Negligible Value Claims
(This is an updated version of an article that was first published in August 2011)
A Negligible Value claim is an excellent tax-planning tool when liquidating a company that has made losses. For many businesses the last few years have been difficult, if not disastrous, so it’s time to think tax-planning and tax refunds and focus for a moment on negligible value claims. If your business has fallen on hard times, or if you are thinking of folding it or retiring, what do you need to do, and how can DNS help you if shares in your company and any other assets have become worthless?
What is a Negligible Value claim?
A negligible value claim is a declaration to HMRC to say that the shares of the company,, have become virtually worthless. This allows the shares to be treated as ‘disposed of’ at negligible value when the claim is made.
Why make a Negligible Value Claim?
If you own shares that have ‘negligible value’ (i.e. are no longer worth anything), you can make a negligible value claim. HMRC will treat this as if you had disposed of the asset, and immediately bought it back for the value of the asset at the time the claim is made. The ‘disposal’ of shares in this way will result in a loss which can be set off against income.
Who can make a negligible value claim?
Shareholder directors whose company has been trading actively for a minimum of 12 months can make a negligible value claim. The director can claim against his or her director’s wages for earlier tax years, but a claim must be made within two years of the trading year in which the loss occurred. Depending on tax paid in the earlier year(s), the tax refund can be up to 40% of the loss in the value of their shares.
Is there a time limit?
There is no time limit for making a negligible value claim as such, but you must still own the shares when you make the claim. If you want to, you can claim that ‘disposal’ took place on another date during the two tax years before a claim is made; i.e. you could say that it occurred in the tax year 2010–11, provided the shares were worthless then. The resulting loss is then treated as arising in the earlier tax year.
What shall I do now?
Think about it: losses in the value of shares in private trading companies can be converted to income losses even when they have not been sold. Income losses are generally more valuable than capital losses, and so this relief could be very valuable for the shareholders of companies that have gone into administration or are struggling. But – and this is a big but –success in this needs careful planning and stringent management, which DNS are very well qualified to help you with.
If you would like to find out more about negligible value claims, please call your account manager today. You will need to file it on your next tax return (31 January 2013) so don’t delay.