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Negligible Value Claims

Claim a tax refund for your failed company

Has your limited company hit hard times?

In the current economic climate many companies are failing with the owner/directors losing the money invested in the shares and loans made to the company. When the shares in the company become worthless it is possible, in certain circumstances to claim a tax refund.

Example
You subscribed £10,000 in 1995 for ordinary shares in a company making furniture. The business failed in August 2008, the shares becoming worthless. You made a negligible value claim in respect of the shares in September 2008 and claimed an allowable capital loss of £10,000 for 2008–09 from the deemed disposal of shares. If all of the conditions for relief are met, you may claim to set the allowable capital loss on the shares either against chargeable gains in the normal way, or against your income for 2008–09 or against your income for 2007–08.

Make a negligible value claim

If you are in this situation, you can make a claim to offset the loss against your other income. If you are a higher rate tax payer or have been in recent years, you may receive a tax refund of up to 40% of the loss.

A negligible value claim enables you to set a capital loss against your income (or against other capital gains if you have them) for earlier years and claim a refund of tax already paid.

How you calculate your capital loss

If you are making your tax refund claim due to your shares becoming worthless (i.e. of negligible value) you can only claim if, when you disposed of the shares (or on the date you are claiming they became worthless);

• The shares were ordinary shares
• You subscribed for the shares (you cannot make this claim if you purchased the shares from someone else)
• The company was a trading company or an eligible trading company throughout the six years to the date of disposal, or
• The company was a trading company or an eligible trading company throughout it’s active existence if that is less than six years

The terms “trading company” and “eligible trading company” are explained in HM Revenue & Customs Help Sheet HS286

Reclaim higher rate tax you have already paid

If you were a higher rate tax payer in any of the two previous tax years, you can make a negligible value claim which treats the loss as if it was made in either of those two years.

For example, if your asset became worthless in February 2009, which was in the 2008/2009 tax year, you can make a negligible value claim as if it became worthless in either the 2006/07, 2007/08 or 2008/09 tax years. The claim can be made in your 2008/2009 tax return and must be made by 31 January 2010.

How to claim your tax refund

Firstly you have to calculate the amount of loss you wish to claim. You can do this yourself, or use a refund specialist such as Sealy Shaw Accountants Ltd. We can prepare and make your claim for you, or, if you prefer, we can check over your claim before you submit it to HM Revenue & Customs.

How long does a negligible value claim take?

If you are making your negligible value claim in writing, depending upon the complexity of your claim and the time of year the claim is made, you may receive your tax refund in 6 to 8 weeks. If you use Sealy Shaw Accountants to submit your claim, we will liaise with HM Revenue & Customs on your behalf and keep you informed of the progress of your claim.

Call us on 01332 613610 or email enquiries@sealyshaw.co.uk for a free quote or for further information.