Investors lose tax relief over innocent error

One can certainly sympathise with the appellant, X-Wind Power v HMRC, in a recent tax case. X-Wind Power were seeking to obtain clearance for seed enterprise investment relief which is aimed at start-up companies and comes with 50% tax relief for their investors. They accidentally selected a form seeking clearance for the Enterprise Investment Scheme, offering only 30% relief.

HMRC authorised the company to issue EIS relief certificates to its investors. Neither side noticed the error until the firm sought clearance for further SEIS investment, and was refused because it had made a prior EIS claim. At this point the company realised its error.

It was undoubtedly a simple mistake, and one would hope that an apology and adjustment to the correct relief would follow. However, although it was agreed the investors would have qualified for either scheme had the appropriate form been submitted, HMRC ruled this couldn’t be amended. The taxpayer appealed to the Tax Tribunal where it became clear there’s no provision in the legislation to correct such simple errors. Once EIS relief was granted, there was no way to unwind things lawfully or ignore the claim in relation to any future SEIS claim.

It’s of concern that HMRC did not concede that an innocent error had been made – even though the Tribunal accepted the taxpayer had abundant evidence on the intention to claim the more generous SEIS.
On a more general level it is a sad reflection of the state of UK tax law that trivial and unintended mistakes can result in substantial loss of money, and that there is no provision to amend an unintended consequence of law which is clearly unfair.

A triumph of bureaucracy over commercial reality with really serious consequences. The job of HMRC is to collect the correct tax, not the most tax possible. No doubt HMRC would maintain that their hands were tied by the legislation but the decision reflects the all too common mind set these days of people and organisations failing to use their judgement and falling back on box ticking to justify that failure.

The detail of the decision may be found at –