What to include in Statutory Clearance applications – HMRC checklist

12 Oct 2022

HMRC have shared with us a checklist for use when making statutory clearance applications. The intention is for the checklist to be published on GOV.UK and a link to the GOV.UK page will be provided here in due course.

How you can help HMRC deal with your statutory clearance application:

Email

Please communicate with the Statutory Clearance Team by email wherever possible.

Applications can be made to [email protected] but please note that attachments larger than 3 Mb may not reach the mailbox. If you have larger attachments, please send them across separate emails with the subject line as “Company Name Limited 1 of 4”, etc.

If application is made by email, do not also post a hard copy.

Email Authority

We take the security of personal information very seriously. Email is insecure, so it’s very important that you understand the risks before you email us and we will not respond by email unless you tell us you/your client accept(s) the risks of doing so. 

About the risks 

The main risks associated with using email that concern HMRC are:  

  • confidentiality and privacy – there’s a risk that emails sent over the internet may be intercepted 
  • confirming your identity – it’s crucial that we only communicate with established contacts at their correct email addresses 
  • there’s no guarantee that an email received over an insecure network, like the internet, hasn’t been altered during transit 
  • attachments could contain a virus or malicious code 

We would prefer to respond to your application by email and as the authorised agent or representative if you would like to use email, we’ll need you to confirm in writing by email or post:

  • that your client understands and accept the risks of using email 
  • that your client is content for financial information to be sent by email 
  • that attachments can be used 

If you are applying by email and you are happy for us to correspond by email, please send an email to [email protected] providing the following assurances: 

“I confirm our client understands and accepts the risks associated with email and they are happy for you to send information concerning their business or personal details to us by email. I also confirm the email address/es that I want you to use to contact us is/are…” (please enter email address/es)

If you are applying by post please include these assurances at the top of your letter.

Clearance requested

Statutory clearance applications made under any legislation should include the following:

Shareholders

  • Full details of all shareholders, including the number, percentage and classes of shares each hold before and after the transactions
  • Where a Trust is a shareholder, provide details of the settlor, trustees and beneficiaries and the type/nature of the trust
  • Details of the connections/associations between the shareholders including Trusts (settlors, trustees, beneficiaries) and corporate shareholders, or state that there are none
  • Where there are corporate shareholders, details of the shareholders of those companies and the association/connection details
  • If the transactions are to bring in an investor, give details of who the investor is and if they are connected/associated to any of the other shareholders

Shares

  • Provide details of the full rights of all classes of share or other instruments in issue, including those of shareholders who may not be party to the transactions

The transactions

  • A step-by-step description of the transactions to be carried out and, where possible, include diagrams to show the current and final positions as a minimum
  • Include relevant documents, e.g. latest accounts, details of how the value of the shares has been reached
  • Provide a clear explanation of how figures used in the application have been arrived at. Where figures are estimates it is acceptable to state how the estimates were reached
  • Provide details of both the value and form of consideration to be given to every shareholder involved in the transactions at each step (e.g. ordinary shares, preference shares, redeemable shares, loan notes, cash, assets, etc.)

Transactions in Securities (s701 ITA07 / s748 CTA10)

  • Where the application concerns a family succession provide details of roles / experience of successors in the business and any change of roles because of the transactions
  • When a shareholder is reducing their shareholding as part of a succession event (e.g. family succession or management buy-out) provide details of the classes and numbers of shares they will retain and the full rights of each of those classes of shares. It is also useful to know when the shareholder is expected to fully exit.
  • Where shareholders are to receive consideration which is greater than the market value of the shares they are to give up, explain why this consideration is greater, and provide details of all other transactions considered and why they were discarded for the transaction presented. (The relevant amount given up would be the difference between the direct and indirect holdings before and after, not just the direct holding.)
  • Where shareholders are to receive cash/securities as consideration and their indirect interest in the company will increase, provide a full explanation as to why this is and rather than a dividend payment.
  • Clearly state if shares or loan notes are redeemable or non-redeemable
  • Where redeemable instruments are issued, provide details of the terms of redemption
  • Where a company is not obviously ‘close’, provide an explanation as to why the company is close to show that clearance would be relevant
  • If the current distributable reserves position is known to differ significantly from that shown in the accounts, provide details
  • Provide the full reasons for carrying out a transaction, for example, if the company is overcapitalised, state the impact of this, how it came about and why a change is required rather than simply stating that it is overcapitalised.

Capital Gains (ss138/139(5) TCGA92)

  • Provide details of the commercial reasons for the transactions. Please note, simply stating that the transactions are for “commercial reasons” is insufficient.
  • When stating a commercial reason ensure it is a reason for the transaction and not a statement of what the transactions will achieve (e.g. “to create a group” is what is achieved but does not provide information as to why the transaction is being carried out)
  • Where the reason for the transactions is a disagreement between the shareholders provide details of the impact of the disagreement and how the transactions proposed will resolve those difficulties.
  • If a sale of the business or any part of the business is planned provide details of how the sale will be effected (e.g. If by sale of shares, provide details of the shares which will be disposed of)
  • For applications under s138, state if the transactions are to fall within s135 (a share exchange) or s136 (a reconstruction where shares in the target will be cancelled and new shares issued)

 Statutory Demergers (s1091 CTA10)

  • Clearly set out how the relevant conditions of ss 1081 and 1082/1083 are met.
  • Prior to submitting the application, check that there is a trade and a trade benefit. It may be that clearance under s1091 is not relevant to the proposed transactions.

Company Purchase of Own Shares (s1044 CTA10)

  • It is helpful for applicants to use the Company Purchase of Own Shares Help Sheet which is available on GOV.UK at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/796707/seeking_clearance.pdf
  • Ensure the following information is included in the application:
  • the trade benefit of the transactions is stated
  • details of the shareholders/shareholdings pre and post transaction are provided
  • the length of time the shares being sold have been held for
  • the residency status of the shareholder(s) making the disposal(s)
  • confirmation that the exiting shareholder(s) will resign any role in the company as part of the transactions
  • that payment will be a single cash payment or, if payment is to be made in tranches, provide a breakdown of the amounts and timings of the tranche payments.