Last updated on March 27th, 2020 at 10:01 am
Parties to the transaction
This letter includes details of all the principal parties involved in the proposed transactions. It should be noted that although this letter refers to three companies (two targets being purchased by another company) there could be more or fewer parties involved.
The details provided should give HMRC enough information to identify each company and its relationship with each other company. This will enable HMRC to investigate further if necessary.
Details of any individual shareholders who are parties to the relevant transactions must also be included, identifying both the shareholders and their proportionate holdings in the company.
The latest set of accounts (if applicable) for every company involved in the relevant transactions should always be included in a clearance letter application to aid HMRC in any possible investigation.
Full details of each exchange of securities in respect of which clearance is sought
The statutory requirement is that an application must contain particulars of the transactions for the purpose of enabling HMRC to make a decision. Any clearance will be void if the particulars and information provided does not fully and accurately disclose all facts and considerations material for HMRC’s decision. Therefore, full details of the proposed transaction should be disclosed.
Including a diagram or group structure at Schedule 3 showing the position immediately after the proposed transactions have taken place will help HMRC understand the nature and purposes of the transaction. The diagram should also help illustrate continuity of ownership in the underlying business.
This is the most important part of the letter and must explain why the proposed transaction is taking place by setting out commercial justification/s. Please note that although it is acceptable for the parties to plan to mitigate any tax liabilities, securing these advantages cannot be the main purpose for carrying out the transactions in the first place.
There should normally be some benefit to the business of the companies and/or their shareholders from entering into the transactions, for example the acquisition of a business, enhancing shareholder value or tidying up a group structure after a share acquisition.
Clearance in advance must be requested, asking for HMRC’s confirmation that the relevant anti-avoidance rules will not be applied.
A response by email must be specifically requested, if required, as well as specifically acknowledging the risks with submitting the application through email.