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What is Best Practice?
To quote the Law Society again, “Very few commercial transactions appear to be handled in line with best practice”. Here are our guidelines to the whole process of ensuring that capital Allowances are identified correctly to the benefit of both parties. This process needs careful attention to the detail required and every step needs to be carefully monitored, recorded and evaluated by a professional Capital Allowance advisor who understands all the tax implications that will affect the actual figures needed to complete the transaction successfully.
Acting on behalf of The Seller
1. As soon as possible in the sales process, discuss with the seller, the Accountant and the Capital Allowance specialist whether all available allowances have been pooled correctly and are available as proof.
2. Agree with all parties the final allocation of the allowances – those that can be retained in full or part by the seller, or entirely transferred to the new owner. These will depend on the tax situation of the owner.
3. Achieve written confirmation of the final figure, with the Capital Allowance survey report.
4. Complete Section 32 (all 10 questions) of the CPSE.1 form.
5. Complete a section 198/197 election notice to reflect the agreed position and ensure it is correctly written in the sales contract.
NOTE: It is very important to emphasise the need to ensure that identifying the Capital Allowance is started as soon as possible. The process of assessing the total value and in completing the claim can be subject to delays, either from Accountants, HMRC and sometimes the client. The delays could hold up the completion date.
Acting on behalf of The Buyer
• Identify the need for the Capital Allowances as early as possible in the transaction. You must allow sufficient time for discussion between the seller, their Accountant and their Capital Allowance specialist.
Not giving enough time is a major reason why completion contracts are held up.
• Ensure you have a full response to all questions in section 32 of the CPSE.1.
• When you have all the answers, check they are correct with your Capital Allowance advisor.
• If the seller HAS claimed full Capital Allowances;
- Ask for all details, of which fixtures have been claimed, the amount in the pool, and the residual value of the claim. It is important to receive these figures.
- Agree the level of Capital Allowances that will be passed to the purchaser and on what basis to be agreed.
• If the seller has NOT CLAIMED Capital Allowances;
- Confirm that the seller is eligible to claim. If the seller is a non-tax paying organisation (such as a pension fund or a charity) then the new law may not apply.
• The purchaser will want to receive the benefits of the unclaimed Capital Allowance disposed to them by the seller, so the Capital Allowance provision must be entered into the contract.
NOTE: If the seller’s solicitor has suggested that the assets are acquired for a £1 (one pound) or does not give you any information, you should complete an S198 election notice that you disagree with the figures and will elect to apply to the HMRC Tribunal to claim the Capital Allowances within 2 years. Failure to complete this correctly has given rise to a number of litigation claims because of the consequential loss of tax savings.
We are here to help Solicitors help their clients avoid either losing tax or preventing litigation claims. We already have a number of clients calling us for help in making claims against their Solicitors and Accountants. We can help your staff every step of the way to ensure a WIN/WIN for all parties.
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