The importance of accurate transaction reporting for shareholders

31 January 2021 marked the self-assessment tax return filing deadline for the 2020/21 tax year, and the end of a tax return season like no other. With many taxpayers still firmly feeling the impact of the COVID-19 pandemic, we saw the last-minute (yet welcome) confirmation from HMRC that those who filed their 2019/20 Self- Assessment (SA) tax returns late would not receive late-filing penalties, provided they file by 28 February 2021.

However, filing accurate and complete tax returns on time should always be the goal wherever possible, and in our recent article Simon Johnson outlined 5 reasons why this has never been more important, and this is particularly the case when there is a change in circumstances, such as a major transaction.

In spite of this, we find that many individuals and businesses fail to give adequate attention to managing their tax compliance obligations, and this is an area that is commonly over-looked as part of the deal lifecycle. In our experience, although a great deal of advice is often taken as part of the transaction, we find employee shareholders are often left to complete and submit their returns themselves.

After a busy year for the deals market, we are predicting the current tide of deal activity will continue into the first half of 2021, and our Head of Corporate Finance, UK, Jonathan Boyers, explains why in his recent Deals Round Up.

So, with all this deal activity taking place in the latter half of 2020 and continuing in to 2021, it’s worth pausing to think about why businesses should be thinking about how they can help their employees and shareholders in meeting their personal tax compliance obligations.

Transactions are inherently complex, which means reporting the transaction to HMRC in the right way is far from straightforward. Seeking appropriate professional advice can help to reduce the risk of challenge by HMRC (and the potential for penalties for errors for individual shareholders if the transaction were reported incorrectly).

Tailored advice to each shareholder ensures each individual fully understands the personal tax implications of the transaction, and the associated filing obligations, thereby reducing the number of enquiries and queries that you have to deal with, saving time and money.

Finally, our service helps to ensure a single, consistent approach is taken by all shareholders thereby reducing the risk of different reporting and disclosure methodologies being taken, which in our experience can increase the likelihood of HMRC enquiries.

And so, with another tax compliance season behind us, for any transactions that completed in the 2020/21 tax year, companies should now be turning their thoughts to how they can assist their shareholders and employees in reporting the transaction on their self-assessment tax returns, which is due for submission by 31 January 2022.

What this means is that if companies want to ensure a consistent approach is taken, they should start looking at the position now and communicating with shareholders, as we find there are always a few individuals who look to submit their returns as soon as practically possible after the 6 April.