This First-tier Tribunal (FTT) tax chamber judgement demonstrates why neither loose informal understandings nor unrectified public registers cannot override strict statutory requirements for relief on capital gains tax (CGT), a tax charged on the profit made when selling or disposing of assets that have increased in value, whether these are stocks, real estate, or valuables.
Background:
An architectural services company was initially incorporated in September 2011 with a single ordinary share held by a sole shareholder. In March 2015, an employee who had briefly served as a company director before resigning in February 2017 (although she remained in employment until March 2021) was allocated 100 class ‘B’ ordinary shares, alongside a further 99 class ‘A’ ordinary shares that had been allotted to the original shareholder. Crucially, the SH01 filings submitted to Companies House for 2016 and 2020 (a form filed with Companies House to report the allotment of new shares after incorporation) explicitly recorded that the class B shares conferred no voting rights and no rights to winding-up distributions, ranking equally only in terms of the payment of dividends.
Moreover, the register of persons with significant control at Companies House specified that the primary shareholder retained 75% or more of the voting rights. Despite receiving a formal professional warning in 2024 that the public records undermined any narrative claiming equal voting rights, no formal application to rectify the Register of Members under company law was ever made.
In October 2020, the taxpayer sold the B shares for £475,000, declared a capital gain, and claimed over £462,000 in business asset disposal relief (BADR). HMRC opened a self-assessment enquiry under Section 9A of the Taxes Management Act (TMA) 1970 and issued a November 2023 closure notice withdrawing the relief and increasing CGT by £46,260 under Sections 169I and 169S of the Taxation of Chargeable Gains Act (TCGA) 1992. The taxpayer appealed to the FTT, arguing that the unamended model articles created a pari passu regime (that all share sales will be taxed equally by default) and that Companies House filings were in fact ‘administrative oversights’ that were otherwise inconsistent with the parties' shared operational understanding.
Decision:
The FTT dismissed the appeal. To qualify for BADR, the company had to be her "personal company" under Section 169S(3) of the TCGA 1992, which requires the holder to have at least 5% of the voting rights exercisable in general meetings, according to Hepworth v Smith [1981], and her class B shares did not carry those rights.
The burden lay on the former director to displace the filed record, and she was unable to do so. Under Section 127 of the Companies Act 2006, the Register of Members is prima facie evidence (evidence presented at face value) of the shares held, and the courts treat the Register as ‘the controlling voice’ unless and until it is amended or rectified (Enviroco v Farstad[2011]; Bland v Keegan[2024]). Any unamended model articles or general statutory rules on share classes under Section 629 and director allotments under Sections 549–551 of the Companies Act 2006 cannot override explicit public declarations of the non-voting status of share capital. Discretionary guidelines, undeclared informal understandings, and internal contractual restrictions do not always confer general voting rights or bypass statutory tax thresholds.
Implications:
This ruling delivers a stark warning concerning tax reliefs like BADR. Tax reliefs are statutory concessions tied strictly to objective legal criteria, meaning that internal boardroom consensus, informally agreed dividend parities, and vague commercial expectations can amount to nothing if corporate hygiene (routine governance and filing) is neglected. If a share class or governance structure is documented inaccurately at Companies House or omitted from formal resolutions, waiting until an HMRC enquiry to recharacterise the arrangement is a risky gambit. In straightforward terms, the public register is treated as the definitive record until formally amended. Private understandings between shareholders carry little weight against contradictory filings, especially where there is no evidence that a ‘vote’ was ever cast.
For those who might one day sell their stake in a company and seek tax relief, share rights are worth confirming long before any potential sale. They must not be left to dangerous assumptions that HMRC will later dismantle. BADR turns on precise conditions—a minimum shareholding, voting rights exercisable in general meetings, and a qualifying period—and each must be strictly supported by the documents. Class B shares, an unamended set of model articles, or an allotment form incorrectly completed by a previous adviser can quietly defeat a claim worth far more than the cost of fixing those oversights early.
Directors and shareholders should treat ‘corporate housekeeping’—including the maintenance of statutory registers, accurate confirmation statements, prompt filing of allotment notices, and formal rectification where mistakes occur—as an integral part of wealth protection and tax planning. When public statutory filings contradict private intentions, the public record reigns supreme, transforming an administrative oversight into an expensive tax liability that judicial sympathy will not cure.
