Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, can be a valuable benefit for business owners. Recently, HMRC has started sending out ‘One to Many’ nudge letters to those they suspect may have claimed beyond the £1 million lifetime limit. Are you one of them? Let’s explore what this means and how you should respond.

What Is Business Asset Disposal Relief (BADR)?

BADR reduces the capital gains tax payable when you sell all or part of your business. Qualifying gains are taxed at a rate of just 10%, up to a lifetime allowance of £1 million.

Want to know if you qualify? You must meet specific conditions for two years up to the sale date of your business or shares in your limited company.

The Recent Letters from HMRC

HMRC’s letters target taxpayers who claimed BADR relief in their 2021/22 Self-Assessment returns and may have exceeded the lifetime limit.

Here’s what you should know:

  • If you’ve received a letter and claimed BADR wrongly, you had 30 days to amend your tax return. More tax may now be due, with capital gains tax at 20% instead of 10%.
  • If you believe your claim is within the limit, contact HMRC to clarify your position.
  • Don’t ignore the nudge letter. HMRC might initiate a compliance check, so it’s crucial to address this promptly.
Why Record-Keeping Matters

Have you claimed BADR? It’s vital to keep a record of all claims and prudently check future claims against the remaining limit. Monitoring your lifetime claims ensures that you stay within the allowable limit.

The recent HMRC letters serve as a reminder to all business owners about the importance of understanding and complying with tax regulations. If you find yourself in this situation, don’t panic, but do act quickly and seek professional guidance if needed.

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Any questions?

If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant