Technology, Startups and Professional Services Tax Case Studies
Startups and professional services firms tend to grow faster than their tax paperwork. These five real cases cover SEIS and EIS share issues, section 431 elections, Business Asset Disposal Relief on alphabet shares and the salaried member rules. In every one, the timing of the advice decided the outcome.
Some of these cases could not be fully fixed, and we said so plainly. What a Chartered Tax Adviser adds is knowing exactly what can still be saved, and making sure the same mistake never happens twice.
SEIS and EIS shares issued on the same day, and the relief that could not be recovered
The issue. A software startup raised a friends and family round and a small angel round together. Its solicitor issued the SEIS shares and the EIS shares under a single board minute on the same day. Four investors had already claimed SEIS relief on £180,000. HMRC refused the compliance statement.
What we did. SEIS is only available where no EIS or venture capital trust investment has been made in the company on or before the day the SEIS shares are issued. The test is the day, not the moment, so a single board minute covering both destroys it. There is no reasonable excuse route and no remedial provision. We could not save the relief, and said so immediately rather than running an argument that was going to fail. What we could do was deal with the consequences properly: we worked with the company on the investor communications, confirmed that EIS relief on the later shares was unaffected, and established that the four investors could still claim EIS on their subscriptions, which recovered 30% relief instead of 50% rather than nothing at all.
The outcome. £54,000 of relief preserved out of the £90,000 originally expected, and the company now issues SEIS shares on a separate day, with a separate board resolution, and files the SEIS compliance statement before the EIS one.
EIS relief refused because a non-executive owned a handful of shares
The issue. An investor put £200,000 into a company under EIS. He had taken 2,000 ordinary shares three years earlier in return for some early non-executive advice. HMRC refused relief on the entire £200,000.
What we did. EIS imposes an existing shareholdings requirement. At the time the new shares are issued the investor must hold no other shares in the company except shares on which risk finance relief was given, subscriber shares held continuously since issue, or shares acquired before the company issued anything other than subscriber shares and before it began trading or preparing to trade. A small holding picked up for services three years earlier is none of those, and the consequence is that relief is denied on the whole of the new investment rather than a proportion of it. HMRC was right. We could not fix it for that investor, but we could stop it happening again. We reviewed the company’s full share register against the independence test before the next round, identified two more prospective investors who would have failed for the same reason, and restructured their participation so that the new money went in on a basis that qualified.
The outcome. The £200,000 claim was lost. The following round of £1.1m was structured so that every investor qualified, preserving around £330,000 of relief that would otherwise have been at risk.
A section 431 election missed by nine days, and a fifth of the exit taken as employment income
The issue. A management team took growth shares in a private company. Nobody made a section 431 election. Four years later the company sold and the shares realised £2.4m between them. Because the shares carried leaver provisions and transfer restrictions, they were restricted securities, and the restriction discount of 20% at acquisition had stayed in the system.
What we did. By the time we were instructed the election could not be made. It has to be signed by both employee and employer within 14 days of acquisition, it is irrevocable and there is no late election and no reasonable excuse. On a sale, a proportion of the proceeds corresponding to the original discount is employment income rather than a capital gain, and because the shares were readily convertible assets on a trade sale the company had to operate PAYE and employer’s National Insurance at 15% on it. We quantified the exposure precisely, negotiated the tax indemnity and the retention with the buyer on an informed basis rather than a worst case one, made sure the employees made good the PAYE within 90 days of the end of the tax year in which the notional payment arose, so that no further charge on the unpaid PAYE arose, and used a section 430 election to stop any further charges arising on the remaining holdings.
The outcome. The exposure was quantified at £298,000, made up of income tax, employee National Insurance and employer’s National Insurance on the restricted element, rather than the £420,000 the buyer’s advisers had initially reserved for, and the deal completed on time.
Business Asset Disposal Relief lost on alphabet shares, and how we rebuilt the position
The issue. A founder held 8% of a company through a class of B ordinary shares. On a sale of the business he expected Business Asset Disposal Relief on a gain of £900,000. He would not have got it. The articles gave the B shares votes and a nominal capital stake but no entitlement to a share of profits available for distribution, and they were silent on proceeds. On top of that, a large participating preference tranche issued to an investor counted as ordinary share capital and diluted him below 5%.
What we did. The relief requires 5% of ordinary share capital and 5% of votes, plus either 5% of profits available for distribution and assets on a winding up, or 5% of the proceeds on a sale of the whole ordinary share capital. Alphabet shares routinely fail the profits limb, because dividends are declared class by class at the directors’ discretion and the test looks at rights rather than history. The proceeds test usually rescues the position, but only if the articles actually confer proceeds rights, and here they did not. We modelled both tests against the cap table and the expected waterfall, then amended the articles to confer the necessary rights and dealt with the preference share classification. Because the tests have to be met throughout the two years ending on disposal, we did this two years ahead of the planned exit, not two months.
The outcome. Relief secured on the £900,000 gain at 18% rather than 24%, a saving of £54,000, on a position that would otherwise have failed on a technicality in the articles.
Salaried member rules after BlueCrest: the partners who were no longer self-employed
The issue. A professional services LLP treated its junior partners as self-employed on the basis that they sat on practice group committees and therefore had significant influence over the affairs of the firm. Once the Court of Appeal had decided BlueCrest against the taxpayer on that point in January 2025, we told the firm the argument was no longer safe and that it should not wait for the Supreme Court. The exposure across eleven members, in PAYE and employer’s National Insurance at 15%, was around £410,000 a year.
What we did. The point at issue was Condition B, the significant influence test. Significant influence has to come from legally enforceable rights arising out of the mutual rights and duties of the members, and it has to be influence over the affairs of the LLP as a whole rather than operational control of a business unit. Soft or de facto influence, however commercially real, does not count. That leaves two workable routes. The first is genuine profit dependent remuneration with real downside, so that less than 80% of the member’s pay is disguised salary. The second is a capital contribution of at least 25% of the member’s disguised salary. We modelled both, took the capital route for eight members and restructured the remuneration of the other three, and made sure the contributions were genuine, enduring and carried real risk, which is what HMRC’s updated guidance requires if the anti-avoidance rule is not to bite.
The outcome. All eleven members remained self-employed on a defensible basis, avoiding around £410,000 a year. The Supreme Court handed down its judgment on 1 July 2026 and confirmed the narrow reading of Condition B, which meant the firm had already been on the right footing for a full tax year rather than scrambling to react. We also built in a review triggered by every promotion round, because a mid year pay rise triggers a fresh test at the date of the change, and if the capital contribution then falls below 25% the member fails that test from the date of the change. A top up is possible, but it is scaled back for the part of the tax year already gone, so it will rarely cure the position in full.
Could we do the same for you?
Every case above started the same way: a business owner asking us to look again at something another adviser had treated as settled. Merit is dual qualified. We are Chartered Accountants and Chartered Tax Advisers, our founder worked inside HMRC, and our partners have built businesses of their own. In most cases the tax we save exceeds the fee we charge.
Related services: Tech startup accountants · Professional services accountants · Contractors and freelancers.