HMRC tax clearance

HMRC is there to impose a tax charge whenever it can.  The clearance system will help defend a tax payer against claims from HMRC that the transaction was set up to avoid tax. 

Our experience and tax knowledge is very valuable to clients from initial structuring through clearance negotiations to final implementation. Our integrated approach, advising on the underlying transaction and tax structures, delivers faster, more accurate submissions and greater certainty and cost effectiveness in achieving the desired tax and legal outcomes.

Our experience in HMRC tax clearances

We have secured a great many tax clearances from HMRC over the years. Some of the more common applications for clearance we advise on (as part of a transaction or corporate legal advice) include :-

• Business Assets Disposal Relief -  following our review we can confirm our view on your chances of success if an application was made to HMRC.
• Tax neutrality on  reorganisation or demerger of a business - when companies are being re-organised, re-structured or separated shares will be transferred but often no cash changes hands.  We advise on HMRC clearances to confirm the tax neutrality. There are rules to satisfy which we will review with you.
• Share for share exchange hold over relief - typically upon imposition of a new holding company shareholders swap their shares for shares in a holding company so that a group structure can be established. Technically a share swap is a disposal which could give rise to a charge to capital gains tax without prior clearance being obtained.
• Stamp duty clearance - In certain cases a reorganisation, demerger or spin off will not give rise to a charge to stamp duty.  We review and if the conditions are met will make the application to HMRC to obtain HMRC clearance that no stamp duty arises.
• CGT clearance where company buys back shares from a shareholder - hidden within the rules for capital treatment for share buy backs are traps. For example special rules apply relating to material interests if the shareholders are married and one shareholder is retaining shares.
• Advance assurance for SEIS or EIS - in order for a company to offer its investors the tax benefits that come with SEIS or EIS advance assurance from HMRC is needed.  We have secured many advance assurances and can spot quickly areas where there may be a cause for concern.

Securing HMRC clearance

The taxpayer must provide accurate details of the circumstances and surrounding facts. HMRC will want to see documents such as the articles of association, share buy back agreement, de-merger agreements and supporting documentation in many cases.  HMRC will also want to see the step list setting out the order of events.  The timing of each step in a transaction can make or break the chances of obtaining the desired HMRC tax clearance.

Implications of not providing the correct information to HMRC

If appropriate information is not provided, then the clearance cannot be relied upon. Judgment is required as to how much information should be disclosed to HMRC.

If the step list for the transaction is not in the right order HMRC will refuse clearance and in some cases an unexpected tax liability arises.

Timing for obtaining the HMRC clearance

Timing for the HMRC response times needs to be factored into the transaction timetable. Generally speaking providing HMRC are given the relevant documentation in the format they know and understand the average turn around time for an HMRC clearance application is 3-4 weeks.  Any technical queries, missing documents or errors can mean a clearance may take much longer for HMRC to deal with.