07718128235
omar@aswatax.co.uk
07718128235
omar@aswatax.co.uk
April 9, 2024

ADVANCE CLEARANCE, REPORTING AND ISSUES TO CONSIDER AFTER THE BUYBACK OF SHARES -COMPANY BUYBACK OF OWN SHARES 5/5

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Advance clearance

In situations where capital treatment applies to the repurchase of a company’s own shares, it is possible to obtain advance clearance from HMRC.

CTA 2010, s 1044

Regardless of whether advance clearance is sought, taxpayers seeking to treat amounts received from selling shares back to the company as capital must report details to HMRC within 60 days of the share buyback.

CTA 2010, s 1046

An application for clearance must:

• be in writing

• include full details of the proposed share repurchase.

Usually the application should be submitted to HMRC’s Clearance and Counteraction Team. The clearance application can be submitted by post or email.

If HMRC refuses to give clearance, the taxpayer has no right of appeal.

Reporting requirements

Within 60 days of a company making a payment that it considers should have capital treatment applied, it must make a return to HMRC. The return must include details of the payment and the reason(s) why it is considered capital treatment should apply.

This reporting obligation applies regardless of whether clearance has been sought. If clearance was obtained then a short letter attaching the clearance application and clearance letter from HMRC should suffice.

There may be penalties for failure to meet these reporting obligations.

Issues to consider AFTER the buyback of shares by a company

There are several issues that a company will need to consider following a buyback, including:

• reporting the transaction to HMRC ― regardless of whether advance HMRC clearance is sought, taxpayers seeking to treat amounts received from selling shares back to the company as capital must report details to HMRC within 60 days of the share buyback.

• stamp taxes ― stamp duty will be payable at 0.5% of the consideration paid by the company to the shareholder unless the purchase price is £1,000 or less. If stamp duty is payable, form SH03, which must be used to notify Companies House of the buyback, should be sent to HMRC’s Stamp Office for stamping with the amount being paid by bank transfer, prior to it being sent to Companies House. If no stamp duty is payable, the form can be sent straight to Companies House.

• Companies House filings ― form SH03 must be used to notify Companies House of the purchase of own shares. Where shares are to be immediately cancelled, form SH06 must also be filed. Both forms must be sent to Companies House within 28 days of the date on which the shares certificates of the relevant shareholder are returned to the company. It is unclear whether a stock transfer form is also needed on a share buyback, in addition to the share buyback contract that is entered into. In practice it seems the general view is that one is not needed, but there will be no harm done if one is completed as it will provide additional documentary evidence should it ever be required.

• other administrative matters ― the registrar of members held by the company will need to be updated for the buyback and any share certificates relating to the shares that are bought back will need to be cancelled. In addition, a copy of any share buyback contract entered into by a company must be kept available for inspection for a period of 10 years from the date of the buyback. Details of the share buyback should also be disclosed in the company’s accounts (CA 2006, ss 694, 702(1), (2), (7)).

That’s all when it comes to share buybacks. A lot of time, research and implementation goes into these articles and coupled with our experience puts us in a strong position to assist.

As always, if you have any specific queries, feel free to contact me.

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