Cookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.
HMRC warn of BAD relief claims
Newsletter issue – June 2023
Entrepreneurs‘ Relief (ER) was renamed Business Asset Disposal (BAD) relief on 11 March 2020, and at the same time the value of gains which can be covered by this relief was reduced from £10m to £1m on 11 March 2020. Where gains qualify for either ER or BAD relief the capital gains tax (CGT) is payed at 10% instead of at the full rate of 20%
This cap of £1 million of gains is a lifetime cap for the taxpayer not an annual cap. What‘s more the BAD relief is merely a rebranding of Entrepreneurs‘ Relief and any claims made under ER reduce the available cap for BAD relief.
If you had already made ER claims covering £1 million or more of gains by 10 March 2020, you can‘t make any further BAD relief claims, but older ER claims are not disturbed. However, if you hadn‘t exceeded £1 million of gains with ER claims, and you make a new BAD relief claim which takes the total of gains covered by either ER or BAD relief to over £1 million, the excess gains over £1m are not eligible for BAD relief.
This change in name for the relief coupled with the new rules of the lifetime cap has confused many people, leading to some incorrect BAD relief claims submitted on tax returns for 2020/21 and 2021/22.
HMRC has been writing to taxpayers who may have made incorrect claims for Business Asset Disposal (BAD) relief because their lifetime cap has apparently been exceeded.
Letter 1 is sent to taxpayers who had already exceeded the £1 million lifetime cap before their 2021/22 tax return was submitted. HMRC asks the taxpayer to amend their 2021/22 tax return to remove the BAD relief claim so the gains are taxed at the normal rate, which will normally be 20%.
Letter 2 is sent to taxpayers whose 2021/22 BAD relief claim takes them over the £1m cap. In such cases HMRC asks the taxpayer to amend their BAD relief claim to reduce the amount of gains included.
In both situations the taxpayer will need to pay additional CGT plus interest. HMRC is also likely to charge a penalty for an inaccurate tax return on the basis that the correction is a prompted disclosure. This penalty will range from 15% to 30% of the underpaid tax for a careless mistake, or 35% to 70% for a deliberate error.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
Please complete our form
to request a callback
Competitive fixed quotes
for agreed services
Increase your profit and
reduce tax liabilities
Expert advice for your
business size
