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July 10, 2018

It’s a Fact: HMRC Restricts its Clearance Procedures

HMRC has quietly changed its policy on giving non-statutory clearances regarding 'matters of fact', adding further uncertainty for taxpayers.

Clearance Requests

HMRC are required under law to consider clearance requests from taxpayers who contact them asking for clearance on specific areas of the UK’s tax system.

This can be useful for taxpayers who need certainty about how HMRC will treat particular transactions and helps avoid unexpected tax liabilities.

The types of clearance requests that HMRC are required to respond to is fairly limited, therefore HMRC also allows taxpayers to make 'non-statutory' clearance requests on other areas.

Is it a Business?

One area we frequently come across is the question of whether a taxpayer’s letting activities amount to a ‘business’ for certain taxes.

This can have significant consequences as there are both capital gains tax (CGT) and stamp duty land tax (SDLT) reliefs available when businesses are incorporated.

Without relief, taxpayers incorporating their business would suffer CGT on any chargeable assets they transfer into the company.  This would be calculated as if they had received cash equal to the full market value of the assets transferred.

If property is transferred, then similar rules apply for SDLT. Companies acquiring residential property will also face higher SDLT rates than individuals (with some exceptions).

HMRC’s New Guidance

HMRC now states on their website that they will no longer issue clearance requests on “matters of fact, such as whether certain activities constitute a business".

This will clearly affect those looking to incorporate their business, but it could also affect those with uncertainties over other “matters of fact”, including taxpayers with:

  • hobby activities that could amount to a trade,
  • income from activities with letting or investment elements (see our blogs on Pawson, Ross, Green, and Vigne), and
  • shares in company that may or may not be trading for the purposes of entrepreneurs' relief.

Interestingly there has been no change to HMRC’s guidance in their internal manual (CG64100) which indicates that they will still provide non-statutory clearance regarding the trading status of a company for entrepreneur’s relief purposes.

Contact us today to discuss your tax requirements.
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