The recent changes in rules on Capital Gains Tax and Entrepreneurs’ Relief mean that it is more important than ever. With the main rate of CGT now 28% and the rate on assets qualifying for ER remaining at 10%, the benefit of attaining ER is increased to 18% from the previous 8%. Coupled with the lifetime limit increase to £10m, the overall lifetime value of ER is a maximum of £1,800,000; a significant increase on its initial value of £80,000.
It is therefore more important than ever to fully consider the availability of ER on transactions and ensure that all the conditions are met.
HM Revenue & Customs have produced a toolkit for identifying associated companies and proving whether small company rates or marginal small company relief (MSCR) is due.
Much commentary has suggested that the toolkit should be used every time the small company rate/MSCR is claimed with the checklist incorporated into the procedures of all accountancy firms so that the issues brought up are discussed annually with the directors of companies.
HMRC have stated that penalties could be applied where such rates are applied incorrectly and it is therefore important to ensure that the correct procedures are followed. Having the completed checklist on file would be an advantage, but it must also be clear that someone has appropriately considered the circumstances.
There are proposals to change the rules on associated companies which are currently in consultation. The proposed new rules look at commercial interdependence rather than the current basis looking strictly at control.
The toolkit can be found at www.hmrc.gov.uk/agents/toolkits/mscr.pdf