A company purchase of its own shares can be a highly effective tool for business owners planning an exit, managing succession, or restructuring shareholdings. However, to do it successfully, and tax efficiently, it’s essential to get the structure right and to apply for advance clearance from HMRC.
At Dunkley’s Accountants, we offer clear, tailored tax advice in Bristol and the UK, guiding businesses through the legal, tax and compliance aspects of buying back shares. Whether you’re retiring, buying out a co-founder, or adjusting your company’s capital structure, here’s what you need to know.
What is a Company Purchase of Own Shares?
A company purchase of own shares (CPOS) happens when a limited company buys back shares from an existing shareholder. The transaction must meet strict conditions to be approved and to benefit from favourable tax treatment.
This approach is often used:
• To enable a partial or full shareholder exit
• To buy out a retiring director
• As part of succession planning
• For shareholder disputes
• To simplify the capital structure
The Tax Angle: Income vs Capital Treatment
From a tax perspective, the key issue is how the payment to the selling shareholder is treated. If the transaction meets the conditions set out in Section 1033 of the Corporation Tax Act 2010, it may qualify for capital gains tax treatment, potentially reducing the tax rate with Business Asset Disposal Relief (BADR).
If it doesn’t qualify, the payment could be taxed as income, subject to higher dividend or income tax rates, significantly increasing the liability.
This is where advance clearance from HMRC becomes crucial.
What is Advance Clearance?
Advance clearance is a formal process where you submit the details of the proposed transaction to HMRC and request confirmation that it will qualify for capital gains tax treatment.
We help our clients prepare the application, which includes:
• A description of the transaction
• Details of the shareholder(s) involved
• The commercial reasons for the purchase
• Supporting company documentation (e.g. share register, minutes)
HMRC will review the submission and respond with a clearance letter if they’re satisfied that the conditions are met.
Common Pitfalls and How to Avoid Them
• Incorrect documentation: Board minutes and shareholder resolutions must meet legal requirements.
• Failure to meet qualifying conditions: For example, the shareholder must usually have held the shares for at least five years and have no continuing connection with the company after the sale.
• No advance clearance: Proceeding without HMRC approval increases the risk of unexpected tax bills or a challenge later.
At Dunkley’s, we help ensure your application is watertight and that the purchase is executed in line with legal and tax requirements.
Why Choose Dunkley’s?
Based in Bristol, our team has extensive experience handling company share buybacks for SMEs, family businesses and growing enterprises across the region. We provide:
• Strategic tax planning
• Preparation and submission of advance clearance applications
• Support throughout the transaction process
• Post-sale advice on reinvestment and tax
If you’re thinking about a company share buyback, get expert support from a trusted advisor.
Call us on 01454 619900 or email advice@dunkleys.accountants for personalised tax advice in Bristol that gives you clarity and confidence.