Hoopla Animation Ltd vs HMRC: Tribunal dismisses EIS appeal

Introduction

The Upper Tribunal's Tax and Chancery Chamber delivered a significant decision in the case of Hoopla Animation Limited versus the Commissioners for His Majesty's Revenue and Customs (HMRC), dismissing an appeal concerning the eligibility of shares under the Enterprise Investment Scheme (EIS). The judgment, handed down on 23 January 2025, followed a hearing on 17 October 2024 at the Rolls Building in London.

Background

Hoopla Animation Limited, formerly known as Daisy Boo and Monkey Too Limited, was incorporated to exploit intellectual property in a pre-school animation project. The appeal centred on whether shares issued in 2018, raising £1,323,340, were eligible as EIS shares under Part 5 of the Income Tax Act 2007. HMRC contended that the shares did not meet the necessary conditions, citing 'disqualifying arrangements' under section 178A of the Act.

Legal Framework

The EIS is designed to encourage investment in small companies by offering tax relief to investors. However, shares must meet specific criteria to qualify for these benefits. A key issue in this case was whether the arrangements for issuing the shares were 'disqualifying', particularly concerning 'Condition A', which involves payments to or for the benefit of a 'relevant person'.

Arguments

Hoopla argued that the First-tier Tribunal (FTT) had misinterpreted the law, particularly regarding the definition of a 'relevant person' and the scope of 'disqualifying arrangements'. They contended that payments made under commercial subcontracting arrangements should not be considered as being 'to or for the benefit of' a relevant person.

Tribunal's Analysis

The Tribunal, referencing the earlier decision in Coconut Animated Island Ltd v HMRC, upheld the FTT's interpretation. It found that the arrangements, including a production services agreement with CHF Entertainment Limited, were indeed part of the disqualifying arrangements. The Tribunal concluded that payments made to Entertainment were 'to or for the benefit of' a relevant person, as Entertainment was a party to the arrangements.

Conclusion

The Tribunal dismissed Hoopla's appeal, affirming that the FTT had applied the correct legal principles. The decision underscores the importance of ensuring that investment arrangements comply with EIS requirements to avoid disqualification.

Learn More

For more information on private equity, see BeCivil's guide to Private Equity Law.