entrepreneurs relief and MVL

[Maslins]

Hello, sorry for slow response, try to avoid working over weekends then Monday morning always chocca.

My view would coincide with that of Iliketax. There are a few 20% tests, see here for our summary. Struggling to find a useful HMRC link since everything moved to .gov.uk pages.

Buying the shares won't have helped your case, even if they were sold at ~break even. It suggests you had investment motives even if they didn't pay off...but based on the 20% tests:
- sounds like <20% of your income derives from investments,
- sounds like <20% of your expenses relate to investments (possibly not if you paid lots of adviser fees when buying/selling the shares)?
- I would guess <20% of your time has been spent dealing with the investments, though possibly not if you spent quite a while debating/choosing the shares and perhaps your consulting income is only part time.
- most likely >20% of the company's assets will be considered investment ones. The shares certainly would. There's a bit of debate over whether holding hefty cash balances counts as an investment asset...some accountants advocate having board minutes to demonstrate you considering buying a company office/similar, hence the reason for building up big cash reserves...I personally would avoid anything fabricated like that.

Re the 20% tests generally, there is no "if you meet 2 of these you're caught", it's very much just to give a flavour. Virtually every MVL Online client would fail the 20% asset test assuming cash in a deposit account is considered investment...but they'd virtually all fly through the others. My view for most is that it'd be low risk, as 3/4 the tests they comfortably pass.

Only you will know regarding time/expenditure relating to the investments...but if those were high, then it could be you pass only 1 of the 4 tests rather than 3 of the 4, at which point your situation looks much less rosey.

Can understand why your accountant's sitting on the fence re this, as with so many tax things these days the rules are grey and woolly and open to interpretation unfortunately. Hope the above is of some help.

[a1pepper]

many thanks. much appreciated

[administrator]

PM rights sorted!

[cojak]

OP won't be able to do that unless a nice moderator / admin grants PM rights due to their low number of posts.

Admin has been asked.

[a1pepper]

thank you for these thoughts. much appreciated and I will try and contact the chap from MVL online if i'm allowed to PM. I am sure that i can't be the first to run into an intransigent HMRC on this. I have written twice (at length) and been completely open with them but just becuase I have not spent the money earned from trading as a contractor they think I am an investment business as far as ER is concerned. If I had been an investment company i have been a pretty rubbish one as i have generated no income from my brief dabble and even now have all my cash sitting in a current account. I am unsure whether it is a case of HMRC trying to front it out to capture a few more pounds for the exchequer. Be interested if anyone as practical experience of a similar situation.

regards

[TheFaQQer]

Also drop Maslins a Pm. He does a lot in this area with his involvement in MVL Online

OP won't be able to do that unless a nice moderator / admin grants PM rights due to their low number of posts.

[Iliketax]

Interesting. On what basis, precisely, are they arguing that your company is a CIC/CIHC? It's something of a grey area, but there's certainly a risk when a significant fraction of the income originates from investments. That doesn't appear to apply in your case, and simply investing in shares should not be enough (although, again, AFAIK, it's an untested area in terms of case law). You can find the legislated definition here:

Corporation Tax Act 2010

Frankly, they're probably asserting this by default (i.e. protect the exchequer, ask questions later), rather than on the basis of any considered analysis. What information did you provide to them?

That definition is not relevant to ER, s165A(3) TCGA is the one to Google. The key is whether your company is a trading company that is carrying on trading activities and whose activities do not include to a substantial extent activities other than trading activities. HMRC say substantial means 20%+. But 20% of what? Well they look at that in the round (e.g. time spent, turnover, profit, assets used). So if you invested 40% of the company's assets in shares then it sounds like HMRC may have a point. But you can't just measure it on one thing or at one point in time. In the end it will be a question of fact that someone will have to judge.

If you want to find some tax cases, have a look at: Farmer & Giles (Farmer’s Executors) v CIR [1999] SSCD 321 and HMRC v Brander [2010] UKUT 300

[jamesbrown]

Interesting. On what basis, precisely, are they arguing that your company is a CIC/CIHC? It's something of a grey area, but there's certainly a risk when a significant fraction of the income originates from investments. That doesn't appear to apply in your case, and simply investing in shares should not be enough (although, again, AFAIK, it's an untested area in terms of case law). You can find the legislated definition here:

Corporation Tax Act 2010

Frankly, they're probably asserting this by default (i.e. protect the exchequer, ask questions later), rather than on the basis of any considered analysis. What information did you provide to them?

[northernladuk]

Article mentioning your situation here that might be of interest.

Also drop Maslins a Pm. He does a lot in this area with his involvement in MVL Online

[northernladuk]

You didn't use a directors loan or business loan to yourself paying interest?

[a1pepper]

no. effectively i have not taken any income as in years 13/14 i had my payoff to decalre and 14/15 my new employment will take me into paying higher rate tax. I'm don't think i have been eligible for any other tax free opportunities. business expenses have been taken out in each year however.

[northernladuk]

You didn't take anything out if the company at all?? Even the tax free stuff?? Are you sure there isn't any details you are missing?

[cojak]

I have moved this to the correct forum.

[a1pepper]

I started my own business to do interim management work after leaving my previous employer with a substantial compromise pay off. This meant that i did not need to take any income in my two years of trading. i have been fortunate to secure continuous well paid work. I have accepted a new permanent position in my 3rd year of trading (3 months in) and now wish to close the company and extract my earnings as there is now a significant 6 fig sum sitting there in a non interest bearing current account.

I had expected to do this using the entrepreneurs relief scheme paying a further 10% CGT to extract the money as opposed to paying 28% at the high rate for CGT. I have been in dialogue with HMRC as part of their scheme to provide guidance before you do your MVL an after 2 letters they are insistent that i am an investment business not a trading one. I ave pointed out that had i not taken the full time job this year then i woudl be taking drawings and i didn't before as i was uncertain as to how much income i could generate and it was the first time i had been self employed at the age of 52. I did make the mistake last year of investing £100k of the businesses money in some shares to try and avodi inflation eating it away, but ended up selling this after 6 months and just about breaking even.

i don't think i am an investment business and shoudl be able to access the scheme but my accountant is itting on the fence and i woudl welcome guidance and any case law on this.

many thanks