provides rules for determining what counts as the “business of the group,” including ignoring certain holding or financing activities and focusing on the group’s activities as if they were one business.

The Appellants rely on Section 181(2)(b), arguing that each company was a parent company of a qualifying 90% subsidiary, the group’s business, viewed as a whole, consisted of qualifying trading activities (solar energy generation), preparatory activities (e.g., site scouting, EPC contracts) should be treated as part of the qualifying trade and the concept of a deemed group trade should apply, treating the parent and subsidiary’s activities as one trade.

We do not agree with the Appellants’ submissions. We have found that the rooftop solar panel installations were not conducted on a commercial basis or with a view to profit, the preparatory activities (e.g., planning, permitting, EPC contracts) do not constitute trading and the “deemed group trade” concept has no basis in the legislation. We have also found that the parent companies were not trading, and the subsidiaries had not begun trading within the required timeframe.

The Appellants therefore failed to meet the trading requirement because neither they nor their subsidiaries were carrying on a qualifying trade throughout Period B.

The Appellants submit that several points now being raised, particularly in HMRC’s skeleton argument and oral submissions, had not been part of the original decision notice, earlier correspondence or statement of case.

We accept HMRC’s submission that their arguments had developed over time and that the statutory framework permits HMRC to withdraw relief if it is “subsequently found not to have been due,” as per section 234 and to reassess EIS relief even after compliance certificates have been issued. We considered HMRC to be entitled to raise these arguments and did not find there to be any procedural unfairness or prejudice to the Appellants, as we considered the Appellants had been given a fair opportunity to respond.

The Appellants argue that once HMRC authorised the issue of compliance certificates under section 204, it made a considered decision that the statutory requirements for EIS relief had been met. They submit that this authorisation was not a mere administrative formality but a quasi-judicial act, made after reviewing the compliance statements and accompanying materials. On this basis, they contend that HMRC cannot later reverse its position and withdraw relief on the same facts.

The Appellants seek to invoke the doctrines of waiver and estoppel, particularly estoppel by convention, to argue that HMRC, having induced reliance by authorising the certificates, is now precluded from asserting that the statutory requirements were not met.

The Appellants’ estoppel argument is grounded in the principle that both parties acted on a shared assumption that the requirements of sections 174, 175, 176, and 181 were satisfied. They argue that HMRC’s authorisation of the certificates, following the submission of compliance statements, constituted an implicit representation that the requirements for relief were met. The Appellants say they relied on this shared assumption to their detriment, notably by not filing further compliance statements or taking alternative steps to ensure compliance. They argue that this reliance satisfies the criteria for estoppel by convention as set out in the Supreme Court’s decision in Tinkler v HMRC [2021] UKSC 39 at [45] and [51], including the existence of a shared assumption, reliance, and detriment.

In addition to estoppel, the Appellants argue that HMRC waived its right to challenge compliance with the statutory requirements by choosing to authorise the issue of compliance certificates without raising any concerns. They assert that HMRC had the opportunity to investigate or withhold authorisation but chose not to, and that this conduct amounts to a waiver of any right to later dispute compliance with the relevant provisions.

We have carefully considered these submissions. However, we agree with HMRC that authorisation of compliance certificates does not preclude later withdrawing relief. We consider the statutory scheme explicitly allows for relief to be withdrawn if it is subsequently found not to have been due (by virtue of section 234) and authorisation of compliance certificates is a procedural step that does not amount to a binding acceptance of the taxpayer’s position.

We do not consider there was any shared assumption or representation that could give rise to estoppel. The Appellants submitted their compliance statements asserting that the statutory requirements were met, and HMRC’s authorisation did not, in our view, endorse those assertions. The language in the EIS2 authorisation letters, explicitly states that the authorisation does not guarantee the availability of relief and that the requirements of the scheme must continue to be met. We consider this negates any suggestion that it represented the requirements had been permanently satisfied. In these circumstances, we are unconvinced that HMRC waived its right to challenge compliance with the statutory requirements or that they are estopped from doing so, as relief is always subject to subsequent review and withdrawal under section 234.

We consider that the Appellants met the use of the money raised requirement (section 175) but failed to meet the purpose of the issue requirement (section 174), the minimum period requirement (section 176), and the trading requirement (section 181).

We also consider that, in the circumstances of this appeal, HMRC could advance arguments that were not explicitly made in their decision notice of 28 January 2020, that HMRC had not waived any requirement to comply with any EIS requirement and that the doctrine of estoppel did not preclude HMRC from alleging that the Appellant did not comply with any EIS requirement.

For the reasons set out above, we dismiss this appeal.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.