Entrepreneurs Relief & Trading Companies

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Entrepreneurs Relief & Trading Companies – An Introduction

As stated above, in order to obtain Entrepreneurs Relief,  on the sale of shares / securities, then the company must be a trading company (or be the holding company of a trading group.)

A trading company is one which does not, in its activities, include, to a substantial extent, activities other than trading activities”.

Trading activities – what are they?

An activity is carried on in the course of, or for the purposes of, a trade if it is carried on in the process of conducting or preparing to carry on the trade.

Of course, this is circular.

Substantial Extent

This is an important term. As a business which does not, to a substantial extent, include non-trade activities, can qualify for Entrepreneurs Relief.

There is no legislative definition.  However, HMRC considers ‘substantial’ to be in excess of 20%.

As such, if 80% of the business is trading then you are home and hosed.

To what criteria do we apply the ‘substantial’ test?

This is tested against four criteria which are:

  • The turnover of the business;
  • The balance sheet of the business;
  • The profit of the business; and
  • Management time

The test will consider these factors ‘in the round’.

A Cash Problem?

The presence of ‘surplus’ cash is something that accountants can flag as an issue.

Thins is not necessarily a problem where one can identify reasons for holding this cash. However, we would recommend that proper notes were kept where this was discussed.

If you, or your clients, are considering disposing of any business assets then we would recommend obtaining tax advice in advance of such a transaction as relief might be secured with some pre-sale planning.

For our full and detailed sign post document on Entrepreneurs Relief then please visit here.

If you have any queries regarding our article on ‘what is Entrepreneurs Relief?’ or Entrepreneurs Relief in general then please do get in touch.

 

 

 

Entrepreneurs Relief – trading company was last updated on 16 November 2019

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