Revenue and Customs v Valentine Marketing Holdings Ltd.

For Enterprise Investment Scheme relief, the qualifying business activity and the company carrying it on must be identifiable when the shares are issued. A company cannot become the relevant active company later merely because it subsequently becomes a subsidiary. The statutory conditions must be satisfied cumulatively throughout the relevant period. The definition of a qualifying company identifies companies capable of benefiting from the scheme; it does not permit the active company to change after issue so as to create a qualifying business activity retrospectively.

This was an appeal by way of case stated from the General Commissioners for the City of London Division. The issue was whether the withdrawal of Enterprise Investment Scheme relief relating to shares issued on 4 February 2000 was correct.

The issuing company initially carried on an unsuccessful online greetings-card trade. It later acquired Valentine Marketing Limited, ceased trading, and became a non-trading parent company. HMRC withdrew the relief on the basis that the statutory requirements were not met. The central questions concerned the construction of sections 289 and 293 of the Income and Corporation Taxes Act 1988, including whether the qualifying company and active company could change during the relevant period.

1. Appeal allowed. The construction advanced by HMRC was correct.

2. The relevant question is whether a qualifying business activity existed at the date on which the shares were issued. Section 289(2) defines that activity by reference not only to the trade but also to the company or subsidiary carrying it on. That company must therefore be identifiable at the date of issue.

3. The active company could not be identified retrospectively. Valentine Marketing Limited was not a subsidiary of the issuing company when the shares were issued. Its later acquisition did not make its trade a qualifying business activity for the purposes of the earlier share issue.

4. The word “the” in the expression “the active company” did not itself establish that the company’s identity had to remain fixed throughout the relevant period. The necessary temporal restriction instead arose from the definition of qualifying business activity and the requirement that the money raised be employed for that activity.

5. The requirements of section 289(1A) were cumulative. Section 293 defined the class of companies which could potentially benefit from the scheme, but did not displace the separate requirements relating to the active company under section 289(1C).

6. The later amendment made by the Finance Act 2004 and the related ministerial statement could be admissible in the limited circumstances discussed in Pepper v Hart [1993] AC 593 and Kirkness v John Hudson & Co Ltd [1955] AC 696. It was unnecessary to rely on those aids because the pre-amendment wording was clear.

• General Commissioners for the City of London Division: construed the relevant provisions inclusively, allowing the qualifying company and active company to change during the relevant period.
• High Court (Chancery Division): allowed HMRC’s appeal by way of case stated and held that the statutory construction supporting withdrawal of the relief was correct.