UT/2023/000055 - [2025] UKUT 00028 (TCC)

The appellant (“Hoopla”) is a company that was incorporated to exploit IP in a pre-school animation project “Daisy Boo & Monkey Too” which later became “Daisy & Ollie”. This appeal concerns whether certain shares issued in 2018 raising £1,323,340 were eligible as Enterprise Investment Scheme (“EIS”) shares under Part 5 of the Income Tax Act (“ITA 2007”). EIS schemes are one of a number of legislatively backed investment incentive schemes (another example being Seed Enterprise Investment Schemes (“SEIS”)) schemes which offer tax relief to individual investors buying shares in a company. In order to be eligible for relief the shares must meet various conditions. HMRC considered the relevant shares issued by Hoopla did not meet the relevant conditions for a number of reasons, including, as is relevant to the current appeal, that the arrangements for issuing the shares were “disqualifying arrangements” as defined in s178A ITA 2007 because “Condition A”, as referred to in that provision, was not met. Condition A stipulated arrangements were disqualified if :

“(3)

…as a (direct or indirect) result of the money raised by the issue of the relevant shares being spent [as required by section 175], an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons.” (emphasis added)

The term “relevant person” is defined in s178A(6) ITA 2007 as “a person who is a party to the arrangements or a person connected with such a party.” (emphasis added). Section 257(1) ITA 2007 defines “arrangements” as including “any scheme, agreement, understanding, transaction or series of transactions (whether or not legally enforceable)”. The FTT’s decision in Hoopla Animation v HMRC [2023] UKFTT 00024 (TC) (the “FTT Decision”) held the relevant shares breached Condition A and accordingly dismissed the appeal.

With the permission of the FTT, Hoopla appeals to the Upper Tribunal (“UT”) on two main issues. Hoopla argues the FTT misinterpreted and misapplied s178A: first in relation to the words “party to” in the definition of “relevant person”, and second regarding the concept of paying an amount “to or for the benefit of” the relevant person not extending to amounts that were received pursuant to arm’s length commercial subcontracting arrangements. Both these issues were considered by the UT earlier this year in Coconut Animated Island Ltd v HMRC [2024] UKUT 75 (TCC) (“Coconut UT”) in relation to the materially similar SEIS provisions. As we will explain we reject Hoopla’s arguments that Coconut UT was wrongly decided or that it was not on point. The FTT did not have the benefit of Coconut UT but our conclusion is the FTT nevertheless applied the correct legal principles to the case before it and that Hoopla’s appeal should be dismissed.

We were grateful for the submissions of both parties’ counsel and in particular to Ms Brown and Ms Sheldon for agreeing to act pro bono for the appellant.