Claiming EIS tax relief

The way it works is that Osney Lock Hydro has to submit a compliance statement to HMRC, with full details of each of the shareholders, their shareholding and the type and date of shares issued. Once HMRC is satisfied, they will grant OLH the authority to issue the certificates that shareholders need in order to claim their tax relief (30% of your investment). The compliance statement can only be submitted to HMRC when a company has been trading for at least four months.

We regret that in all the hubbub of setting up OLH, applying for advance approval from HMRC, getting the share offer out and processing the applications, we did not register that in this context HMRC’s definition of ‘trading’ means that the company is doing the business it was set up for, ie offering its services, which in our case means generating electricity.  We had taken ‘trading’ to mean that the company was active, paying bills and submitting VAT returns.

With Phase 1, the civil engineering, complete, the Board met at the end of January to consider our existing targets and plans for the next two stages of the construction.  It now looks as if the screw will be installed from late March and commissioned in early May. It won’t be allowed to generate until the fish-pass is installed and that may take a further month or two (it’s not altogether under OLH’s control) and that may end up being in Phase 3. However we are mindful that EIS investors have been more than patient and deserve their tax relief as soon as possible, so we are now thinking we will construct the Powerhouse with its PVs on the roof as part of Phase 2. This would mean that the PVs will come onstream before the screw (which is a good idea anyway because the spring leading into summer is a productive period as far as PVs are concerned, typically more so than in the yearly profile for a hydro).  We will then be able to ‘start trading’ to meet HMRC’s requirements.

If we meet our target OLH will have been trading for four months by August 2014. At that point we will be able to complete the compliance statement to HMRC, and on approval they will issue us with the EIS3 certificates to pass on to investors.

Once we reach the time for issuing the certificates we’ll produce some specific guidance as to how to claim your tax relief. Here’s our understanding of the situation as it currently applies to taxpayers where, as in our case, the shares have been issued in a previous year (claims for relief can be made up to five years after the first 31 January following the tax year in which the investment was made, so there will be no problems in that respect):

We will need to be corresponding with investors who have joint shareholdings, in order to find out how you as individuals intend to split the 30% tax relief available on the total shareholding: this information needs to be submitted on the compliance statement.