TQOTW: HMRC Recommending a business structure

We have recently submitted two separate transaction in securities clearances where HMRC have responded with several questions/objections around the proposed structure of the business. The Clearance Unit appear to be suggesting that a group structure is not required in both cases, and the corresponding Officer for one application has even suggested an alternative business structure.

Have HMRC adopted a new approach to transaction in security clearances that can explain why they are questioning the preferred business structure and, in particular, making alternative suggestions? 

We have noticed an increasing number of calls to the Advice Line regarding rejected clearance applications and unnerving lines of questions not anticipated by experienced applicants. Several recent calls have been regarding clearances share for share exchanges have been denied. HMRC are consistently reminding applicants that TCGA 1992 s.137 requires the exchange to be effected for ‘bona fide commercial reasons’.

The Officer who presented an alternative structure may be perceived by some to be offering business advice, but the response is not unheard of. It appears the Clearance Unit are now frequently considering diversification through a group structure as tax avoidance where two or more standalone companies will be, in their view, a commercially equivalent business model.

The Clearance Unit will not generally confirm that the conditions for a relief or exemption apply but will confirm whether or not they are satisfied, based on the information provided, that the arrangement is not being effected for tax avoidance purposes. The unit has on at least one other occasion this year, refused to grant a transaction in securities clearance application because the deciding Officer determined the planned group structure was motivated by shareholders’ personal preference, therefore it must not be a commercial transaction, therefore the transaction must be tax avoidance. That rejection letter was forwarded to our consultancy team for consideration. James Butterworth successfully obtained clearance for the transaction after taking a dispute to the First Tier Tribunal which overturned HMRC’s decision.

CIOT’s owner managed business technical sub-committee commented on the Clearance Unit service levels in November 2019, noting the changes to the team personnel including a new lead which might have been impacting service levels at that time. The team changes could explain the change in the Clearance Unit’s interpretations and approach.

Recent HMRC responses represent a significant change of approach and as a result James Butterworth is hosting a webinar in December to discuss his tribunal win and recent experiences with the Clearance Unit and to highlight some of the tax traps, pitfalls and opportunities of business and succession planning involving a business restructure.

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Alexandra initially trained as an accountant, working in small general practice where she gained significant experience in corporate and personal tax compliance. After qualifying as a Chartered Accountant, Alexandra began to specialise in tax. She has worked in tax advisory and compliance roles in a large accountancy practice and a specialist tax consultancy practice, whilst developing her tax knowledge and gaining Chartered Tax Advisor qualification.

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