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Business Asset Disposal Relief

Eligibility for BADR

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Hello everybody

I would be grateful for any opinions. I have two separate clients, both of which are sole director/shareholder of their respective company. They want to stop trading, close the company down and take out the funds in their bank accounts and deposits. Looking at the BADR (entrepreneurial relief) rules they both seem to be eligible except for the fact that the companies are both very cash rich and I think would fall foul of the "20%" rule. The profile is as follows: Company A turnover approx 20k. Cash built up in deposits in bank 80k. Only annual dividends taken from company. His other income (not from company but mainly other pensions) is approx. 90k. Company B turnover approx  100k. Salary taken from company 28k. No other income. Cash built up in deposits in bank £250k. My questions is the obvious one (!) do you guys think they can claim BADR?! My opinion is "No" but looking at case law and other answers on this forum it would appear a bit grey? Appreciate any help. Cheers

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By David Ex
10th Nov 2021 11:17

Samsung wrote:

… looking at case law and other answers on this forum it would appear a bit grey?

Can you post some links so we can have a look?

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Chris Maslin
By Chris Maslin
10th Nov 2021 11:43

I think "yes".

Whilst I appreciate the cash balances may well be well beyond what might be considered reasonable working capital requirements, my understanding is there's 4 "20% tests" for investment vs trading, being:
>20% assets are investment assets
>20% of income from investments
>20% of expenditure relates to investments
>20% of director time spent dealing with investments

I'd imagine for the company's you're talking about they may well "fail" the first one, but most likely they'll pass the other 3 with flying colours. With interest rates as they are, assuming the company's assets weren't actively invested (eg in BTL property or perhaps some kind of shares/similar) but just in a current/savings account, there will highly unlikely be any non trivial income from investments, no expenditure related to investments, and negligible director time spent on investment related activities.

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By The Dullard
10th Nov 2021 12:02

The company needs to be carrying on non-trading activities to a substantial extent for BADR to not be available. Accumulating cash isn't an activity. It's the complete opposite of an activity. End of.

Perhaps it gets moved around from time to time. Perhaps it passively accumulates a little interest. If it is predominantly trading, those things are almost certainly not substantial activities.

As the judge put it in Potter, "when one stands back and looks at the activities of the company as a whole and asks 'what is this company actually doing?' the answer is that the activities are entirely trading activities." Perhaps the word predominantly needs to replace entirely in the quote.

I'd claim BADR.

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By Paul Crowley
10th Nov 2021 12:14

They will need to go through MVL
But a bargain given the benefit

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Replying to Paul Crowley:
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By Samsung
10th Nov 2021 12:34

Do you think an MVL would "secure" BADR in the circumstances?! :)

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Replying to Samsung:
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By Samsung
10th Nov 2021 12:57

....and do you need a liquidator to get an MVL done?

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Replying to Samsung:
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By Paul Crowley
10th Nov 2021 13:35

Yes

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By Samsung
10th Nov 2021 12:23

Thank you all for your helpful comments. Regarding an MVL, I have not been involved in these myself as in the past just used ESC16 (if I am not mistaken!) Apart from the eligibility or otherwise of BADR, would a striking off be possible in these cases by simply using Companies House DS01 and still claim BADR assuming the client decides to go ahead despite all.

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Replying to Samsung:
paddle steamer
By DJKL
10th Nov 2021 12:26
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Replying to DJKL:
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By Samsung
10th Nov 2021 12:33

Yes, it makes sense now. I was confused about the 25k limit. Thanks for that.

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