When does a trade “begin to be carried on”? It sounds like a simple question, but Putney Power Ltd and Piston Heating Services Ltd v HMRC [2026 UKUT 105 (TCC)], handed down in March 2026, shows it’s anything but. The Upper Tribunal (UT) overturned the First-tier Tribunal (FTT) on a point of law but remade the decision denying EIS relief. For CFOs in private equity or advising early-stage ventures, this is required reading.
The Stakes: £Millions in EIS Relief at Risk
Both companies issued shares on 4 April 2016, seeking EIS relief under Part 5 Income Tax Act 2007 s179. Qualification required trades to begin within two years – by 4 April 2018. They planned gas-peaking power plants: flexible electricity generation for high-demand periods.
Putney had advance assurance from HMRC but described its trade vaguely as “provision of heat.” Piston was similar. By deadline, neither plant was operational. HMRC denied relief. FTT agreed, but UT found legal error.
FTT’s Approach: Hardline “Bright Lines”
The FTT relied on precedents like Mansell v HMRC [2006] (specific trade concept, set-up complete, operations begun) and Khan v Miah [2001] (ready for customers).
It held infrastructure must be operational: “A trade is not set up before the intending trader can supply goods/services.” Contracts alone weren’t enough without plant. Putney’s matrix (gas supply, sales) was preparatory; Piston’s even less advanced.
UT’s Rebuke: No Rigid Tests, Multi-Factorial Reality
UT (Judges Raghavan and Greenbank) set aside: FTT erred by creating non-existent “principles” like mandatory infrastructure. Commencement is factual, multi-factorial – no bright lines.
Remaking on FTT facts:
- Putney: Copse Road plant incomplete/non-operational. Gazprom deal assured future supply but no forward sales. Capacity allocation post-deadline. “Preparations to trade, not conducting it.”
- Piston: No construction/gas/electricity contracts, no site commitment. Purely exploratory.
Analogies (forward sales, bespoke manufacturing) rejected: gas-peaking needs operational plant.
Professional Commentary Echoes CFO Concerns
KPMG notes no bright lines; fact-sensitive. Macfarlanes highlights UT’s warning against over-relying on precedents. Claritax and Ross Martin stress operational readiness.
Moore Kingston Smith flags investor risks. Devereux Chambers on legal nuances.
CFO Implications: Beyond EIS
This hits PE/M&A hard:
- EIS/SEIS: Model timelines – contracts preparatory sans ops.
- SSE/BADR: Trade start for TCGA 1992 s103A, BADR.
- AP/Losses: AP1 start (CTM01550).
- R&D: Trade req for claims.
Practical Takeaways
1. DD: EIS1 vs reality.
2. Stress-Test: Delays kill relief.
3. Evidence: Pilots/test sales.
4. Audit: Infrastructure? Binding risk? Revenue?
5. Clearance: Not binding post-facts.
6. PE: Confirm for SSE.
Bigger Picture
EIS: £2bn+ investment (HMRC). Facts rule over paper. Vs Wardle [2024].
Mark Hendy, Tanous | mark@tanous.co.uk