The recently published First Tier Tribunal case of Jonathan Cooke is a salutary lesson in attention to detail. The case concerns entitlement to Entrepreneurs Relief (“ER” - now Business Asset Disposal Relief) and specifically the 5% shareholding requirement.
The case centres on the fact that, due to use of a spreadsheet rounded to 2 decimal places, shares equal to 4.99998% of the company’s share capital were issued to the appellant in the belief that those shares equated to (at least) 5% the share capital.
The taxpayer was ultimately successful in the Tribunal granting him CGT relief, having convinced the Tribunal:
- firstly, that there was always an expectation and understanding between all the parties to the issue of shares that he would have a 5% holding
- secondly, that the Tribunal had the authority to consider what the High Court would decide if faced with an application for rectification of a mistake as regards the shareholding shortfall
- thirdly, that the High Court would, in the circumstances, grant such rectification, and
- lastly that the claim for relief ought therefore be allowed without the appellant having to resort to a High Court application.
In a way, the decision will have made for a happy taxpayer.
However, the gain in question was around £600,000 and, with ER providing a 10% rather than 20% rate of tax, that means tax at stake of £60,000.
The gain arose in February 2019 and the decision was published in April 2024, some 5 years later. That means the taxpayer has endured several years of HMRC enquiry into the relief followed by the time, stress and cost of bringing a case before a Tribunal.
The lesson, we think, is not that rectification was available or that the taxpayer succeeded, but that a little bit of time, effort and cost at the implementation stage of any tax planning can save a vast amount of time, effort and cost dealing with any problems later on.
The next step
To discuss your tax planning at the outset of a transaction, please get in touch with Graham Boar at g.boar@uhy-uk.com, or your usual UHY contact.