Business Asset Disposal Relief Appeals: When HMRC Refuses Your 10% Rate

You sold your company. Your adviser said the 10% rate applied. HMRC says it does not. The cash is already spent, and the bill is now at 24%.

Business Asset Disposal Relief (BADR)—the relief once known as Entrepreneurs' Relief—is the difference between paying capital gains tax at 10% on a qualifying disposal and paying it at the main rate. For higher-rate taxpayers, the main rate jumped to 24% on disposals on or after 30 October 2024. The BADR rate itself moved to 14% from 6 April 2025 and moves again to 18% from 6 April 2026. When HMRC denies the relief, the cash gap can be six figures.

The people who lose BADR appeals tend to lose for the same reasons their advisers got the structure slightly wrong years before the sale. The cases are forensic, not interpretive. Either the gateway is met on the documents or it is not. McQuillan lost despite the Upper Tribunal's evident sympathy. The legislation is unforgiving by design.

That said, the case law is not one-sided. Recent taxpayer wins—Cooke on rectification of a rounding error, Warshaw on cumulative compounding preference shares, Potter on whether trading had ceased, Quentin Skinner on the trustees' qualifying-beneficiary point—show that careful analysis of the documents and the statutory wording can flip a closure notice. The right question to ask before paying for the fight is which gateway HMRC is contesting and whether your documents support you on it. The rest of this guide is about answering that.

This article covers the letter on your desk, what BADR actually requires, the six places HMRC fights, and how to handle the 30 days that started running the moment the closure notice arrived. Around 45% of tribunal appellants represent themselves. None of this is reserved for people with lawyers.

What HMRC's Letter Actually Means

BADR disputes almost always start with one of three documents. Identify yours before doing anything else, because each comes with its own clock.

Enquiry, Closure Notice Or Discovery Assessment

If HMRC has only just opened a check, you will have a notice of enquiry under section 9A TMA 1970. That does not mean HMRC has decided anything—it preserves HMRC's right to ask questions and amend the return at the end. The notice must be given within 12 months of the date you delivered the return.

If the enquiry has run its course, you will have a closure notice under section 28A TMA 1970. That is HMRC's formal conclusion, with figures amended on your return. The relief is denied or restricted, and the additional CGT becomes payable.

If HMRC missed the 12-month enquiry window and is reaching back into a closed year, the letter is a discovery assessment under section 29 TMA 1970. The time limit HMRC has chosen tells you what it must prove. Four years (section 34 TMA 1970) applies regardless of fault. Six years (section 36(1) TMA 1970) requires HMRC to allege the inaccuracy was careless. Twenty years (section 36(1A)) requires HMRC to allege it was deliberate—a high evidential bar that HMRC must meet before the assessment is even valid. Closing the gateway HMRC has stepped through is sometimes the strongest single point of attack on a discovery assessment. For the wider procedural framework see our guides to HMRC enquiries and closure notices and discovery assessments. The legal heading on the letter tells you which power HMRC is using—read it before drafting anything.

Visible features that distinguish the three documents: a section 9A notice will be headed something like "Notice of enquiry into your tax return" and explicitly preserves HMRC's right to ask further questions. A section 28A closure notice will be headed "Closure notice" or "Notice of conclusion of enquiry", carry a figure box showing the corrected liability, and contain an "appeal rights" panel near the foot of the letter. A section 29 discovery assessment will be headed "Discovery assessment" or "Assessment of tax", will state the year of assessment and the time limit being relied on (commonly 6 or 20 years), and will set out the alleged inaccuracy. If you cannot tell which you have, the legislative reference in small print on the front page is decisive.

The 30-Day Clock

Whichever document you have, the appeal window is the same. You have 30 days from the date of the closure notice or discovery assessment to appeal in writing under section 31 TMA 1970, with the deadline imposed by section 31A. Miss it, and you are into a late-appeal application under the Martland three-stage test, which the tribunal does not grant routinely. For the basics of appeal rights see our understanding HMRC appeal rights guide.

A protective appeal letter—even one paragraph long—stops the clock. State the company name and your unique tax reference, identify the closure notice or assessment by date, say "I appeal", give outline grounds, and confirm full grounds will follow. A workable template:

Dear Sir or Madam,

Re: [Your name], UTR [number], year of assessment [YYYY-YY]

I appeal the closure notice / discovery assessment dated [date], which restricts/denies my claim to Business Asset Disposal Relief on the disposal of [shares in X Ltd / business assets of Y] on [date].

Outline grounds: the company was my personal company throughout the qualifying period within section 169S(3) TCGA 1992; the company was a trading company within section 165A TCGA 1992; and I was an officer or employee throughout the qualifying period as required by section 169I(6) TCGA 1992. Full grounds will follow.

I also request a statutory review under section 49B TMA 1970.

Adapt the outline grounds to whichever battleground HMRC has actually picked (see the decoder below). The detailed drafting comes next, but the deadline is what matters today.

The Personal Liability Trap

BADR is claimed by an individual on their self-assessment return. The liability is yours, not the company's. The CGT, any interest running at 7.75% from the original CGT due date (31 January following the tax year of disposal—so for a 2022–23 disposal, interest has been compounding since 31 January 2024), and any inaccuracy penalty under Schedule 24 FA 2007 are all yours personally—you cannot ringfence the dispute inside a corporate vehicle. If pre-sale advice is at the heart of the dispute, that is a separate matter to take up with a solicitor on the negligence side. The professional-negligence limitation period is generally six years from the negligent act under section 5 of the Limitation Act 1980, or three years from the date of knowledge under section 14A, so the clock may already be running—flag it to a solicitor early even if you decide later not to pursue. Negligence sits outside the tribunal's jurisdiction and outside this guide.

What BADR Is And Why The Numbers Have Moved

BADR sits in Chapter 3 of Part V of the Taxation of Chargeable Gains Act 1992 (sections 169H–169SA). The relief reduces the CGT rate on certain qualifying business disposals up to a lifetime limit, and must be claimed under section 169M on the self-assessment return by the first anniversary of 31 January following the tax year of disposal (so for a 2024–25 disposal: by 31 January 2027). The relief is not automatic.

The Rate Evolution: 10% → 14% → 18%

For most of BADR's history—since the relief was introduced in 2008 as Entrepreneurs' Relief and rebranded BADR in 2020—the rate was 10%. That changed at the Autumn 2024 Budget. The rate set by section 169N TCGA 1992 was substituted by Finance Act 2025:

• 10% — disposals on or after 6 April 2008 to 5 April 2025
• 14% — disposals on or after 6 April 2025 to 5 April 2026
• 18% — disposals on or after 6 April 2026

Anti-forestalling rules attach to each rate change. For the 14%/18% steps, HMRC's guidance at CG64174 covers the position on unconditional contracts entered into before the rate change but completing after it.

The £1m Lifetime Limit

The lifetime cap is also in section 169N. Until 11 March 2020, the limit was £10 million. Schedule 3 of the Finance Act 2020 cut it to £1 million for disposals on or after 11 March 2020. The £1m limit has not moved since.

The cap is per individual and is tracked across your whole lifetime, not reset annually. If you used £600,000 of the lifetime limit on a 2018 disposal at 10%, you have £400,000 left. Predecessor reliefs count: any Entrepreneurs' Relief claimed since 2008 under the £10 million / £5 million / £2 million / £1 million caps as they then stood comes off your current £1m limit. A reader who used £400,000 of ER on a 2017 disposal under the £10m cap has consumed that £400,000 of their current £1m forever. The relief gets cheaper as the rate climbs—but the absolute ceiling is fixed.

Spouses and civil partners each have their own £1m. A jointly-owned trading company sold by a married couple can therefore shelter up to £2 million of gain at the BADR rate, provided each spouse independently meets the qualifying conditions (5% personal company, two-year holding, officer-or-employee throughout). HMRC has no formal aggregation rule for spouses on the lifetime limit—but each spouse must qualify in their own right.

Why The Maths Now Hurts More

The rate gap is what makes BADR appeals worth running. On a £1m gain to a higher-rate taxpayer:

• Pre-30 October 2024 — main CGT 20%, BADR 10%. Saving on the first £1m: £100,000.
• 2025–26 — main CGT 24%, BADR 14%. Saving: £100,000.
• 2026–27 onwards — main CGT 24%, BADR 18%. Saving: £60,000.

The lifetime maximum saving drops from £100,000 to £60,000 from April 2026. That number is meaningful enough to fight over—but not so large that running a Complex-track appeal with leading counsel always makes economic sense. We will come back to costs.

Worked Example: What Losing Looks Like

The savings table shows what BADR delivers when it works. The exposure if it does not is the mirror image. Take a higher-rate taxpayer who sold shares in their company for a £400,000 gain in the 2024–25 tax year, claiming BADR at 10%:

• CGT under BADR (10%): £40,000—the figure paid by 31 January 2026.
• CGT if HMRC succeeds (24% main rate, post-30 October 2024): £96,000—the figure HMRC says was due by 31 January 2026.
• Additional CGT in dispute: £56,000.
• Interest at 7.75%, compounding daily from 31 January 2026 to (say) 31 January 2027 if the dispute lasts a year: roughly £4,300 in interest alone.
• Inaccuracy penalty under Schedule 24 FA 2007, if HMRC alleges careless behaviour at the top of the range (30%): up to £16,800 on the £56,000 understatement. After full disclosure reductions, the prompted-disclosure floor (15%) is around £8,400.

Worst-case prompted-careless: about £56,000 + £4,300 + £8,400 ≈ £68,700. Best-case BADR succeeds: £40,000, no penalty, no interest. The fight is over the difference.

If HMRC alleges deliberate behaviour and reaches into a 20-year discovery year, the penalty range climbs (20–70% deliberate not concealed; 30–100% deliberate and concealed) and the Tooth subjective-knowledge test applies—covered in our Tooth on deliberate inaccuracy analysis. Verify the rates that applied in your year before relying on these figures.

The Six Battlegrounds

When HMRC challenges a BADR claim, the dispute almost always sits in one (or more) of six places. Read your closure notice carefully and identify which gateway HMRC says you fall outside. Different gateway, different evidence, different case law.

The closure notice will rarely use the word "battleground", but it will almost always use phrasing that maps to one of the six. Use this decoder before drafting:

Two or more battlegrounds can be argued in the same notice. Cooke and Hunt are 5% test disputes; Castledine, McQuillan, and Warshaw are OSC disputes; Allam is a trading-vs-investment dispute; Wardle and Potter are qualifying-period disputes.

1. The 5% Personal Company Test

For a share disposal, the company must be your personal company throughout the qualifying period. The test, in section 169S(3) TCGA 1992 as substituted by FA 2019 for disposals on or after 29 October 2018, has three limbs:

• you hold at least 5% of the ordinary share capital;
• by virtue of that holding, at least 5% of the voting rights are exercisable by you; and
• either you are beneficially entitled to at least 5% of profits available for distribution to equity holders and 5% of assets on a winding up, or (the alternative test added in December 2018) on a hypothetical disposal of the whole of the ordinary share capital you would be entitled to at least 5% of the proceeds.

The numbers look simple. They almost never are.

In Hunt v HMRC [2019] UKFTT 210 (TC), Mr Hunt held 5.94% of the company's shares by count and 6.21% of the votes. But his shareholding was a mix of 10p E ordinary shares and £1 B ordinary shares. By nominal value of issued share capital—what section 169S(3)(a) actually measures—he held only 4.16%. The FTT (Judge Anne Redston) followed Canada Safeway v IRC [1972] 1 All ER 666 and dismissed his appeal. The £199,000 assessment stood. The buyer (Ernst & Young) had spotted the issue and offered to delay completion to fix it. Mr Hunt declined.

In Cooke v HMRC [2024] UKFTT 272 (TC), a spreadsheet rounding error left Mr Cooke with 4.99998% of the ordinary share capital instead of the 5% the parties had intended. The shareholders' agreement contained an anti-dilution clause. The FTT held that it had jurisdiction to decide the appeal as if a rectification application had been made to the High Court, that the High Court would have ordered rectification, and so Mr Cooke met the test. Relief allowed—but the FTT was at pains to say this was not a near-miss doctrine. Parliament's threshold is rational and inflexible. The result depended on a clean rectification analysis, not sympathy.

The 5% test is binary. Get the numbers wrong by any margin and the gateway closes.

2. Ordinary Share Capital

Whether your shareholding crosses 5% depends on what counts as "ordinary share capital". The definition is in section 989 of the Income Tax Act 2007:

"ordinary share capital", in relation to a company, means all the company's issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company's profits.

The carve-out is narrow. Almost any class of share that does not carry a fixed-rate dividend with nothing else attached is ordinary share capital. The case law shows how unforgiving that is.

In Castledine v HMRC [2016] UKFTT 145 (TC), Mr Castledine held exactly 5% of the company's A ordinary shares—but the company had also issued deferred shares with no votes, no dividend rights, and an "illusory" right to capital, deliberately structured to be valueless under an employee-departure mechanism. The FTT held the deferred shares were ordinary share capital under section 989, because having no dividend right at all is not the same as having a right to a dividend "at a fixed rate". Including them brought Mr Castledine to 4.99%. Appeal dismissed.

In McQuillan v HMRC [2016] UKFTT 305 (TC), the FTT had reasoned that no dividend right was equivalent to a fixed dividend at 0%, letting Mr and Mrs McQuillan (33 ordinary shares each in a 100-share company) qualify. HMRC appealed. In Revenue and Customs v McQuillan [2017] UKUT 344 (TCC), the Upper Tribunal reversed. Following the Court of Appeal in Apollo Fuels, the UT held that "nil is not a number". Shares with no dividend rights are not shares with a right to a dividend "at a fixed rate". Including the 30,000 redeemable non-voting non-dividend shares put each McQuillan well below 5%. Relief denied. The UT acknowledged this was the kind of case BADR was meant for—but said the legislation did not permit a different result.

Warshaw v HMRC [2019] UKFTT 268 (TC), upheld at HMRC v Warshaw [2020] UKUT 366 (TCC), pulled the carve-out tighter. Mr Warshaw held cumulative compounding 10% preference shares (unpaid dividends added to the capital base on which the next year's 10% accrues). The FTT and UT both held this is not "at a fixed rate"—the percentage is fixed, but the amount on which it is calculated grows. The preference shares were ordinary share capital, and Mr Warshaw qualified for relief on his £1.16m gain.

Read together, Castledine, McQuillan, and Warshaw mean almost any unusual share class will count toward your ordinary share capital denominator. Old friends-and-family shares, deferred shares from a buy-back, growth shares with discretionary dividends—all probably count. Pull the share register before drafting grounds.

3. Trading Vs Investment ("Substantial" Non-Trading)

For a share disposal, the company must be a trading company (or holding company of a trading group) throughout the qualifying period. The definition feeds in via section 169S(5) and onward to section 165A TCGA 1992: a trading company is a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities.

For years HMRC operated an internal rule of thumb of 20%—a company whose non-trading activities accounted for more than 20% of turnover, asset base, or staff time was treated as failing the test. After Allam the manual was rewritten: HMRC's current guidance still uses 20% as a screening threshold for whether further review is warranted, but expressly disclaims it as a percentage test in law.

In Allam v HMRC [2020] UKFTT 26 (TC), upheld at Allam v HMRC [2021] UKUT 291 (TCC), the FTT and UT criticised HMRC's mechanical 20% approach. Dr Allam had sold a property company to his trading group for £4.95 million; the FTT found the company's non-trading rental activities were substantial, and the UT (Edwin Johnson J and Judge Cannan) upheld that on Edwards v Bairstow grounds. Three holdings matter:

• "Substantial" is a multi-factorial assessment—no statutory or judicial 20% threshold.
• Passive investment of cash counts as an "activity"—you cannot argue the cash is dormant and so does not enter the comparison.
• The Upper Tribunal will not interfere with FTT findings of fact unless they were perverse, applying Edwards v Bairstow [1956] AC 14.

CG64090 was rewritten after Allam: HMRC still uses 20% as a screening triage but now sets out a multi-factorial assessment with five indicators (income, asset base, expenses/time, history, and overall balance).

Where a company has had a difficult period—dormancy, suspension, ill-health of a key person—the cessation question can surface. Potter v HMRC [2019] UKFTT 554 (TC) is the leading example. Gatebright Ltd, an LME broker, issued no invoices from March 2009 because Mr Potter was unwell; reserves went into fixed-term bonds. The FTT held the company remained a trading company throughout, because it was preparing the ground for resumed trading once market conditions improved (within section 165A(4)(b)), and the bond investments were not substantial because no time, cost, or staff resource was spent on them after purchase. The judgment captures the principle: if the shop is open but nobody buys anything, that does not change its business classification, provided there are reasonable prospects of resumed trading.

For a closure notice arguing your company was an investment company "in substance", the answer is evidential. Pull management accounts, board minutes, staff time records, and any documentary evidence of how the company actually operated.

4. The Two-Year Qualifying Period (And Cessation)

The qualifying period is now two years ending with the date of disposal (extended from one year by Schedule 16 of the Finance Act 2019 for disposals on or after 6 April 2019). The personal-company, trading-company, and officer-or-employee tests must each be satisfied throughout that two-year period (Condition A in section 169I(6)).

If the company has ceased trading, an alternative gateway opens (Condition B in section 169I(7)): the same three tests must have been satisfied for the two years ending on the date of cessation, and the disposal must be made within three years after cessation. Potter turns on the boundary between cessation and a temporary lull.

The qualifying period catches readers in two common ways: where the buyer drives a share class restructure close to completion (anything that disturbs the 5% / officer / trading status can reset the clock), and where pre-sale planning compresses transactions into the run-up to exit. The clock does not pause for restructuring, and the tests are measured throughout—not just at the start and end.

Earn-outs and contingent consideration. Many trade sales include earn-out elements—deferred consideration contingent on post-completion performance. The disposal date for BADR purposes is generally the date of the SPA (or unconditional exchange), not the date the earn-out is paid. The leading authority on the tax treatment of unascertainable contingent consideration is Marren v Ingles [1980] 1 WLR 983 (HL): the right to receive contingent consideration is itself a chargeable asset, with its market value taxed at the original disposal date and any subsequent receipt of cash treated as a separate disposal of the chose-in-action. For BADR, this means the qualifying tests must be met at the SPA date—not when the earn-out crystallises. A reader who satisfies all conditions at SPA but ceases to be an officer or employee before the earn-out pays out can still claim BADR on both the upfront and the contingent consideration. Earn-out structures are intricate; if your closure notice queries the disposal date, get specialist input.

5. Officer Or Employee Throughout

You must be an officer or employee of the company (or, where applicable, of a 51% subsidiary or member of the trading group) throughout the period. There is no minimum hours-worked threshold—HMRC accepts (CG64110) that one hour of genuine engagement is enough—but the tribunal looks at substance: a non-functional formal directorship may not be enough, and someone who became an officer or employee only mid-period will fail Condition A.

Employment status questions for tax purposes have been substantially restated by the Supreme Court in PGMOL v HMRC [2024] UKSC 29. The case sits in the IR35 context, but the underlying common-law concept of employment is the same one the tribunal applies when asking whether you were an "employee" of your own company. In most BADR cases the answer is straightforward—you were either on the payroll as a director or you were not, and a click-through to the PGMOL article is unnecessary. Click through only if HMRC is challenging whether you were genuinely engaged (as opposed to a formal directorship that masked an effective arm's-length relationship)—that is where the PGMOL framework matters.

Evidence: payroll records, signed board minutes, any contract of employment, and external markers (company website mention, business cards, time at the premises). A retained directorship with no active role is the danger zone.

6. Anti-Forestalling: FA 2020 And FA 2025

Two anti-forestalling regimes block taxpayers from "locking in" a more generous rate or limit by entering into a contract before a change in the law and completing afterwards.

FA 2020 anti-forestalling rules (Schedule 3 paras 3–5) target the cut from £10m to £1m on 11 March 2020. Disposals under unconditional contracts entered into before that date are still caught by the £1m limit unless commercial-purpose conditions are satisfied and a claim is made. Section 169Q elections (which deem a share-for-share exchange to be a disposal at the time of election) made on or after 11 March 2020 are treated as occurring at the date of the election rather than rolling back to the original share-for-share date—so a section 169Q election made post-Budget cannot extract a pre-Budget disposal date.

FA 2025 anti-forestalling rules target the rate steps to 14% (6 April 2025) and 18% (6 April 2026). CG64174 sets out HMRC's published interpretation. Where a contract was unconditional before the rate change but completion fell after it, the question is whether the contract was structured to obtain the lower rate. Detailed conditions apply.

In practical terms, an "unconditional contract" is one where exchange has occurred and there are no remaining conditions precedent—no regulatory clearance, no third-party consent, no due-diligence walk-rights, no completion-accounts adjustments outstanding. A signed SPA conditional on FCA or Phase 1 merger clearance is normally still conditional until that clearance is given. A signed SPA conditional on a routine completion-accounts true-up is usually still unconditional, because the price adjustment does not give either party a right to walk away. The line is fact-specific.

If your closure notice cites the anti-forestalling rules, the issue is rarely what the rule says—it is what was actually agreed, and when. The dispute turns on the contract documents and surrounding correspondence.

Burden Of Proof: Section 50(6) TMA Bites Hard

The single most important procedural fact in a BADR appeal is that the burden of proof sits on you. Section 50(6) of the Taxes Management Act 1970 provides that the closure notice or assessment stands unless the appellant satisfies the tribunal that it overcharges. If you cannot prove your case on the balance of probabilities, you lose.

That burden bites BADR appellants directly. In Wardle v HMRC [2021] UKFTT 124 (TC), Mr Wardle's partnership had carried out pre-trading activities at three renewable-power-plant sites but sold two plants before trading actually began. The FTT held that pre-trading activities are not "a business" within section 169S(1), so there was no qualifying business disposal. The s.50(6) burden of showing the closure notice overcharged him was not discharged. Appeal dismissed. Wardle shows that the threshold question—whether what you sold was "a business" at all—must be evidenced and argued; the burden does not shift back to HMRC just because the facts are agreed.

HMRC does not have to disprove your BADR claim. You have to prove it. That means producing the share register, the articles of association, the share-purchase agreement, management accounts and tax returns for the qualifying period, payroll records showing you on the company's books, and witness evidence about the company's activities. Our grounds of appeal guide covers how to structure a section 50(6)-conscious appeal.

Trustees And EMI: Two Side-Doors Worth Knowing

Most BADR claims travel through the personal-company gateway in section 169I. Two narrower routes deserve a paragraph each because they are easy to overlook.

Trustees' BADR After Quentin Skinner

Section 169J TCGA 1992 allows BADR on disposals by trustees, but only if a "qualifying beneficiary" with an interest in possession in the settled property satisfies the personal-company tests by reference to the trustees' shareholding. The technical question: must the beneficiary's interest in possession have subsisted throughout the qualifying period, or only on the date of disposal?

The Court of Appeal answered in The Quentin Skinner 2015 Settlement L & Ors v HMRC [2022] EWCA Civ 1222, reversing the Upper Tribunal at [2021] UKUT 29 (TCC). Three family settlements held D shares for less than four months before sale; each life tenant had been a qualifying beneficiary since the settlements were created. Henderson LJ held the beneficiary's interest in possession had to subsist on the date of disposal but not throughout the qualifying period. The qualifying-period requirement applied to the company's trading status and personal-company status, not to the beneficiary's interest. Relief allowed.

If the closure notice argues your trust qualifies for nothing because the beneficiary's interest in possession is recent, Quentin Skinner is the case to read.

EMI Option Holders Under s.169I(7A)

Section 169I(7A) TCGA 1992 onwards carries Conditions C and D for disposals of "relevant EMI shares", inserted by Schedule 24 of the Finance Act 2013. An Enterprise Management Incentive option holder can qualify for BADR even where the 5% personal-company test is not met, provided the EMI option was granted at least two years before disposal (extended from one year by FA 2019). The trading-company and officer-or-employee tests still apply.

A practical signal: if you held shares acquired by exercising a properly granted EMI option that was granted at least two years before the disposal, and you were an employee throughout, the 5% gateway you would otherwise have to clear becomes irrelevant—the EMI route handles it. This catches a meaningful slice of tech-company employees with smaller stakes who would not pass the 5% test on ordinary share capital. If your closure notice is fighting battleground 1 (5% personal company) and you held EMI shares, the EMI route may rescue the claim.

How The Appeal Works

Once you have lodged the protective appeal letter, you have three substantive choices: statutory review, tribunal, or settle. Most BADR cases pass through one or more of these.

Statutory Review First?

HMRC will normally offer a statutory review alongside the closure notice. A different officer reviews the decision within 45 days. The review is free and does not close off the tribunal route. Across all dispute types, around 56% of reviewed decisions are cancelled or varied in the taxpayer's favour.

The figure is not BADR-specific. Use review for discrete legal points where a different officer can apply settled law to undisputed facts:

• Did the deferred shares carry a fixed-rate dividend within ITA 2007 s.989? — review.
• Has HMRC applied the pre-FA 2019 1-year qualifying period when my disposal was after 6 April 2019, where the 2-year period applies? — review.
• Has HMRC's section 36(1) carelessness allegation properly identified the carelessness? — review.

Skip review and go straight to tribunal for fact-heavy disputes where credibility, valuations, and contemporaneous documents drive the outcome:

• Was the company "substantially" non-trading (Allam-style multi-factor weighing)? — tribunal.
• Was I genuinely an officer or employee, or was the role nominal? — tribunal.
• Did the LLP commence trading by the relevant date (Wardle / Potter-style cessation timing)? — tribunal.

Our HMRC internal review guide covers the mechanics.

Tribunal Appeal And Tracks

If review fails or you skip it, notify the appeal to the First-tier Tribunal. There is no fee; the mechanics are in our how to appeal to the tax tribunal guide.

BADR appeals normally land in the Standard or Complex track. The amount in dispute, evidence volume, and witness count pull most cases into Complex—and Complex carries cost-shifting risk: the loser may have to pay the winner's reasonable costs. You can opt out within 28 days of allocation to Complex. After that, the door closes. Most unrepresented appellants opt out—HMRC's costs in a Complex BADR appeal can run to £100,000 or more, and that exposure is what cost-shifting puts on the table. See our tribunal tracks and costs guide.

Cases take typically 6-12 months; BADR cases often run longer because they are evidence-heavy. Expect to give live oral evidence and to be cross-examined. Our preparing for your hearing guide covers bundles, witness statements, and skeleton arguments. After the hearing, after your tax tribunal decision covers written reasons and onward routes; the Upper Tribunal guide explains the next stage on points of law.

Postponing The Tax

The CGT shown on the closure notice is due now unless you postpone it. Without postponement, interest accrues at 7.75% from the original due date. Postponement under section 55 TMA 1970 is not automatic—you must apply in writing, normally as part of the appeal letter, identifying the amount in dispute and the grounds for considering it overcharged. Our postponing payment during appeal guide walks through it. If settlement comes onto the table later, our settling your tax tribunal case guide covers section 54 TMA agreements and the deemed-settlement traps.

Penalties And Interest Running Alongside

A BADR denial can attract a Schedule 24 FA 2007 inaccuracy penalty if HMRC argues the claim was made carelessly or deliberately. The bands and disclosure-reduction mechanics are covered in our HMRC penalties explained guide.

Where HMRC argues "deliberate", the stakes climb sharply: the 20-year time limit under section 36(1A) TMA 1970 opens up, the penalty range climbs to 30–100% (concealed) or 20–70% (not concealed), and the test under HMRC v Tooth [2021] UKSC 17 is whether the inaccuracy was made with the intent to mislead HMRC—a subjective test of what was in your mind, not what a reasonable person would have known.

For careless behaviour, reasonable reliance on a properly engaged adviser is an argument—not an automatic defence. The factors that strengthen it: (a) the adviser was properly qualified for the work (CTA, ICAEW, STEP for trustees, corporate-tax specialist for share-restructuring); (b) you disclosed all relevant facts to them—the share register, the shareholder agreement, the trade history; (c) the advice was given in writing; (d) there was nothing obviously wrong on the face of the advice that a non-specialist would have spotted (e.g. you were told you held 5%, the share register shows you held 4.5%, and you signed without checking). The four-step framework from Perrin v HMRC [2018] UKUT 156 (TCC) is closely related to the reasonable-care test; our reasonable excuse guide covers it. The same point the Martland late-appeal line makes about adviser failures applies: the tribunal looks at what you did, not just what your adviser did.

Interest at 7.75% runs on any unpaid tax from the original due date. Postpone successfully and the interest position freezes; lose, and it picks up where it left off.

What Evidence You Need On Day One

A BADR appeal lives or dies on documents. The closure notice tells you which gateway HMRC contests. Pull these together—and the source for each is included because owner-managers often have not seen their own paperwork in years:

• Articles of association, SH01 / SH02 filings, and confirmation statements are all on Companies House at find-and-update.company-information.service.gov.uk under the company entry, free.
• Share register and share certificates for every class of share, covering the full qualifying period. The register is held by the company secretary or registrars; if the company has been sold, the buyer's lawyers will hold it post-completion. The classes outside the obvious ordinaries are where Castledine / McQuillan / Warshaw fights happen.
• Shareholders' agreement if one exists. Held by the company secretary, the original drafting solicitor, or each shareholder's own file. Anti-dilution clauses, drag/tag rights, ratchets, and any recorded commercial intent can be decisive (Cooke).
• Share-purchase agreement (SPA) and disclosure letter. Held by your transaction solicitor. The SPA defines the disposal date, consideration, any earn-out, and any restructuring at completion.
• Management accounts and statutory accounts for the full qualifying period—the trading-vs-investment battle is fought here. Statutory accounts are on Companies House; full management accounts come from your accountant.
• Board minutes evidencing your role as director and any decisions to issue, restructure, or transfer shares. Held by the company secretary.
• Payroll records and employment contract evidencing your continuing role as officer or employee. Your accountant typically holds the payroll file; HMRC also holds PAYE / RTI history and will provide a print on written request to the case officer.
• Pre-sale tax advice, completion-mechanics correspondence, and any section 169Q election or other CGT-specific correspondence. Your tax adviser's file. This is dual-use: evidence on the substantive gateway and evidence on reasonable care for any Schedule 24 penalty.

If HMRC has issued a Schedule 36 information notice, some of these documents are demanded statutorily. HMRC's information powers and what you can refuse are covered separately.

If your accountant or solicitor holds the file and will not release it, ask in writing for a copy of everything on the disposal. Fees may be charged. The documents are still yours. If they will not engage at all—the consultancy has dissolved, the partner has moved firms, the email bounces—a written paper trail of unanswered requests itself helps both the BADR appeal (on the reasonable-care defence) and any later professional-negligence claim.

Common Adviser-Failure Patterns

Read the BADR case law and a pattern emerges. The losers tend to have been let down by structuring decisions taken months or years before the sale, when nobody had a tribunal hearing in mind. Understanding what HMRC will probe matters more than blaming your adviser.

• Wrong share class (Hunt) — different nominal values can put you below 5% even with a healthy share count.
• Spreadsheet rounding (Cooke) — 4.99998% is below 5%; recovery depends on a clean rectification analysis, not a near-miss argument.
• Deferred shares not extinguished (Castledine) — old buy-back paperwork leaving valueless deferred shares on the register dilutes the 5% test.
• Variable-rate or no-rate shares (McQuillan) — shares with no dividend right are still ordinary share capital; discretionary or floating dividends are not "at a fixed rate".
• Substantial non-trading activity (Allam) — property-rich subsidiaries, large investment portfolios, or surplus cash deployed in markets can push a parent over the section 165A line.
• Cessation timing (Potter) — a company in difficulties or transitioning between activities can fall on either side of the trading-company line; evidence must support continued trading status throughout.
• Pre-sale restructuring inside the qualifying period — share-class consolidation, voting-rights variation, retirement from the board can break the throughout requirement.

If you believe pre-sale advice was negligent, that is a separate matter to take up with a solicitor. It does not affect HMRC's position on the BADR claim itself, but it should be flagged to a solicitor early because the limitation clock under the Limitation Act 1980 (six years from the negligent act under section 5; three years from the date of knowledge under section 14A; 15-year long-stop under section 14B) runs independently of the tribunal timeline. Preserving evidence and engagement letters now keeps that option open even if you decide later not to pursue.

Six Things To Do This Week

1. Calendar every deadline. 30 days from the closure notice or assessment to appeal. 45 days for any review. 30 days from a review conclusion to the tribunal. 28 days from any Complex-track allocation if you want to opt out of cost-shifting.

2. File the protective appeal letter today. Even one paragraph: name, UTR, document being appealed, "I appeal", outline grounds, full grounds to follow. Email and post if possible. Apply for postponement under section 55 TMA in the same letter.

3. Pull every document on the disposal. Share register, articles, shareholders' agreement, SPA, accounts, board minutes, payroll, employment contract, pre-sale tax advice. Get copies from your accountant or solicitor in writing.

4. Identify the gateway HMRC contests. Read the closure notice carefully. Is it the 5% test, ordinary share capital, trading status, qualifying period, officer/employee, or anti-forestalling? Each gateway has different evidence. Do not waste the appeal arguing a battle HMRC is not fighting.

5. Consider statutory review for legal points; go straight to tribunal for fact disputes. Review takes 45 days and is free. It is most useful for clean section 989 or transitional-rules questions. Fact-heavy disputes (substantial non-trading, cessation timing) belong at the tribunal.

6. Get independent advice from someone with no commercial stake in the outcome. The pre-sale adviser is the wrong person to assess what went wrong. Realistic options: a Chartered Tax Adviser via CIOT's Find a CTA directory, a chartered accountant via ICAEW's Find a Chartered Accountant, or—for a discrete legal point—a specialist tax barrister via the Bar's Public Access Scheme. Hourly or fixed fees only at this stage.

Key Legislation And Resources

Legislation

• Chapter 3 of Part V, TCGA 1992 — BADR (sections 169H–169SA)
• Section 169H, TCGA 1992 — qualifying business disposals
• Section 169I, TCGA 1992 — material disposal of business assets; Conditions A–D
• Section 169K, TCGA 1992 — disposal associated with a relevant material disposal
• Section 169LA, TCGA 1992 — goodwill transferred to a related party
• Section 169M, TCGA 1992 — claim
• Section 169N, TCGA 1992 — amount of relief; lifetime limit; rate
• Section 169P, TCGA 1992 — trustees' disposals
• Section 169S, TCGA 1992 — interpretation; personal-company test
• Section 165A, TCGA 1992 — meaning of "trading company" and "substantial"
• Section 989, ITA 2007 — definition of ordinary share capital
• Schedule 3, FA 2020 — £1m lifetime limit and anti-forestalling
• Schedule 16, FA 2019 — extension to 2-year qualifying period
• Section 9A, TMA 1970 — opening an enquiry
• Section 28A, TMA 1970 — closure notice
• Section 29, TMA 1970 — discovery assessment
• Section 31, TMA 1970 — right of appeal
• Section 31A, TMA 1970 — 30-day appeal deadline
• Section 50, TMA 1970 — burden of proof on the appellant
• Section 55, TMA 1970 — postponement of payment

Key Cases

• Allam v HMRC [2020] UKFTT 26 (TC) — substantial non-trading; FTT
• Allam v HMRC [2021] UKUT 291 (TCC) — Upper Tribunal upholds; rule-of-thumb 20% rejected
• Castledine v HMRC [2016] UKFTT 145 (TC) — deferred shares were ordinary share capital under s.989
• McQuillan v HMRC [2016] UKFTT 305 (TC) — FTT allowed (overturned on appeal)
• Revenue and Customs v McQuillan [2017] UKUT 344 (TCC) — UT reverses; nil is not a fixed rate; relief denied
• Warshaw v HMRC [2019] UKFTT 268 (TC) — cumulative compounding preference shares are ordinary share capital
• HMRC v Warshaw [2020] UKUT 366 (TCC) — UT upholds; relief allowed
• Hunt v HMRC [2019] UKFTT 210 (TC) — 5% test measured by nominal value of issued share capital
• Cooke v HMRC [2024] UKFTT 272 (TC) — rectification analysis on 4.99998% holding; relief allowed
• Potter v HMRC [2019] UKFTT 554 (TC) — trading status preserved during suspension; the open-shop principle
• Wardle v HMRC [2021] UKFTT 124 (TC) — section 50(6) burden; appellant failed to prove trading
• HMRC v The Quentin Skinner 2015 Settlements [2021] UKUT 29 (TCC) — UT decision on trustees' BADR
• The Quentin Skinner 2015 Settlement L & Ors v HMRC [2022] EWCA Civ 1222 — Court of Appeal reverses; relief allowed
• Apollo Fuels Ltd v HMRC [2016] EWCA Civ 157 — "nil is not a number"; ITEPA earnings case whose statutory-construction reasoning was applied by analogy in McQuillan (UT)

HMRC Guidance

• CG63950 — Business Asset Disposal Relief (general)
• CG64015 — personal company test
• CG64090 — meaning of "substantial" (post-Allam)
• CG64174 — anti-forestalling for 14%/18% rate changes
• Business Asset Disposal Relief — eligibility
• HS275 Business Asset Disposal Relief (2025)
• Tax Tribunal
• Tax Chamber procedure rules

On This Site

• HMRC enquiries and closure notices — section 9A enquiry and section 28A closure notice mechanics
• Discovery assessments — section 29 TMA where HMRC missed the enquiry window
• Schedule 36 information notices — what HMRC can demand mid-enquiry and what you can refuse
• HMRC internal review — the 45 days statutory review route
• How to appeal to the tax tribunal — step-by-step filing
• Writing grounds of appeal — drafting BADR grounds against the section 50(6) burden
• Postponing payment during appeal — section 55 TMA mechanics
• Tribunal tracks and costs — Standard vs Complex and the 28-day opt-out
• Preparing for your tax tribunal hearing — bundles, witness statements, skeleton arguments
• HMRC penalties explained — Schedule 24 FA 2007 inaccuracy penalties
• Tooth v HMRC: deliberate inaccuracy — companion analysis if HMRC argues 20-year discovery
• Late appeal to tax tribunal — the Martland route if the 30 days window slipped
• Tax dispute timeline — where BADR appeals sit in the broader HMRC journey

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.