Delays at HM Revenue & Customs are holding up thousands of business owners who are trying to sell their companies before a higher rate of capital gains tax (CGT) takes effect next month.

Accountants said that a stampede of entrepreneurs had overburdened the taxman with applications for approval of sales before April 5, when the CGT rate will increase from 10 per cent to 18 per cent. The backlog in the clearance process could leave many businesses with an unexpected tax bill running into millions of pounds.

Mike Warburton, senior partner in Grant Thornton, the accountant, said: “There is a mad rush of people selling up now to avoid paying the extra tax after April 5. But there are huge delays in the processing of clearance applications at the Revenue.”

To be eligible for the CGT rate of 10 per cent, a sale must be complete before April 5. However, businesses that have not received clearance from the Revenue before selling do not have any guarantee on how much tax they will have to pay. Accountants gave warning that this would leave these businesses particularly exposed to the antiavoidance crackdown announced by the Chancellor in the Budget on Wednesday.

Rose-tinted specs fail to offer hope

The obvious justification for Mr Darling’s relatively upbeat scenario is that the outlook is fraught with uncertainty

Background

• Darling's first Budget: the main points

• The Chancellor's speech in full

• Darlings first Budget: the reaction

• Chancellor hits the home budget as his debts soar

• Need to know: Budget 2008

The Chancellor delivers a modest Budget

As so often is the case, virtue, in terms of improving public finances, is not now, but at least a year away

Multimedia

• Video sketch: Matthew Parris and Ann Treneman

• Eco-worrier: should we be pleased?

• Green Central: round-up of the green Budget measures

Related Links

• Green tax revenues near record low

• Inflation fears could stop interest rate cut

• Businesses set for pain as tax gains wiped out

The Government confirmed in the report that it would be keeping an especially close eye on avoidance of CGT. Toby Ryland, senior partner in Blick Rothenberg, the accountancy firm, said: “Without an advance agreement between the taxpayer and the Revenue that the transaction will have a certain tax effect, these businesses could be in for a nasty surprise, because they are at risk of falling foul of anti-avoidance legislation.”

The Revenue must process a clearance application within 30 days of receipt. However, it can push back the time limit if it has any queries about the transaction. One accountant noticed a spike in questions being sent back by the Revenue around Christmas that he said were “absurd”.

Others said that the risk of a business not receiving clearance in time was so high that they are advising clients to go ahead without it. Jan Ellis, also of Blick Rothenberg, said: “Time is tight, and the risk that a clearance application will not be processed by April 5 is such that, for many businesses, there is no point going through clearance.”

The warning came soon after the Chancellor confirmed the new 18 per cent rate in the Budget. Alistair Darling also confirmed relief from CGT for entrepreneurs on the first £1 million of gains, after criticism from businesses and entrepreneurs that the original proposal to abolish taper relief would discourage enterprise and unfairly penalise small and medium-sized businesses. The Chancellor ignored calls to delay the introduction of the new CGT rate until next year.

Companies have been developing a number of strategies to avoid being caught by the new, higher rate since it was announced in the PreBudget Report in October. For instance, it is possible to sell a business to a trust now, then defer the payment of tax at today’s rate until a future date.

A spokesman for HMRC said: “There are no delays, we are busy but are turning around clearance requests well within the normal thirty day period.”

Robin Rowland, chief executive of the YO! Sushi restaurant chain, was relieved after sealing the sale of the company to Quilvest Private Equity this week for an estimated £51 million. Although a sale was part of the group’s strategy, he conceded that the CGT changes had been a factor in the timing. “I’m delighted we got the deal away,” he said. “The clock was ticking and I was getting rather agitated.”