In the case of Putney Power Ltd & Anor v HMRC [2026] UKUT 105 (TCC), the UT has judged that the FTT erred in law when deciding that, for the purposes of EIS relief, the qualifying trades of Putney Power Ltd and Piston Heating Services Ltd had not “begun to be carried on … within two years” of the issue of shares per ITA 2007, s. 179(2)(b) and thus EIS relief was not available (see the Claritax News story). The UT therefore set aside the FTT’s decision. However, the UT remade the decision using the FTT’s findings of fact and came to the same conclusions as the FTT “by a different route”.
INCOME TAX – Enterprise Investment Scheme –– whether trades of taxpayers “begun to be carried on” on or before 4 April 2018 – FTT erred in its approach but decision remade to lead to the same conclusion as the FTT
The two companies sought to generate electricity via gas, this being a flexible way of generation that could respond to periods of high demand and thus obtain higher prices than at other times (“gas-peaking”). Infrastructure and supplier and customer contracts would be required.
The UT agreed that the FTT had taken the correct approach in applying a multi-factorial assessment of all the relevant issues. It had also correctly reviewed the applicable case law to identify relevant factors to consider. However, it had erred in law because, rather than treating these factors as indicators to be considered as part of the overall assessment, it had treated them as hardline tests:
“We have considered carefully whether the problems that we see in the Decision represent pure criticisms of drafting. As we have said, there would have been nothing wrong with the FTT, when conducting its multi-factorial assessment, determining that the absence of “trade infrastructure”, and the fact that the Appellants were not “open for business” were pointers against their trades having begun. However, while recognising that there are indications to the contrary, we have concluded on balance that the FTT did err, in identifying “principles” and a test that does not exist in law, and concluding that the Appellants’ appeals failed because their activities did not satisfy those principles.”
Setting aside the FTT’s decision, the UT then used the FTT’s finding of facts to remake the decision, concluding in respect of Putney Power Ltd that:
“entering into that matrix of contracts formed part of Putney’s preparations to trade, rather than conducting the trade itself. Putney could only trade if it had contracts for the purchase of gas and the sale of electricity together with contracts that enabled it to receive income by agreeing to offer generating capacity. … The question has to be approached by reference to Putney’s actual trade and the precise nature of the contracts it entered into. The Gazprom Agreement gave Putney assurance that it could, when the Copse Road facility was operational, carry on a gas-peaking activity that involved it generating and selling electricity in the future at times of particularly high demand. However, it embodied no “forward sale” of electricity and, in any event, it was no part of Putney’s trade to sell electricity forward. … Our conclusion is that, as at 4 April 2018, Putney was still preparing to trade and had not begun to carry on its trade. We will remake the Decision in relation to Putney so as to reach the same conclusion as the FTT by a different route. Putney’s appeal against HMRC’s decision is dismissed.”
With regards to Piston Heating Services Ltd :
“All the reasoning that militated against Putney having begun to carry on its trade at the relevant time applies with even greater force to Piston. The facts remain that by the EIS deadline Piston had not entered into any contracts: i) for the construction of the plant at the Caswell site; ii) for connecting the plant to the gas network and electricity grid; iii) for any lease over the Caswell site; iv) with any proposed supplier nor customer for the supply of gas nor the purchase of power to be generated by electricity. No binding commitments had been entered into by Piston at the relevant time that would result in financial risk or reward. … Stepping back and conducting a multi-factorial assessment of all these matters, we find that as at 4 April 2018, Piston was still preparing to trade and had not begun to carry on its trade. Indeed Piston’s preparations to trade were less far advanced than those of Putney. We will remake the Decision in relation to Piston so as to reach the same conclusion as the FTT by a different route. Piston’s appeal against HMRC’s decision is dismissed.”
https://caselaw.nationalarchives.gov.uk/ukut/tcc/2026/105
Related content from Claritax Books
Enterprise Investment Scheme, by Andrew Rainford, offers a clear explanation of the four types of venture capital relief: EIS, Seed EIS, venture capital trusts, and social investment tax relief.
In each case, the author looks at the range of tax incentives offered by the legislation, including (as appropriate) income tax reliefs, CGT exemptions, CGT deferrals, and relief for losses incurred. The conditions for relief are examined in detail and are illustrated with examples.
