Putney Power Limited & Anor v The Commissioners for HMRC

Whether a trade has been begun to be carried on for the purposes of the Enterprise Investment Scheme is determined by applying the statutory words through a fact-sensitive, multi-factorial evaluation. Concepts such as infrastructure, being open for business and operational activities may guide that evaluation, but they are not legal tests or mandatory conditions.

The tribunal must examine the nature of the particular trade and all relevant circumstances, including the steps taken, contractual commitments, operational readiness, ability to provide the relevant goods or services, and exposure to operational risk or reward. Contracts securing future ability to trade may remain preparatory. The appeals were dismissed because both companies were still preparing to trade by the statutory deadline.

Putney Power Limited and Piston Heating Services Limited appealed against the decision of the First-tier Tribunal, reported at [2024] UKFTT 870 (TC). The FTT had concluded that neither company had begun to carry on its proposed qualifying trade by 4 April 2018 for the purposes of the Enterprise Investment Scheme in Part 5 of the Income Tax Act 2007.

The Upper Tribunal accepted that the FTT had made comprehensive findings of fact but held that it had treated concepts derived from earlier decisions as legal principles or a binding test. The central issue was whether, on the correct statutory and fact-sensitive approach, either company had begun to carry on its particular trade by the deadline.

1. Appeal and approach. The FTT’s decision contained a material error of law and was set aside. The Upper Tribunal remade the decision because the FTT’s primary factual findings were clear and unchallenged.
2. Statutory test. Section 179(2)(b) of the Income Tax Act 2007 requires the tribunal to decide whether the particular qualifying trade had been begun to be carried on by the relevant date. The statutory wording requires a multi-factorial evaluation of all the circumstances. The distinction between preparing to carry on a trade and carrying it on is relevant, but the legislation does not impose a general infrastructure, open-for-business or operational-activities test.
3. Earlier first-instance decisions may provide illustrations of factors that assist the factual enquiry. Guidance from superior courts and tribunals may be binding. The tribunal must distinguish those categories and must apply the statute rather than a gloss derived from an earlier decision. Whether a matrix of contracts is sufficient depends on the obligations imposed, their relationship to the particular trade and the surrounding facts.
4. Putney. Putney’s proposed trade involved generating electricity from gas and selling it substantially as generated, together with participation in the capacity market. The plant was not operational by 4 April 2018, Putney could not generate electricity or earn capacity-market income by then, and its contracts secured the ability to trade in the future. Those contracts formed part of its preparations to trade. Putney had not begun to carry on its trade.
5. Piston. Piston had no operational plant and had not entered binding contracts concerning the site, construction, connections, lease, supply of gas or sale of electricity. Its preparations were less advanced than Putney’s and exposed it to no real possibility of future operational risk or reward. It had not begun to carry on its trade.
6. The appeals against HMRC’s decisions were dismissed, producing the same result as the FTT but for different reasons.

• Upper Tribunal (Tax and Chancery Chamber): the FTT decision reported at [2024] UKFTT 870 (TC) was set aside for material error of law. The decision was remade and the appellants’ appeals were dismissed.