Unfortunate outcome

The four taxpayers invested in the start-up ProtonStar LED Ltd. The shares qualified for enterprise investment scheme (EIS) relief.

The quartet decided to acquire Enfis a business that traded in LED lighting and whose shareholders also qualified for EIS relief.

An attraction of Enfis was that it had an AIM listing – which would be lost if ProtonStar acquired Enfis. A merger was made by reverse takeover.

To facilitate the move Enfis dropped its trade to a newly formed subsidiary and acquired all the shares in ProtonStar in exchange for 78% of the enlarged capital of Enfis – which left the original Enfis shareholders with 22% of the shares. Enfis was renamed ProtonStar LED Group plc.

HMRC gave clearances that the share exchange had taken place for proper commercial reasons and confirmed that EIS relief would apply to future share issues.

An issue arose as to...