EIS rules in the dock at tax tribunal

A representative of HMRC said they cannot comment on individual cases, where the taxpayer is identifiable.

Tim Smith, a tax partner at RSM, said the case could act as a warning for advisers with clients interested in EIS.

He said EIS rules made it quite difficult for new company founders to use EIS reliefs, as many founders won't take salaries from their company in the early years of operation.

But he said Mr Ames' income in the year in question was below the tax free allowance amount, and therefore there was no income tax liability. An individual in that situation could choose not to receive their annual tax free allowance, and claim the tax relief instead.

Gary Gardner, a director at Blick Rothenberg, said: "The decision is more important in the context of how HMRC applies its statutory discretion enshrined in the Commissioners for Revenue and Customs Act 2005 than it is for the actual EIS relief rules, though it does highlight the importance of carefully following the requirements necessary for claiming EIS and other reliefs."