Tips & Advice
York Case: Why Rooftop Panel Installation Wasn’t Enough For EIS
Published: 15 September 2025
Reading time: ~4 minutes
What This Case Means For EIS Qualifying Requirements
The case of York SD Limited and others v HMRC shows why you must satisfy all Enterprise Investment Scheme (EIS) conditions to secure the tax relief.
EIS rules are strict, requiring both companies and investors to meet specific conditions regarding the business's size, age, trade activities, fund usage, and employee count, as well as the investor's compliance and holding periods, to qualify for valuable tax relief.
Background
Six UK companies planned to generate solar electricity in Spain and Portugal through local subsidiaries. Shares were issued in 2015 and 2016 and, at first, HMRC authorised the companies to issue EIS3 certificates so investors could claim relief.
To show that “trading” had begun, the UK parent company installed rooftop panels on UK homes.
HMRC's Argument
Later, HMRC argued that the UK solar panel installations were not carried out on a commercial basis or with a view to profit, and were materially different from the intended Iberian solar-plant trade.
On that basis, HMRC withdrew EIS relief from investors. The companies appealed to the First Tier Tribunal.
What the First Tier Tribunal Decided
The First Tier Tribunal needed to establish whether the companies and their subsidiaries had met the statutory EIS conditions and if they commenced a qualifying trade within the required timeframe.
'Use of Money Raised' Condition (ITA 2007 s.175)
The Tribunal did not accept that the money from the share issue was employed wholly for the purpose of the qualifying business activity for which it was raised; therefore, this condition was not met.
'Minimum Period' Condition (ITA 2007 s.176)
It was not satisfied this condition was met either. For EIS, the trade (or research and development) must be carried on for a period of at least 4 months before the EIS compliance statement is submitted but some subsidiaries had not been incorporated four months before filing.
'Trading' Condition (ITA 2007 s.181)
The Tribunal decided that planning, contracting for construction and incurring capital expenditure for Iberian plants did not amount to operational activity. UK rooftop installs were mainly to initiate 'trading activity' for EIS deadlines and were not genuine, profit-seeking activities.
As the Tribunal put it: 'The trading structure must be actually […] assembled, so that it can be used to deliver the trading activity before a trade can be said to have commenced.'
Compliance Certificates do not guarantee the relief
The Tribunal held that HMRC’s permission to issue EIS3 certificates did not mean the companies qualified for EIS. HMRC’s letters made it clear the authorisation wasn’t a guarantee of relief and that all conditions still had to be met.
The appeal was dismissed. HMRC won.
Practical Takeaways For Founders And Investors
Treat EIS qualifying requirements as 'substance-over-form' tests. Activities should be the same kind you intend to profit from, run on a commercial basis, and involve real operational dealings with third parties. Token installations to hit a date is unlikely to work.
Document timelines carefully. Track when subsidiaries are incorporated, when operational steps occur and when revenue-generating activities begin. If a decision is challenged, you will need evidence that operational trading had actually started.
FAQs on This EIS Tax Case
When does “trading” start for EIS? (Mansell-style test)
The Mansell test is a three-part analysis used by courts and HMRC to decide when trading starts. There must be a clear profit-making activity, the business must be set up to the extent needed, and operational activities with third parties must have begun. Without those, EIS relief can fail.
Do HMRC compliance certificates guarantee EIS relief?
No. HMRC can withdraw EIS where conditions are not met. GOV.UK explains the EIS2/EIS3 process, but relief depends on ongoing compliance, which is why HMRC compliance certificate withdrawal can occur after issue.
What counts as a qualifying trade for EIS?
A qualifying trade must be carried on with a view to profit and not be an excluded activity. The York SD decision shows that proxy or token activities may not satisfy EIS qualifying trade requirements.
How do I appeal an HMRC decision?
You normally respond using the HMRC appeal form that comes with your decision, or follow the steps in the tax appeals guidance. If unresolved, you can lodge a notice with the First Tier Tribunal using the tax tribunal appeal form (T240).
Need Calm, Expert Help?
If you are weighing up your EIS position as a company or investor, our friendly team can review the facts and set out practical next steps by phone, email or video across the UK. Start the conversation via our Contact Us page.
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Disclaimer
This article is provided for general informational purposes only and does not constitute tax, legal, accounting, or financial advice. The information is based on UK law and HMRC guidance as at the date of publication, but rules and interpretations may change. We do not accept any liability for actions taken, or not taken, based on this content. Always seek tailored advice from SCCS Accountants before making financial or business decisions.