York SD Ltd and Others v HMRC: What the Rooftop Solar EIS Appeal Means for Investors and Companies

Enterprise Investment Scheme relief is one of the most valuable reliefs available to UK investors in early-stage companies, but it is also one of the most heavily litigated. A recent Upper Tribunal decision, York SD Limited and Others v HMRC [2026] UKUT 00304 (TCC), is a timely reminder of how forensically HMRC and the tribunals now examine whether a company genuinely “began to carry on a qualifying trade” in time to preserve EIS relief for its investors. The case concerned six companies that each installed a single rooftop solar panel in the UK before going on to develop much larger ground-mounted solar projects in Spain and Portugal through overseas subsidiaries. HMRC withdrew EIS relief on the basis that the UK rooftop activity was not a genuine commercial trade, and the First-tier Tribunal agreed. The companies have now been given only partial permission to appeal to the Upper Tribunal.

For anyone who has raised, or is considering raising, capital under EIS, and particularly for renewable energy and infrastructure ventures that structure their UK activity around a “trading start” before scaling up overseas, this decision, read together with the earlier Upper Tribunal ruling in Putney Power Limited and Piston Heating Services Limited v HMRC [2026] UKUT 105 (TCC), sets out important boundaries. Below, we break down the case, the legal tests it applies, and what it means practically for companies and investors relying on EIS relief, and for anyone facing an HMRC challenge to their own EIS position.

Background: What Happened in the York SD Case

Six related companies (referred to collectively as the appellants, led by York SD Limited) issued shares between 2016 and 2017 with the intention that their investors would obtain EIS income tax relief and, in some cases, capital gains tax deferral. To qualify, each company had to satisfy a series of statutory conditions in Part 5 of the Income Tax Act 2007, including the requirement that a “qualifying business activity”, in essence, the beginning of a genuine qualifying trade, had commenced within two years of the shares being issued (the “QBA Deadline”).

Each appellant company installed a single rooftop solar panel on a UK residential property, entering into an agreement with the homeowner to sell them the electricity generated. According to the evidence given by the appellants’ witness, Mr Hughes, this was intended to “start the EIS clock.” At the same time, and by design, each company planned to establish a wholly owned overseas subsidiary, ultimately operating in Spain and Portugal, to develop much larger, ground-mounted solar electricity plants (the “Iberian solar projects”). The rooftop installation for York, for example, generated a monthly charge of just £9.20, against fixed assets of £3,650.

HMRC later decided that the shares were not eligible for EIS relief and issued notices withdrawing it. The companies appealed to the First-tier Tribunal (Tax Chamber), which dismissed their appeals in a decision released on 16 July 2025. The FTT found that, by the QBA Deadline, none of the overseas subsidiaries had begun trading, and that the UK rooftop activity, while technically capable of generating a small income, was not being carried on “on a commercial basis with a view to the realisation of profits,” as section 189(1)(a) of the Income Tax Act 2007 requires of a qualifying trade.

The Two Arguments Rejected by the First-tier Tribunal

The appellants ran two alternative cases to establish that a qualifying trade had commenced by the deadline.

1. They argued that each company, acting through its subsidiary, had itself taken sufficient steps towards constructing the Iberian solar plants to amount to commencing a qualifying trade. The FTT rejected this: none of the subsidiaries had completed the essential steps necessary to begin generating electricity, and none had the physical infrastructure in place by the relevant date.
2. The appellants argued that the activities of each parent company and its subsidiary should be treated together as a single “deemed group trade”, so that the rooftop panel in the UK and the much larger overseas development could, combined, be regarded as one qualifying trade that had begun. The FTT rejected this too, holding that the legislation does not incorporate any such concept of a deemed group trade. Even if it did, the Tribunal found that the UK and overseas activities were “fundamentally different in nature”, different in scale, infrastructure, location and technical expertise, and could not sensibly be treated as a single trade. Critically, the Tribunal also found that, on its own, the rooftop panel activity was not being conducted on a commercial basis with a view to profit, since it was installed principally to satisfy the formal requirements for EIS relief rather than as a genuine profit-making venture.

The Appeal to the Upper Tribunal: Grounds and Outcome

Permission to appeal was sought on four grounds. The FTT itself had already granted permission on Grounds 2, 3 and 4, which challenge the legal test the FTT applied for determining when a trade “begins to be carried on”, an issue which has been significantly clarified by the Upper Tribunal’s intervening decision in Putney Power (discussed below). Those grounds will now proceed to a full hearing.

The remaining issue before Upper Tribunal Judge Jonathan Cannan was Ground 1, which challenged the FTT’s findings of fact on two bases:

• Ground 1A: that the FTT made findings of fact (in particular, that the rooftop trade was not conducted on a commercial basis with a view to profit) which it was not entitled to make on the evidence.
• Ground 1B: that the FTT wrongly treated the factual position of York as representative of all six appellants, without properly considering the individual circumstances of the other companies.

Judge Cannan refused permission on Ground 1A but granted permission on Ground 1B for the appellants other than York. This is a nuanced and instructive outcome, and the reasoning behind each conclusion repays close attention.

Why the Challenge to the Tribunal’s Findings of Fact Failed

Challenges to a tribunal’s findings of fact face a famously high threshold, set by the House of Lords in the leading case of Edwards v Bairstow [1955] UKHL 3, [1956] AC 14. An appellate body can only interfere with findings of fact where there was no evidence to support them, where the only evidence available contradicted them, or where the only reasonable conclusion available to the tribunal was the opposite of the one it reached. The Upper Tribunal in HM Revenue & Customs v Anna Cook [2021] UKUT 15 (TCC) summarised this test, that an appellant must identify the specific finding challenged, show its significance, identify the relevant evidence, and demonstrate that the finding was not one the tribunal was entitled to make on that evidence.

Applying that framework, Judge Cannan held that the FTT was entitled to conclude, on the evidence before it, including Mr Hughes’s own oral evidence that “it would be difficult to argue that setting up one rooftop panel was done to generate a profit”, that the rooftop activity was not conducted on a commercial basis with a view to profit. The appellants had argued, by analogy with Lord Upjohn’s well-known observations in Inland Revenue Commissioners v Brebner [1967] 2 AC 18, that since the companies were aware EIS relief required a commercial trade, it should be inferred they intended to run one commercially. Judge Cannan rejected that reasoning: intending to meet a legal requirement does not mean a tribunal is bound to find that the requirement was, in fact, satisfied. The distinction between subjective intention and objective commercial reality is one that regularly proves decisive in tax appeals of this kind, and this case illustrates it clearly.

Why the “One Company Standing for All Six” Argument Succeeded

Ground 1B fared differently. The appellants other than York argued that the FTT’s decision, while purporting to apply to all six companies, was in substance based on the specific factual matrix of York alone including, for example, the fact that some companies (Warwick and Cardiff) had entered into engineering, procurement and construction (EPC) contracts before the QBA Deadline, a point the FTT’s decision did not appear to grapple with. HMRC’s own counsel accepted that the separate treatment of the other appellants’ facts “does not jump out” from the decision. On that basis, Judge Cannan found it realistically arguable that the FTT had failed to distinguish between the (shared) legal principles and the (individual) facts and evidence applicable to each appellant, and granted permission to appeal on this ground for the non-York appellants.

The Wider Legal Context: When Does a Trade “Begin”?

This case cannot be read in isolation from Putney Power Limited and Piston Heating Services Limited v HMRC [2026] UKUT 105 (TCC), a decision handed down shortly before the York SD permission hearing, and expressly relied upon by the appellants. In Putney Power, the Upper Tribunal held that the FTT below had erred by applying a rigid, principles-based test, asking simply whether a business was “open for business”, to determine when a trade begins for EIS purposes. The correct approach, the Upper Tribunal confirmed, requires a multi-factorial evaluation of all the surrounding circumstances, rather than a single bright-line question. Because the FTT in York SD had considered the “deemed group trade” and “purpose of issue” questions with reference to the same test later found wanting in Putney Power, Grounds 2 to 4 of the York SD appeal, which challenge that legal approach directly, were already permitted to proceed, and the full appeal will now need to grapple with how that corrected test applies to a structure involving both UK and overseas trading activity.

For companies structuring EIS-qualifying trades, particularly renewable energy, infrastructure, and other capital-intensive ventures that plan a modest UK trading start before scaling internationally, the combined effect of Putney Power and York SD is significant. HMRC and the tribunals will look past the formal steps taken to “start the clock” and examine, in a rounded way, whether real commercial activity capable of generating profit was genuinely underway, and whether overseas group activity can properly be treated as part of the same trade as UK activity, or whether it is a distinct undertaking that cannot rescue an otherwise non-qualifying UK trade.

Practical Implications for EIS Investors and Companies

Several practical lessons emerge for anyone involved in an EIS-qualifying company, whether as director, promoter, or investor:

A token trading step is unlikely to be sufficient on its own. Installing minimal infrastructure principally to satisfy a formal legal deadline, rather than as part of a coherent commercial plan capable of generating a genuine profit, is likely to be scrutinised closely by HMRC and, if challenged, by the tribunals. The size of the investment, the commercial viability of the specific activity relied upon, and contemporaneous evidence of intention all matter.

Group structures involving overseas subsidiaries require care. Where UK trading activity is intended to be read together with the activities of an overseas subsidiary, companies should not assume the legislation permits their combined treatment as a single trade. The FTT in this case rejected any concept of a “deemed group trade,” and unless and until the Upper Tribunal’s full appeal disturbs that conclusion, promoters should proceed on the basis that UK and overseas activities must each be capable of standing on their own, or of being genuinely integrated as a single trade in substance, not merely by corporate structure.

Contemporaneous documentation is decisive. The FTT placed significant weight on witness evidence, including candid admissions during cross-examination, and on documentary evidence such as internal offer letters that did not mention the rooftop activity at all. Companies seeking to demonstrate a qualifying trade should ensure their business plans, board minutes, and investor communications accurately and consistently reflect the trade said to have commenced.

Where multiple related companies are involved, individual facts matter. The success of Ground 1B is a useful reminder that HMRC and tribunals cannot simply extrapolate findings from a lead case to other, factually distinct appellants without proper individual consideration, a point of real practical value to groups of companies facing coordinated HMRC challenges.

What Happens Next

The full appeal on Grounds 1B, 2, 3 and 4 will now proceed to a substantive hearing before the Upper Tribunal, where the correct legal test for commencement of trade, as clarified in Putney Power, will need to be applied to the specific facts of the non-York appellants. The outcome could have a material bearing not only on this group of companies, but on the wider approach to EIS-qualifying trades involving staged UK-to-overseas development structures.

How We Can Help

Disputes concerning EIS relief, qualifying trade status, and HMRC’s withdrawal of tax reliefs are technically demanding and highly fact-sensitive, as this case demonstrates. Whether you are a company facing an HMRC compliance check or withdrawal of EIS relief, or an investor whose relief has been challenged following a company’s HMRC dispute, early and well-informed advice can make a material difference to the outcome. Our specialist tax disputes team regularly advises on HMRC tax appeals, representation before the First-tier Tax Tribunal, and onward appeals to the Upper Tribunal, including in cases turning on the commencement of trade and EIS qualifying conditions. If you have received correspondence from HMRC questioning EIS relief, or if you are contemplating a structure involving staged UK and overseas trading activity, please get in touch with our team for a confidential discussion of your position.