In the recent case of X-Wind Power Ltd vs HMRC, X-Wind paid a heavy price for sending the wrong form to HMRC.
The company wanted some new investors to benefit from SEIS - the Seed Enterprise Investment Scheme. This is an investment incentive that means an investor can get 50% of the amount they've invested in a company back, via a discount on their own tax bill. For companies and investors that qualify - as was the case here - half-price investment is obviously a great deal.
However, the company made a mistake. Accompanying a covering letter saying the company was applying for SEIS status, they sent a completed application form for the confusingly similarly-named EIS - the Enterprise Investment Scheme. That's still an appealing scheme, but it only offers 30% income tax relief, not 50%. Unfortunately for X-Wind, they filled the forms in accurately and HMRC were happy to accept them.
Nobody noticed this blunder until a new round of investors came on board, and the company attempted to get SEIS clearance for the new investors. HMRC rebuffed them - one of the rules of SEIS is that the company can't previously have claimed under EIS. HMRC were insistent that the company had made a successful claim under EIS, albeit totally by accident. Not only would the first round of investment get only 30% tax relief, not 50%, but so would all subsequent rounds.
You might reasonably think that HMRC should have gone back and revised the previous application, since the company's intent was clear. In fact, you might think HMRC should just have read the letter properly in the first place, and rejected the EIS form when they originally received it. We do. But instead they've stuck to their guns, saying the letter has no statutory weight but the form does. And HMRC won when the case went to the First-tier Tribunal.
It's unbelievably harsh, and not what we would have expected to happen - despite their reputation, HMRC can actually be pretty reasonable much of the time. But it does emphasise the importance of using advisers or consultants who are really familiar with the tax relief you're claiming, and taking care that the forms you're completing and the process you're going through is the right one. The nature of tax means that, if you get it wrong, it might be years before you realise your mistake, and too late to do anything about it.
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