The Upper Tribunal (Tax and Chancery Chamber) has recently provided important clarification on the question of when a company can be said to have “begun to carry on” a trade for the purposes of the Enterprise Investment Scheme (EIS). In Putney Power Ltd v HMRC [2026] UKUT 105 (TCC), the Tribunal considered whether two energy companies had commenced trading before the statutory deadline required for investors to qualify for EIS relief.

The case concerned companies planning to operate gas-peaking electricity generation facilities. Investors had subscribed for shares in the companies with the intention of claiming EIS relief. Under the relevant provisions of the Income Tax Act 2007, relief is available only if the funds raised are used for a qualifying business activity. Where the activity consists of preparing to carry on a trade, the legislation requires that the trade must actually begin within a specified period.

The key issue before the Tribunal was therefore whether the companies had begun to carry on their trades by 4 April 2018. Although both companies had undertaken extensive preparatory steps—including entering into multiple commercial contracts, securing grid and gas connections, and incurring significant development costs—the electricity generation facilities were not yet operational by the relevant date.

The Upper Tribunal dismissed the appeal and agreed with HMRC that neither company had started trading by the deadline. However, the judgment is particularly noteworthy because the Tribunal rejected the idea that there is a strict legal “test” for determining when trading begins. Instead, the correct approach requires a multi-factorial evaluation of all the surrounding circumstances, applying the ordinary meaning of the statutory language.

In doing so, the Tribunal clarified several important points:

  • The concept of a trade “beginning to be carried on” is a fact-sensitive question that depends on the commercial reality of the activities undertaken.
  • Factors such as having business infrastructure in place or being able to supply goods or services may be relevant, but they are not legal prerequisites for a trade to commence.
  • Entering into a “matrix of contracts” may in some circumstances be sufficient to demonstrate trading activity, but this will depend on the specific obligations and risks created by those contracts.

On the facts of the case, the Tribunal concluded that the contractual arrangements and development activities formed part of preparations to trade, rather than the trade itself. The power plants had not yet been completed and the companies were therefore not yet in a position to carry out the commercial activity—generation and sale of electricity—that constituted their intended trade.

The decision provides useful guidance for businesses and investors relying on EIS relief, particularly in sectors involving long development cycles such as energy and infrastructure. It confirms that significant preparatory work and contractual commitments may still fall short of the point at which a trade is considered to have begun.

Companies seeking to raise capital under the EIS regime should therefore carefully consider the timing of their operational activities and the statutory deadlines that apply.