Ruth Hughes and Tomos Rees appear for HMRC in Hoopla Animation Ltd v HMRC.
The decision is the most recent in a number of cases involving the CHF Group, which was a group of companies involved in the animation industry. The group raised funds from investors through the Seed Enterprise Investment Scheme and the Enterprise Investment Scheme. Those funds were then directed by CHF’s Media Fund to a number of single-project companies (including Daisy Boo and Monkey Too Limited (“Daisy Boo”), later known as Hoopla Animation Limited). Each of those companies typically held the intellectual property to a single children’s animation that had previously been pitched to, and approved by, CHF’s Creative and Commercial Committee. The funds were then mostly paid by those companies to CHF Entertainment, a member of the CHF Group, in return for extensive animation production services on which the single-project companies were entirely reliant.
HMRC’s position was that the use of single-project companies in this way by the CHF Group was a means of avoiding the temporal and financial limits on the availability of SEIS and EIS relief. In relation to Daisy Boo, HMRC contended (in summary) as follows:
- Daisy Boo did not satisfy the risk-to-capital condition in section 157A of the Income Tax Act 2007 (“ITA 2007”).
- The arrangements with CHF Entertainment and the CHF Group were “disqualifying arrangements” for the purposes of section 178A ITA 2007.
- Daisy Boo did not meet the trading requirement in section 181 ITA 2007 as its trade consisted of excluded activities for the purposes of sections 192 and 195, namely receiving royalties and licence fees.
The Tribunal (Judge Brown) held that although Daisy Boo did satisfy the risk-to-capital condition and the trading requirement, the arrangements were disqualifying arrangements as the greater part of the sums raised from investors were paid to or for the benefit of CHF Entertainment. On that basis, Daisy Boo’s appeal was refused.
The decision can be found here.