Tax

In Hoopla Animation Ltd (formerly known as Daisy Boo and Monkey Too Ltd) v HMRC [2025] UKUT 28 (TCC), the latest decision regarding Enterprise Investment Scheme (EIS) requirements, the Upper Tribunal (UT) has upheld the First-tier Tribunal’s (FTT) decision that HMRC were correct to deny EIS relief in relation to shares issued by Hoopla. The Hoopla decision is the latest EIS-related case to highlight the need for strict attention to detail when seeking to obtain EIS relief, specifically in relation to the requirement that the relevant shares must not be issued (and the money raised by that issue must not be employed) in connection with any “disqualifying arrangements”. 

Background

Hoopla had been incorporated to exploit IP in a pre-school animation project (“Daisy Boo & Monkey Too”, later “Daisy & Ollie”). Hoopla was part of a group of companies (the CHF Group) which operated a fund through which third party investors were invited to subscribe for shares in special purpose investment vehicles, each of which held IP rights to a particular concept or show. The concepts and shows were identified by a committee comprised of employees of CHF Entertainment Limited (Entertainment), which was also part of the CHF Group. In November 2016, Hoopla appointed Entertainment as its broadcast representative, and entered into a production services agreement (PSA) with Entertainment, for the purpose of producing and delivering 52 episodes of Daisy & Ollie.

In 2018, Hoopla issued shares to investors in the Daisy & Ollie venture, as a result of which it raised approximately £1,323,340. The shares were intended to be eligible for EIS relief, but HMRC challenged this on the basis that the arrangements for issuing the shares (which the parties agreed included the PSA) were “disqualifying arrangements”.

EIS requirements & FTT decision

As explained in more detail in our PLC article, “The enterprise investment scheme: current state of play”, the EIS is a regime introduced in 1994 which offers UK-resident individual investors both income tax and capital gains tax reliefs in relation to qualifying investments. However, there are detailed criteria that apply to each of the investor, issuing company and relevant shares, which must be satisfied before, during and after the shares are issued. So although the EIS can offer an attractive investment opportunity, it is also highly susceptible to potential pitfalls for those unfamiliar with the intricate requirements of the scheme (see, for instance, our prior blog post: “Trading Places: Is your trading company “open for business”?”). Amongst the numerous EIS criteria is the requirement that there must not be any “disqualifying arrangements” in relation to the shares issued or money raised, which itself entails a number of conditions including (of greatest relevance for the Hoopla decision) that the whole or majority of the funds raised must not be “paid to or for the benefit of a relevant person” (being a person party to the arrangements, or connected with such a party). The requirement is intended to prevent companies established solely for the purpose of accessing the EIS from benefitting from the regime.

The FTT dismissed Hoopla’s appeal, agreeing with HMRC that the funds raised by Hoopla had indeed been “paid to or for the benefit of a relevant person” (i.e., Entertainment) as a result of payments made by Hoopla to Entertainment pursuant to the PSA.

The UT decision & key takeaways

Hoopla’s appeal to the UT broadly concerned the meaning of the words “party to” in the disqualifying arrangements legislation (which would, in turn, inform whether Entertainment could be a “relevant person”), and whether arm’s length commercial sub-contracting arrangements (i.e., the PSA) could be captured by the legislation. Upholding the decision of the FTT, and agreeing that the reasoning set out in the UT’s previous decision in Coconut Animated Island Ltd v HMRC was instructive, the UT dismissed Hoopla’s appeal and agreed that the arrangements were disqualified from EIS relief. The UT’s decision sheds some additional light on the scope of the “disqualifying arrangements” provisions, and reinforces the importance of a complete understanding of the ins and outs of the EIS conditions when seeking to offer EIS-eligible investments.