Have you taken specialist advice on Entrepreneurs Relief?
Failing to take the appropriate advice in relation to Entrepreneur’s Relief (ER) on the disposal of a business can be costly, as a recent case in the First Tier Tribunal (FTT) illustrates.
In the case of Merrie v HM Revenue & Customs (HMRC) , a business owner was forced to pay more than £95,000 in penalties over an ‘inaccurate’ self-assessment tax return which failed to take into account the gain on the recent sale of his company.
In this particular instance, the return itself was inaccurate simply because he had failed to take advice and had misunderstood exactly when he was supposed to declare the gain.
Analysis of the case suggests that Mr Merrie, who sold his company in August 2014 for £9.8 million, would have been eligible for ER, had he thought to seek specialist advice at the appropriate opportunity.
This is because the £9.8 million disposal was made up of cash, loan notes and shares in the acquiring company – the latter of which met the basic requirements for ER.
Simply put, ER enables directors who hold a five per cent share or more of a company to enjoy a 10 per cent tax rate on capital gains up to a lifetime limit of £10 million – if appropriate advice is sought in line with the appropriate deadlines.
In Mr Merrie’s case, he missed his deadline for an ER claim and was subjected to an investigation at the hands of HMRC after failing to declare the gains in the appropriate tax return.
He was charged 15 per cent in penalties – equating to £95,112.79 – and even before a Tribunal, these penalties were upheld despite the fact it was agreed that Mr Merrie’s errors were “careless and not deliberate.”
At Haslers, our expert tax team, together with our specialist Corporate Finance team, are widely experienced in the nuances of Entrepreneurs’ Relief and the tax implications of business disposals. For more information about how we can help you, please contact Alfonse Perez or Michael Watts at Alfonso.firstname.lastname@example.org or Michael.email@example.com, or by calling 020 8418 3333.