Unusual entrepreneurs' relief case is a timely reminder
A taxpayer has won an unusual appeal against HM Revenue and Customs' decision to deny her Entrepreneurs' Relief on a sale of shares, writes Andrew Jupp, of chartered accountancy firm Davies Mayers Barnett.
One of the conditions for the relief is that the seller must have been an employee or officer of the company for a period of at least one year before the sale.
In this case, the seller was the wife of a director and had been employed by the company as his assistant. However, the company it was being sold to did not permit the employment of spouses. To allow the sale to proceed the wife received her P45 and was removed from the company's payroll. As a result, at the time of the sale she was no longer officially an employee. However, she did continue to carry out her administrative tasks and, in effect, her salary was paid to her husband.
At the tribunal, the taxpayer was able to successfully argue that she was still an employee for the purposes of the relief regardless of whether she was on the payroll or not.
This is clearly an unusual set of circumstances which will be of limited direct application to other taxpayers who are seeking to claim entrepreneurs' relief on a disposal of shares.
However, it does serve as a timely reminder that anyone contemplating a significant share sale in the future should review their compliance with the rules regularly. Failure to do this could result in an opportunity to claim this valuable relief being lost.