Taxpayers are being urged to check their incorporation relief claims are correct in their 2017-2018 self-assessment tax returns.

HMRC has been sending letters to taxpayers who declared a disposal of their property interests in their returns for that tax year but stated no capital gains tax (CGT) was due because incorporation relief was applied.

In the ‘one to many’ letter, the tax body says it believes too much incorporation relief may have been applied, which could mean the taxpayer hasn’t paid enough CGT. This could happen if the taxpayer incorrectly calculated the amount of relief available to them.

What to do if you receive an HMRC letter about incorporation relief

If you receive a letter, you should check you’ve correctly calculated the incorporation relief available to you. You may need to seek advice from a tax adviser if you’re unsure.

You should check that:

  • The capital gain arising on incorporation wasn’t greater than the value of the property business that was transferred.
  • When calculating the incorporation relief available to you, that the amount of any gain held over didn’t exceed the value of any shares received.
  • Your calculation of the incorporation relief available to you didn’t include any other type of consideration apart from shares received in exchange for the property business. For example, a sum credited to director’s loan account.

You must respond to HMRC – using a specific email address given in the letter – within 30 days of the date of the letter. In your response, you must either:

  • Disclose an error in your tax return
  • Or, confirm your return is correct (and follow further instructions in the HMRC letter)

If HMRC doesn’t hear from you before the deadline, it may make a discovery assessment.

If you owe tax, it will charge interest on any tax that’s paid late. And if it finds your tax return is wrong, or that you haven’t told the tax body you need to pay extra tax, it may charge
penalties.

Have you received a ‘one to many’ letter?

For professional tax advice about HMRC letters, contact the Churchill Taxation team on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation