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How does HMRC consider assets in a dormant NVC?

If a NVC is made for a dormant company, will HMRC reject it if that company has positive net assets?

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I have shares in an unquoted trading company that became dormant last year. I invested in the startup of the company in 2014 as one of two Directors building the company, however it subsequently stopped trading completely and no longer develops its product. It has no employees anymore, does not invest in the product, etc.

I intend to submit a negligible value claim (NVC) under s24(2) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992 s 24(2)), which should allow me to realise the loss and offset this against my CGT/Income tax for that year. 

I have two questions:

  • Do I need to prove that the shares were not of negligible value at the point of the formation of the company? David Harper v CRC [2009] UKFTT 382, appears to suggest that sometime HMRC will argue this case, or is there now a more commonly accepted practice of investing in new startups?
  • The company has no revenue or employees, and has a retained loss of c.£20k with no prospect of a dividend for shareholders. However, because it was reasonably capitalised it has a small positive net asset position (about £1k of DLA debtors and £300 of cash). When HMRC asses a NVC, will they look at the potential commercial sale value of the shares (for which there is arguably no buyer without a product or team), or will they look at the positive net asset position and say it is not negligible, because arithematically there is cash in the business?

Thanks

 

 

Replies (7)

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By johngroganjga
23rd May 2019 23:25

The company is clearly not worthless if it has net assets. So your question should be how do HMRC define “negligible” for this purpose.

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Replying to johngroganjga:
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By ElisaM
24th May 2019 08:55

Hi John, Thanks for taking the time to reply. My question doesn't ask if if the company is worthless, it asks about the basis of valuation in a negligible value claim, i.e. exactly how you say.

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By Tax Dragon
24th May 2019 06:28

This might be a statement of the bleeding obvious but.... we're not HMRC. To find out what HMRC will do, make the claim. You won't get the relief you are talking about if you don't.

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Replying to Tax Dragon:
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By ElisaM
24th May 2019 08:57

Thanks for replying. At risk of also being obvious, the purpose of this forum is a Q&A for users and to seek advice from the community. I wish to seek advice from others' experience and knowledge, so that is why I am posting a question.

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Replying to ElisaM:
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By Tax Dragon
24th May 2019 09:07

"Make the claim" is advice. "Negligible" is not defined. If you consider the value negligible, make the claim.

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Replying to ElisaM:
Stepurhan
By stepurhan
24th May 2019 09:08

To which Tax Dragon gave an answer.

You might not like the answer, but it is still an answer.

Personally I am with johngroganjga that shares in a company that has positive net assets are unlikely to be considered of negligible value.

At the risk of further triggering your sense of entitlement to insist people on a FREE forum only answer the precise question you've asked, why can't you wind the company up. Would that not also achieve your aim?

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By Tax Dragon
24th May 2019 09:15

stepurhan wrote:

Personally I am with johngroganjga that shares in a company that has positive net assets are unlikely to be considered of negligible value.

That's not quite what John said (as I read it). Credit to Vile for this line of thought, but "negligible" must have a context. That context would presumably include the cost of the shares and the history of the investment. As we are not given that information, the assessment of what is "negligible" is entirely one for the OP to agree with HMRC. Which is what I have said.

I agree that winding up the company would provide clarity - but the loss would be in the year that happened, while the OP apparently wants it last year.

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