HMRC clearance for a simple company reorganisation: what people are asking online, and what changed last November

Most company reorganisations are not dramatic. A holding company goes in above a trading company. Two shareholders decide to run separate businesses. A founder retires and the company buys back their shares. Everyone involved is already connected, and the question is whether the paperwork can be done without a tax bill landing in the middle of it.

That is where HMRC advance clearance comes in, and where the questions online start. We read the threads on AccountingWEB, UK Business Forums and Reddit, picked the questions that keep coming back, and checked each answer against HMRC's guidance on GOV.UK as it stands in October 2026. One warning first: the rule behind the most common clearance changed on 26 November 2025, so some of the older forum wisdom quoted here is now only half right.

1. "Do I even need clearance?"

A company owner on AccountingWEB (April 2024) had £450,000 of cash in a trading company, wanted a holding company above it to invest in property, and had been quoted £3,350 plus VAT. They had passed accountancy exams years earlier and asked whether they could do it themselves, adding in brackets: "do I even need clearance?"

Clearance is never compulsory. HMRC's page on applying for statutory clearance lists the provisions it covers. For a holding company insertion the two that matter are section 138 of the Taxation of Chargeable Gains Act 1992 (the capital gains side) and section 701 of the Income Tax Act 2007 (the rules that stop a reorganisation turning what would have been a dividend into capital). You can do the exchange without asking. What you lose is certainty: if HMRC later decides the arrangements had a tax-avoidance main purpose, the exchange that was supposed to be tax-neutral is not.

It is worth being clear about what a clearance is, because the forums often are not. It is HMRC saying, on the facts you have given it, that it will not apply a specific anti-avoidance rule. It is not HMRC approving the plan, agreeing your share valuation, confirming stamp duty relief, or promising that Business Asset Disposal Relief will be available when you eventually sell. Each of those is a separate question.

The replies to that thread were more useful than the fee argument. One accountant said: "You can absolutely do this yourself. Whether you can do it successfully is quite another matter." Several asked the question the poster had skipped: why a group at all? A holding company means a second set of accounts and a second corporation tax return, and two companies share the £50,000 and £250,000 corporation tax thresholds between them. If the aim is to put cash beyond the trading company's risks, a group is one answer among several.

For anyone going ahead alone, a UK Business Forums poster in April 2026 asked the simplest question: which address? Applications go by email to HMRC's Clearance and Counteraction Team at [email protected], or by post to BAI Clearance, HMRC, BX9 1JL. The provisions you are applying under go at the top of the letter, attachments must be under 2MB, and a reply by email needs HMRC's email risk statement, which is on the GOV.UK page above.

2. "How long does it take?"

HMRC's commitment is plain: "We will reply to your application within 30 days." If HMRC asks for more information, the 30 days start again from your reply, and that restart is where timetables slip. An adviser on AccountingWEB in April 2022 had answered three rounds of questions and was still waiting nearly three months after applying. Other threads from 2023 and 2024 report clearances back within a week.

Since the November 2025 change, the professional bodies expect more questions, not fewer. Writing for ICAEW's Tax Faculty in December 2025, two specialists noted that the 30-day limit still applies but "many responses are already taking longer". We plan on four to six weeks and do not let the solicitors complete until the reply is in. For a section 138 clearance the law requires HMRC's answer to come before the new shares are issued, so a clearance given after the event is worth nothing.

3. "What actually changed?"

For decades the test was two-sided: a share exchange kept its tax-neutral treatment if it was carried out for bona fide commercial reasons and was not part of a scheme with a main purpose of avoiding capital gains tax or corporation tax. Shareholders holding 5% or less were outside the rule altogether.

The Autumn Budget on 26 November 2025 replaced that, and Finance Act 2026 made it law. The new section 137 asks one question: is a main purpose of the arrangements to reduce or avoid capital gains tax or corporation tax? "Arrangements" takes in the whole series of steps, not just the exchange. The 5% exemption is gone. And instead of switching the relief off for everyone, HMRC now makes "just and reasonable" adjustments, so it can counteract the one shareholder who gets the advantage and leave the others alone. HMRC's guidance is at CG-APP20, and one sentence in it is worth holding on to: deferring a tax charge is not, of itself, tax avoidance.

The change took effect the day it was announced. The Chartered Institute of Taxation told Parliament in February 2026 that it had "disrupted live commercial transactions" and asked for HMRC to be resourced for the extra applications it expected.

For a small reorganisation this is less alarming than it sounds. A plain holding company insertion for the same shareholders, in the same proportions, with no cash changing hands and no sale in view, has no tax-reduction purpose to find. The difference is in how the application is written: each step needs its own reason, and any step that improves someone's tax position needs explaining rather than leaving for HMRC to spot.

4. "Is protecting the business a good enough reason?"

The longest thread we found, 51 replies on AccountingWEB from August 2020, was about exactly this. An accountant who had done holding company insertions for years, always citing the protection of surplus assets from trading risk, had one refused and another met with questions, including the line from HMRC that "Protection of assets is not a commercial reason". The replies included a former HMRC officer who said he had set up the clearance team and that asset protection had always been accepted, and one adviser counting around 25 refusals of previously routine applications in six months. By 2021 the posters agreed HMRC had softened.

Under the old test, that fight was about whether the reason was "commercial". The word is no longer in section 137. HMRC now asks whether reducing tax is a main purpose, and asset protection, succession or separating two businesses are not tax purposes at all.

The reasons still matter, because HMRC's checklist requires them and a thin explanation invites the follow-up questions that restart the clock. Our rule is that the reason has to be something the business will actually do. "To create a group" describes what happens, not why. "To hold the premises in a separate company so a claim against the trading company cannot reach them, with a lease between the two at a market rent" is a reason HMRC can see being carried out.

5. "We might sell in a year or two. Do we mention it?"

An adviser on AccountingWEB in March 2025 had applied for clearance on a holding company insertion. The letter mentioned that the substantial shareholding exemption would let the holding company reinvest the gross proceeds if the trading company were sold. HMRC wrote back asking whether the company was being marketed and whether a sale was expected within 12 months. The client had "tested the water" with buyers but had no firm plan, and the adviser's instinct was to reply "playing down the sale".

The thread's replies were blunt, and so are we. Every clearance is given on the facts in the application, and the legislation makes it void if those facts do not fully and accurately disclose everything material. The buyback case of Boulting is the warning: clearance was given on a share value of £600,000 a share, HMRC later valued them at a small fraction of that, and the clearance fell away.

Does a possible sale sink the application? Not by itself. A specialist's note from October 2026 describes HMRC's new guidance as fairly encouraging: using a relief the way Parliament intended it is not avoidance, and a holding company that sells the trading company after a year, when the substantial shareholding exemption can apply, is a structure HMRC's own examples contemplate. A sale inside a year is, in the author's word, untested. Either way, the plan goes in the letter.

The lay version appeared on Reddit in February 2026: an owner moving abroad, a company with around £200,000 of cash that buyers did not want to pay for, and a worry that a share exchange arranged with the buyers already in the room would "look purely tax-motivated". That instinct is right. A reorganisation designed around a sale already being negotiated is the case the new section 137 was written for.

6. "One shareholder is retiring. Can the company buy their shares?"

A company buying back its own shares is the classic small-company exit between people who know each other, and it has its own clearance under section 1044 of the Corporation Tax Act 2010. The prize is capital treatment, taxed at 18% where Business Asset Disposal Relief applies to disposals from 6 April 2026 (see GOV.UK), rather than dividend rates if the conditions fail.

The conditions are mechanical and HMRC applies them literally. The seller must have owned the shares for five years. The buyback must be wholly or mainly for the benefit of the company's trade, which a retiring director leaving the business usually satisfies. The seller's stake must fall to no more than 75% of what it was, and afterwards they must hold no more than 30% of the company. The seller must be UK resident. Company law requires cash on completion, so a staged exit is one contract with several completion dates, not a series of deals. And, as Boulting showed, the clearance does not extend to the value you put on the shares.

7. "Which things have no clearance at all?"

Some of the most common related-party transactions have no clearance, and forum threads regularly send people looking for one.

• Gifting shares to the next generation. The capital gains relief is holdover relief, claimed jointly on the tax return. HMRC's valuation service only works after the transfer, through a post-transaction valuation check. The bigger question is usually inheritance tax, where the rules from 6 April 2026 cap 100% business property relief at £2.5 million per person with 50% above that. Our succession planning page covers that conversation.
• Incorporating a sole trade. Incorporation relief is a relief, not a clearance, and HMRC's non-statutory clearance service will not rule on questions of fact.
• Closing a company and starting a similar one. The anti-avoidance rule on winding-up distributions turns a capital distribution into a dividend where the owner carries on a similar activity within two years and a main purpose was saving income tax. HMRC's manual at CTM36350 says there is no clearance for it, and that a section 701 clearance on the liquidation does not cover it either.
• Share valuations and Business Asset Disposal Relief. Neither is cleared in advance. They are questions of fact, and HMRC deals with facts after the event.

What a good application looks like

The forum threads, read together, describe the application that HMRC's own checklist describes. It lists every provision at the top. It sets out the steps in order with a before-and-after diagram of who owns what, down to share classes and percentages. It names every connection between the shareholders, attaches the latest accounts and says what each shareholder receives. It gives the reasons as things the business will do, says what alternatives were considered, and discloses any sale, investment or retirement in prospect, however vague. It goes in before the lawyers finalise anything, and nobody signs until the reply arrives.

If you are thinking about a holding company, a split or a buyout, the structure is a tax planning conversation first and a Companies House exercise second. Our guide to tax when selling a business covers the other end, and our company secretarial service handles the filings once the clearance is in.

This article is general information, not advice for your specific circumstances. For advice you can act on, book a free consultation or call us on 0151 944 4342.