Point of declaring loss

PotentialEnergy

Hi

I made an investment in a business and got SITR relief but earlier last year [before April] it went into Administration.

Do I have to treat it as an 18/19 tax year loss or can I defer declaration whilst administration/winding up formally continues? The directors said shareholders were most unlikely to get anything back.

So, it is effectively worthless but I want to leave it to the 19/20 or even 20/21 tax year so I have room tax-planning wise to offset v my income tax rather than treating as a Capital Loss.

Alas, but correct me if I'm wrong, you can't split treatment of an "investment that received EIS/SITR/SEIS relief but went into administration" loss as partially offset against income tax and the remainder as a capital loss.

Many thanks

PE

jimmo

As you have had no replies....
SITR is something new to me ( had to google it) but see that it is contained in HMRC's Venture Capital Schemes manual.
https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm60300

It is a common principle in Capital Gains Tax that where a gain is exempt from CGT then any corresponding loss is also exempt (or not allowable).
That is certainly the case for VCTs.
https://www.gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm52020

I cannot find anything to suggest that SITRs are any different, unless of course, if anybody with more current knowledge than mine knows anything different.

Just in case however, if you can establish that such losses are allowable you are free to make a negligible value claim at any time before the company is wound up.
Once the company is would up that will set your disposal date in stone.
https://www.gov.uk/government/publications/share-reorganisations-company-takeovers-and-capital-gains-tax-hs285-self-assessment-helpsheet

PotentialEnergy

You are right on trust vehicles like VCTs. You get a 30% rebate(never 50 afaik) but tax free dividends and in the event of loss no loss claim.

Where an overarching collective fund is used to raise money and allocate it businesses but individuals claim their entitlement on individual investments, things are different as is the case where through for example crowd-funding, you directly invest in a company.

https://info.sapphirecapitalpartners.co.uk/blog/breaking-seis/eis-rules-what-are-the-repercussions

If investors stood to lose 100% of their capital, the government would find most would steer clear of direct investing in unlisted smaller companies and smaller businesses really, really struggle in fundraising. Are the city funds going to be interested in 100K start-ups these days? Crowdfunding Investment would likely die a rapid death. The 30% rebate, subject to the business meeting certain criteria, and then being able to offset remaining loss against Income or Capital are ways to sweeten the bitter pill of loss.

As I understand, one might put £500 in a EIS eligible crowdfund raise by 20X. 20X gets off the ground and EIS3 certificates come through many months on and you can claim £150 from the taxman. A couple of years on, 20X hits some strong headwinds and goes into admin and is essentially declared as Negligible Value eventually being wound up. You confirm that at any point between being declared NV and wound up you can declare to the taxman.

Thankyou for confirming that as I can move things around accordingly for the last few years subject to winding up/dissolution.

Will look into the Gains situations on SEEDling investments et al when some reach the market/are taken over. A brand of Ice Cream made 6.2* original investors for an investment made 3-4 years beforehand.

PotentialEnergy

Further to the above, the Negligible Value Return allowing Offsetting loss V Income has to be claimed before a company is dissolved. Once it is dissolved and there are no shareholders per se, the only option is a capital loss.
I'm still to suss completing the paperwork though as I find CG108 far from helpful.

jimmo

I don't follow what you said about overarching collective funds and I can't see the relevance of the link you gave but what is important is that you believe you can claim for your loss.

However you have definitely got the bit about the company being dissolved wrong.

A negligible value claim gives you a bit of flexibility regarding the date of the loss but the company being dissolved gives a set date for the loss.

Either way a loss is a loss and, provided they are qualifying shares, you have the same opportunity to set the loss against income.

HMRC Helpsheet 286 deals with both negligible value claims and relief for losses to be set against income but they really are 2 separate subjects.

https://www.gov.uk/government/publications/negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-hs286-self-assessment-he/hs286-negligible-value-claims-and-income-tax-losses-on-disposals-of-shares-you-have-subscribed-for-in-qualifying-trading-companies-2019

PotentialEnergy

Thanks Jimmo and I must try to read in closer detail re the offsetting against income especially once dissolved. It was probably some answer from HMRC that was opaque. 
 
 In terms of overarching investments, there are companies that do fund-raising with the objective being that they will use your investment money to fund an array of companies. If you put £10000 in the Collective EIS or SEIS fund that raises £3mn you could end up with holdings in 15-20 businesses ranging from say £300 to £950. Sometimes a SEIS fund may fail to ensure every investment gets 100% SEIS relief and you have 2 lots of claiming to do for some money put into one business e.g. 70% is SEIS eligible and 30% EIS. The Collective Fund management choose where to invest over several months. Each company they invest some of your money meet the criteria for EIS/SEIS claims in variable lengths of time. This means you have to make individual EIS/SEIS claims for each of the 15-20 businesses. Hope that clarifies the over-arching fund leading to many more separate business investments. I can give you examples if you want from Crowdfunding platforms or businesses doing it.

PotentialEnergy

If you follow this URL Jimmo, it shows a similar misinformation coming from part of HMRC. Perhaps it was the same member of staff for all I know.
https://www.accountingweb.co.uk/any-answers/eis-loss-relief-restricted-to-capital-gains