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HMRC internal manual

Example: Effect of matched in-flows

Facts

 31/12/02 £1m cb
 Deposits from undisclosed trade £6m Interest and gains £2m Withdrawals (£3m)
 31/12/10 £6m C8
 Interest and gains
 (these reflect ‘value increases’) £1m Further deposits from undisclosed trade- non-UK source (£3m can be treated as ‘compensating inflows’ against earlier £3m withdrawals) £5m
 31/12/12 £12m C10

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Find the relevant values for the formula

n = 8.

C10 > C8 x 1.2 (£7.2m), so Cr = C8 + “Value increases” + “compensating inflows”

So Cr = £6m + £1m + £3m = £10m.

This result is more than C8 x 1.2m, so we take this as Cr.

Therefore, C9 = Cr + Cr x 3% = £10.3m;

C10 = Cr + Cr x (2x3%) = £10.6m.

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Calculate the formula result

 T = 34% x {[2/3(10m - 8/8x1m)] + [1/3(8/10x10m + 2/10(10.3 + 10.6 / 2))]} T = 34% x {[2/3(9m)] + [1/3(8m + 2/10 (20.9m/2))]} T = 34% x {[6m] + [1/3(8m + 2.09m)]} T = 34% x {6m + 3.363m} T = 34% x 9.363m T = £3.183m

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Is there an increased charge?

 Tc = T / Cr Tc = 3.183m / 10m = 0.31 Tc < 0.34 so no increased charge Tc > 0.21 so no minimum charge

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Which assets are eligible for clearance?

Maximum value of cleared assets = Cr

The maximum value of assets in the account at any time in the period between 31/12/10 and 31/12/12 inclusive = £12,000,000.

This includes post 31/12/10 inflows of £2,000,000 which do not compensate for earlier withdrawals. These cannot be cleared.

The assets eligible for clearance therefore = £6,000,000 balance at 31/12/10

• £1,000, 000 interest and gains + £3,000,000 compensating inflows = £10,000,000.

As this value = Cr all of these assets can be cleared.

Assets of £5,000,000 (£3,000,000 withdrawals made pre 31/12/10 and not reintroduced + £2,000,000 post 31/12/10 inflows which do not compensate for earlier withdrawals) remain uncleared and any liability to UK tax will remain due on this amount.