Shares carrying preferential rights and the EIS

The taxpayer supplied mail solution services to businesses. Before issuing new A and B shares it had sought advance assurance from HMRC that they would qualify for relief under the enterprise investment scheme (EIS). HMRC said authorisation would be provided if the company filed a satisfactory EIS 1 certificate. This included certification that the shares complied with the requirements of ITA 2007.

After it issued the shares the taxpayer submitted form EIS 1. HMRC refused to grant authorisation saying the B shares carried a preferential right (ITA 2007 s 173(2)(a)).

It was accepted that the B shares satisfied the requirements of s 173(2)(aa) and (b): they did not carry any preferential rights on a winding up or rights of redemption. The issue was whether they carried ‘any present or future preferential right to dividends’. The First-tier Tribunal said the EIS legislation was ‘highly prescriptive’ and the use of...