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December 13, 2013

Entreprenuers' Relief and Surplus Cash

Securing the 10% rate of tax through Entrepreneurs' Relief generally forms a significant goal for an owner who wishes to exit their business.

PD Tax Consultants are assisting with the succession of a family trading business, with dad wishing to sell his shares back to the company.

As is the case with a number of businesses, a good deal of surplus cash has built up in the company through many years of trading and some of this cash has been placed in a bond.  The trade remains in a healthy state with good profits and relatively significant turnover.

So whilst the surplus cash is a significant asset on the balance sheet, the income it and the bond are generating is less than 1% of the company's total income.

We recently asked HMRC for their opinion as to whether the company is a trading company, given the significant cash balance.

Interestingly their response was that :-

a) "they regard funds held in bonds as investment activity", and

b) "the cash retained is rather more than would be expected for day to day requirement"

However, the good news for the client is that HMRC considered "in the round" that the company is a trading company and its shares will potentially qualify for Entrepreneurs' Relief.

We can now move ahead with the re-structuring.

News & Views from PD Tax - December 2013


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