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Company share buyback

anybody any experience with HMRC on this scenario ?

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I have a client 2 directors who are both share holders owning 50% of company/

they have agreed that one will leave the business and that the other will take control.

They have agreed on £25k up front payment, and £3k per month for 18 months. ( company has Net assets of £50k Ish so cannot afford a cash upfront buyback)

directors salaries are £40k

They have proposed that the 25k be redundancy and, that the company acquires the shares for the £54k.

The redundancy needs to be wholly and exclusively for the benefit of trade to be allowable.

1) would you advise HMRC you are doing this?

2) any tips on ensuring this is compliant ?

 with regards the share purchase, reading CTA2010 s1033 onwards  and the web, HMRC approval is not required but it is "best practice" to avoid an IT suprise later.

3) would the revenue agree to it being a capital distribution if the company paid £9k every 3 months and acquired all the shares over an 18 month period. I believe that if they agreed to this, the sale is deemed to take place 100% on the first transfer , which is the Sellers tax point for the full amount and, he relinquishes all future rights of income distributions, Divis etc

4) has anybody got hmrc approval for a deal being structured in such a way and any pointers on what the revenue accepted and did not. 


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Portia profile image
By Portia Nina Levin
20th Jul 2017 11:15

1) The £25K isn't redundancy. Expect to get your @rse kicked. HMRC will most likely accept the CT deduction, but gor for PAYE/NI liabilities.
2) HMRC won't accept that the share purchase qualifies for capital treatment

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By floggy
20th Jul 2017 11:50

Thanks portia
can you expand as to why ?

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Portia profile image
By Portia Nina Levin
20th Jul 2017 12:05

HMRC won't accept that there's a valid buyback unless there is a payment in cash for the shares, on completion. A phased completion may be possible, but you should get advice.

The £25K just isn't redundancy. There is case law on this point, but I can't recall the name.

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