We often obtain an HMRC tax clearance, in advance, to confirm the tax treatment of your share transaction or SEIS, EIS, EMI, Entrepreneurs relief transaction. The advantage is peace of mind. A HMRC tax clearance is not available in every case. We look at the background considerations you should be aware of.
Will/should you obtain HMRC tax clearance?
Availability of tax clearances from HMRC
Taxpayers often want confirmation as to the tax treatment of any transaction before completing the transaction. Not all situations are suitable for tax clearances as your application may unnecessarily alert HMRC. The decision on whether to seek a tax clearance from HMRC requires judgement and our experience is invaluable.
HMRC have substantially reduced their staff. Our specialist expertise in understanding how HMRC operates are key to achieving your desired outcome. Timing is also critical.
Examples of some popular tax clearances we obtain from HMRC
We have secured a great many tax clearances from HMRC over the years. We have illustrated some of the more common applications but there are others we can obtain not listed.
- Trading status of companies for entrepreneurs’ relief purposes;
- Share re-organisations and transfer of trades;
- Share buybacks;
- Advance assurance that a trade qualifies for SEIS or EIS;
- Enterprise Investment Scheme (EIS); and
- Enterprise Management Incentive options (EMI).
Statutory clearances given by HMRC
Most clearance provisions are available to taxpayers. If, however, a party to the transaction is resident outside the UK then the clearance may not be needed – it depends on the specific facts.
The taxpayer must provide accurate details of the circumstances and surrounding facts. If relevant information is not provided, then the clearance is void. Judgement is required as to how much information is necessary.
Considerations before applying for clearances from HMRC
The considerations will depend upon the facts of the case. Based on past experience we have drawn up some guiding rules:
A clearance or informal ruling does not cover other taxes or other parts of the transaction. It is only binding in relation to the:
- Specific situation covered by the relevant legislation; or
- Specific transaction for an informal ruling.
Clearances or informal rulings should not be sought where the tax position is clear.
Whether it is worth obtaining clearance, or an informal ruling, depends on circumstances.
Generally, you want to obtain clearance early rather than later.
If the clearance concerns a transaction, HMRC wants draft documentation. Oftne completion depends on tax clearance. We ensure tax-clearance is co-ordinated with the commercial agreement.
Unquoted shares – a difficult area
The process for determining the taxable value of unquoted shares will be via the individual’s personal tax return. The individual will be required to report the taxable value, pay the tax due and wait to see if HMRC challenge the value reported to HMRC. The risk of under reporting is that the individual will incur interest and penalties.
HMRC is streamlining its resources to increase scrutiny over taxpayers tax returns and reassess more tax returns where they consider the value of the share related benefit has been under reported – the purpose of the scrutiny is to assess interest and penalties to increase the overall tax payable.
HMRC are still dealing with technical questions relating to interpretation of legislation. For example, if you were concerned as to whether your business qualified for EMI, EIS or SEIS we can approach HMRC for you and obtain a determination. Alternatively, if you were concerned about whether expenditure will qualify for R&D tax credit relief they do offer an assurance service for certain companies.