Our Tax Partner Craig Simpson looks at when and why you need an HMRC clearance before proceeding with a transaction.

The tax system can be confusing to say the least. Obtaining certainty of HMRC’s view in a particular situation is increasingly difficult as HMRC customer service level feedback shows. There is a system of statutory clearances which allows certain transactions to be described to HMRC before they are implemented, to get their view. This is a fairly limited and narrow set of parameters which are often misunderstood by advisors and clients alike.

Overall, the Bates Weston tax team take the view that if you can get HMRC clearance for a transaction, then it makes sense to ask for it. Reducing risk on transaction work is sensible and testing HMRCs view is worthwhile. So in what circumstances  do we go for clearance?

Circumstances for HMRC clearance:

  1. Inserting a holding company above an existing company where there is a share for share exchange
  2. The sale of shares in a company
  3. A demerger of group of companies into one or more new companies or groups
  4. A company purchase of own shares where capital treatment is being sought

It is important to understand what we are asking clearance for and what it doesn’t cover.

The common misconception is that once HMRC grant clearance that means everything is fine and the transaction implementation has been blessed by HMRC. That is not the case. The clearance procedure is really only saying that HMRC will not apply the anti-avoidance provisions to tax the proposed transactions. HMRC even go as far as saying in their reply that they don’t confirm the relieving provisions will apply. This means that it is vital that a transaction is implemented correctly. So proper legal advice from an experienced corporate lawyer and careful drafting of legal documentation is essential.

In making the application to HMRC we always include a significant level of detail. Remember that HMRC are only clearing the facts and circumstances they are presented with.  The background, commercial rationale and steps plan should be detailed and accurate. If the transaction steps change later then it is possible to refresh the clearance before proceeding.

Our approach, following clearance, is to draft a detailed steps plan setting out all the tax relieving provisions being relied upon; this is then given to the lawyers and they use this to draft their legal documents.

Obtaining HMRC clearance is a fairly slick process. HMRC have a dedicated email address and response times are usually faster than the 30-day time limit.

In summary, our advice is never to cut corners on transaction work and always get HMRC clearance where it is available. We specialise in this area and can help clear a path through the complexity of the tax system. If you would like to discuss your own plans with us, please contact Craig Simpson or Richard Coombs.

This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.

Related articles:

The Dos and Don’ts of Demergers | Bates Weston

Delving into Demergers | Bates Weston