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Is my client eligible for Entrepreneur Relief

Definition of 2 years trading

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Hi

Client setup a company in 17th Feb 2018 and started to trade 1st March 2018.  Ceased trading (without any breaks) on 31st January 2020 as he found a full time job (due to IR35).  He is a IT contractor and sole director/shareholder of the Limited company

To qualify for enterpreneur Relief, both of the following must apply for at least 2 years up to the date you sell your shares:

  • you’re an employee or office holder of the company (or one in the same group)
  • the company’s main activities are in trading (rather than non-trading activities like investment) - or it’s the holding company of a trading group

Two years is up 17th February 2020 but my client ceased trading 31st January 2020.  Would he be eligible for Enterpreneur Relief as I cannot find anything which says must be trading for minimum of two years ? "The company’s main activities are in trading" seems rather vague and subjective

 

 

Replies (20)

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By Tim Vane
24th Feb 2020 14:34

Can’t fault your maths, it’s definitely less than 2 years! If only he’d taken advice first. Hope it’s not been too costly for him!

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RLI
By lionofludesch
24th Feb 2020 14:59

I vote he should've kept going till next week.

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Replying to lionofludesch:
Hallerud at Easter
By DJKL
24th Feb 2020 15:48

I concur, date of incorporation is to me a red herring, I go for date trade starts.

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Replying to DJKL:
Psycho
By Wilson Philips
24th Feb 2020 16:06

Not that it matters in this case, but date of incorporation is not necessarily a red herring:

TCGA 1992 section 165A(4)

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Replying to lionofludesch:
Hallerud at Easter
By DJKL
24th Feb 2020 15:49

removed duplicate post

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By Rammstein1
24th Feb 2020 15:16

Would he have got ER anyway if he liquidated the company and was then still involved in the same trade? I know one of the examples was for an accountant who then got a job and she did get ER. I'm just thinking aloud.

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Replying to Rammstein1:
Psycho
By Wilson Philips
24th Feb 2020 16:00

Provided that the employing company is not connected with the individual, all should be fine.

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Replying to Rammstein1:
My photo
By Matrix
24th Feb 2020 16:11

It doesn’t look like phoenixing to me and also there is no mention of a liquidation.

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Psycho
By Wilson Philips
24th Feb 2020 15:33

GlobalTax wrote:

I cannot find anything which says must be trading for minimum of two years ?


How hard did you look? Try 169I(6).
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By Tax Dragon
24th Feb 2020 15:54

GlobalTax wrote:

"The company’s main activities are in trading" seems rather vague and subjective.

That's what happens when you rely on baby guidance (https://www.gov.uk/entrepreneurs-relief) for detailed tax work.

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Replying to Tax Dragon:
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By SWAccountant
25th Feb 2020 13:00

But according to Potter, trading is trading even if you're not trading. As long as you're trying to trade.

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Replying to SWAccountant:
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By The Dullard
25th Feb 2020 13:19

No. That's not the case. It was decided that trying to trade (definitely an activity) is a trading activity, rather than a non-trading activity, and holding one's assets in "limbo" investments was not sufficient an activity to be a significant non-trading activity in comparison with the trading activity of trying to trade, it's just the effect of not actually trading. I'm sure that was the conclusion.

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Replying to The Dullard:
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By Tax Dragon
25th Feb 2020 13:37

The Dullard wrote:

I'm sure that was the conclusion.

And I'm sure that you are not basing that conclusion on https://www.gov.uk/entrepreneurs-relief.

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Replying to Tax Dragon:
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By The Dullard
25th Feb 2020 13:54

You're right. I've never seen that, and it doesn't even mention the Potter case.

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Replying to The Dullard:
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By SWAccountant
25th Feb 2020 15:04

The Dullard wrote:

No. That's not the case. It was decided that trying to trade (definitely an activity) is a trading activity, rather than a non-trading activity, and holding one's assets in "limbo" investments was not sufficient an activity to be a significant non-trading activity in comparison with the trading activity of trying to trade, it's just the effect of not actually trading. I'm sure that was the conclusion.

But that doesn't roll off the tongue half as witty.

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By fawltybasil2575
25th Feb 2020 13:46

@ GlobalTax (OP).

In haste, here are two links which may assist:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg63975

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64060.

There are certainly possible grounds for a valid ER claim.

If you could kindly provide a little more information in relation to the director/shareholder's intentions in the brief periods "before and after", (and indicate the position re the company's assets from the date of the start of the later employment) this would probably enable a more detailed response to be provided.

Basil.

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Replying to fawltybasil2575:
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By Tax Dragon
25th Feb 2020 14:59

The irony is that, if there were genuinely valid grounds for an ER claim, we probably wouldn't be sitting around here talking about ER. The issue of a share disposal would not have arisen.

I love a good irony, me.

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Replying to fawltybasil2575:
Psycho
By Wilson Philips
25th Feb 2020 15:39

I’m not ruling ER out with certainty, but in the face of the OP’s words - that the company ceased to trade on 31 January - I’d be interested to hear what grounds you think might exist for a claim.

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Replying to fawltybasil2575:
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By GlobalTax
25th Feb 2020 22:29

Thank you but not sure if there is much to add. Its just a very simple IT contractor business due to IR35 implications from April that my client started employment with another company on 1st Feb 2020 and no longer requires the company. He was not looking for contract work before or after. Looks like the general consensus is that he is not eligible for ER

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By fawltybasil2575
26th Feb 2020 00:34

@ Wilson (your 15-39 post on 25/02/2020).

To answer your question, you will of course be aware that, in several areas of direct taxation, there are many occasions where the parties (ie HMRC and taxpayer) have understandable “differences of opinion” regarding “timing”. Two of such occasions relate to determining the date on which a business starts and the date on which it closes. Often, one can make legitimate cases for two or more different dates.

Sometimes, whilst a taxpayer or agent states what he regards as the “correct” opening or closing date, such date is technically incorrect. In that context, the fact that the OP has stated in good faith the dates on which he believes the business has (i) started and (ii) ceased does not automatically render such dates definitely correct in terms of the relevant legislation.

As has been touched on above, there can be many occasions where the opening date is open to interpretation, especially where there is necessary preparatory work for which one can often justify different opening dates (I recall a thread on this site a few years ago debating the breeding of livestock, and an expressed view that such business only started when there had been a sale of stock, a view with which I disagreed).

In the OP’s case, and considering the cessation date, the time which has elapsed since the cessation date stated by the OP is very short [less than a month if 1 March is the correct trading start date, and less than 10 days if the correct trading start date was 17 February 2018 (see my earlier comments re whether “preparatory” work time should be considered an inherent part of trading)].

When last posting, I was seeking to ascertain the director’s intentions. As but one of several possible scenarios, it could have been that the client, whilst having started employment very recently, had understandable doubts as to whether such employment would be to his liking, the salary being less than he considered he was worth, and thus that he had retained equipment/software/client contact details (or whatever) in hoping that contract work might appear soon on the horizon such that he would discontinue the employment and resurrect the company’s trading: in such case, very probably a valid case could be made for treating the company as still trading.

It would be interesting to know from the OP how much is “at stake” from not being entitled to ER. Such figure might tempt one to investigate valid means of extending the trading life of the company, perhaps by carrying out company trading activities whilst still retaining the outside employment.

Basil.

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