Obtaining tax clearances from HMRC before undertaking significant transactions can protect your business against future tax liabilities and enquiries. Furthermore, they can cover a wide range of different scenarios. In this post we discuss why prioritising these is a sensible business move.
Why bother obtaining a tax clearance?
Obtaining tax clearances offers confirmation from HMRC about the tax treatment of specific transactions. What's more, they act as a preventative measure against potential tax enquiries after a transaction completes.
In fact potential buyers of a business usually insist on seeing a tax clearance. This is because it helps streamline the due diligence process.
What are the benefits?
Applying to HMRC for a tax clearance provides confirmation that an expected tax treatment will apply to the subject matter of the transaction.
Broadly speaking the UK tax system is such that a taxpayer is expected to 'self assess' to determine their tax liabilities. Therefore obtaining from HMRC a tax clearance provides you with welcome certainty.
As a result, they can provide protection against unforeseen tax implications from business reorganisations or transactions.
How they work
You apply to HMRC for either statutory or non-statutory clearances depending on the transaction type.
A statutory clearance covers specific transactions detailed in tax legislation. Whereas a non-statutory clearance provides guidance on transactions not covered by statute.
Planning and applying for a tax clearance in advance can serve as an excellent checkpoint for your transaction’s compliance. What's more, it helps ensure all transaction steps align with HMRC’s requirements. reducing the risk of future complications.
However a tax clearance will be voided if the transaction is not undertaken in the way that is explained in the application. For this reason, it's best to draft each clearance according to intentions rather than using a template
What Transactions Require Tax Clearances?
Typically they will cover the following scenarios:
Obtaining a clearance from HMRC can be critical when changes in business structure or ownership occur. Furthermore, without clearance, restructuring might necessitate revisiting past transactions, potentially uncovering tax liabilities
Summary
Invariably obtaining a tax clearance from HMRC will result in additional costs for a business. However this must be weighed up against the risks involved in failing to take such action.
Failing to secure a clearance when available might raise suspicion from HMRC, possibly triggering an in-depth investigation. Plus such scrutiny could lead to discovery assessments, This will ultimately increase both the stress and costs for your business.
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