Bloodstock case fails trading tests for EIS

Many might see a case involving horses and tax relief failing at tribunal and think it's a prejudiced approach by those who might consider that all equine operations are not trading . Others might curse unnecessary lack of compliance that give the industry a bad name. In the recent case of Valyrian Bloodstock Ltd (TC8578) whilst there were the fundamental problems associated with the less serious side of the equine industry e.g: no business plans and "very sketchy financial information" there were some serious EIS conditions which were not met that should have been in place. HMRC therefore refused to issue the EIS certificates specifically because the risk to capital condition had not been met and because Valyrian failed to meet the trading requirement.

Valyrian appealed to the FTT. The tribunal upheld this decision in HMRC’s favour saying there had been no evidence of trading after the three years and the investors were individuals using a tax advantaged scheme with little entrepreneurial involvement. It was considered that broadly the horses were just held for capital appreciation rather than trading stock in a "tax efficient" wrapper. The case is a timely reminder for EIS applications to meet the trading requirements, these must be in place after three years in addition to the trading position during the three years of qualification. 

Many might consider that HMRC seem to have the preconceived idea that possibly any equine operation is either a hobby or a 'tax dodge' or both which is incorrect because the general bloodstock and equine industries are currently vibrant and successful in many areas. The practical point is that when equine operations are undertaken as a business, they must be supported by robust business disciplines e.g: business plans that are regularly updated, excellent real time bookkeeping and careful VAT treatment etc. The websites should be regularly inspected to show that they correctly reflect the tax reliefs that are to be claimed.