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HMRC internal manual

Capital Gains Manual

Entrepreneurs’ Relief: trading company and holding company of a trading group - applications for a ruling on the status of a company

If a person wants to establish whether a company in which they held shares or securities was a qualifying company for Entrepreneurs’ Relief purposes while the shares or securities were held, that person should, in the first instance, seek advice from the company. The company will usually be able to confirm if its activities were such that it was a trading company (or the holding company of a trading group) so that it could have been a qualifying company so far as that individual was concerned.

The responsibility for ascertaining the status (for Entrepreneurs’ Relief purposes) of shares held in a company referred to in a self-assessment tax return rests with the individual shareholder making the disposal. They will need to take a view and make their self- assessment return on this basis. Where appropriate the white space on the return may be used to point out that an unsuccessful approach has been made to the company for confirmation of its status.

The company itself may have genuine doubt or difficulty as to its trading status. There is no statutory clearance procedure under which companies can have their status confirmed. However in such circumstances a company can seek from HMRC an opinion under the terms of the Other Non-Statutory Clearance service as to its trading status for the purpose of a shareholders Entrepreneurs’ relief claim. But in order to maintain confidentiality the Officer dealing with the company’s tax affairs will not be able to correspond directly with individual shareholders.

A non-statutory clearance is written confirmation of HMRC’s view of the application of tax law to a specific transaction or event where there is genuine uncertainty as to how the legislation applies in the company’s circumstances. Any application should contain the information in the checklist in the Other Non-Statutory Clearance Guidance (HMRC website).

The status of a company or group is a question of fact which may alter as the balance of their activities change, so it will not be possible to confirm a company’s status for future periods. Because of the inherent difficulty in giving a view based on uncertain information, in some cases those involved may prefer to wait until all the relevant facts are known before approaching HMRC.

You should offer your opinion whenever this is practicable and, if this differs from the company’s view, explain the reasons for that difference. Having expressed your opinion you should not then enter into any further correspondence on the matter. Any dispute should be resolved through the process of an enquiry into a return or claim. See Regina v CIR ex parte Bishopp (on behalf of PWC) and Allan (on behalf of E&Y) 72TC322.