Carillion (Again)

[GeoffF100]

An article from the BBC today:

http://www.bbc.co.uk/news/business-43275605

[Alaric]

An article from the BBC today:

in which

It said: "Rather than addressing the underlying challenges facing the group in respect of problem contracts and the strength of the balance sheet, transactions were entered into, and accounting treatments and assumptions made, to enhance the reported profitability and net debt position of the group."

Which rather makes the case for gaining "inside knowledge" by studying the accounts in some detail.

Would enhancing the auditor's certificate to state whether optimistic methods of reporting had been used contribute to a better understanding?

[absolutezero]

I'll shortly be in the process of sorting out my Capital Gains Tax calculations for the current tax year.

Has Carillion actually gone bust officially?
The shares are suspended but still listed and have a value of around 14p.

Obviously I am unable to sell at 14p if the shares are suspended.

I've looked into the legislation around claiming a CGT loss in the case of a bust company and it's one of those grey areas so I will probably try my hand and claim 100% loss.
But are the shares officially valueless?

[Dod101]

Alaric
I think auditor's certificates are so discredited these days that I doubt very much trying to extend it along the lines you suggest would be acceptable never mind add very much to what we already know about a company. That is not what an auditor is supposed to be for anyway. What about a true and fair view? And that is only their opinion but it supposed of course to be based on due diligence or 'audit' of the accounts.

As far as being officially bust is concerned, I think as long as the shares appear on the list as 'suspended' they are not officially bust even although no one will buy them from you at 14p. I guess the Stock Exchange awaits the official accounts of the winding up to prove that there is nothing left for the shareholders.

Dod

[PinkDalek]

I'll shortly be in the process of sorting out my Capital Gains Tax calculations for the current tax year.

Has Carillion actually gone bust officially?
The shares are suspended but still listed and have a value of around 14p.

Obviously I am unable to sell at 14p if the shares are suspended.

I've looked into the legislation around claiming a CGT loss in the case of a bust company and it's one of those grey areas so I will probably try my hand and claim 100% loss.
But are the shares officially valueless?

That 14p is really an irrelevance, merely being the price when suspended on 15 January 2018.

I think you are asking if they are on the HMRC Negligible Value agreement list. The answer is no, not yet, as can be seen here https://www.gov.uk/guidance/negligible-value-agreements. However, that list only takes one to 31 December 2017 and would be before anyone had claimed.

The fact that they are not on the list does not mean the ordinary shares are not of negligible value and doesn't preclude you from claiming a capital loss, should that suit your purposes, but see below as to timing as you'll have over 2 years to decide assuming the liquidation isn't complete before then.

Detailed discussion is possibly best suited on the Taxes - Practical Issues board but a study of this might assist:

https://www.gov.uk/government/publicati ... lue-claims

Extract only:

Please note that you must still own the asset when you make the claim and that the asset must have become of negligible value while you owned it. An asset is of negligible value if it is worth next to nothing.

When you make a negligible value claim you may specify an earlier time falling in the 2 previous tax years, at which you should treat the deemed disposal as occurring. You have to meet all the necessary conditions for the claim at that earlier time as well as at the time you make the claim.

Edit: You can follow the liquidation progress here https://beta.companieshouse.gov.uk/comp ... ng-history. At the moment this only includes the Order of court to wind up.

[Alaric]

I think you are asking if they are on the HMRC Negligible Value agreement list.

The cautious suggestion would be to hold off on any activity that would necessitate a claim this year until it turns up on that list.

[PinkDalek]

I think you are asking if they are on the HMRC Negligible Value agreement list.

The cautious suggestion would be to hold off on any activity that would necessitate a claim this year until it turns up on that list.

That might be so but HMRC can only refuse a claim so nothing lost, assuming the poster wants the capital loss in 2017/18 in any event. Compare that with a potential Neglible Value claim on an AIM share. They never appear on the list, as it is only for full listings.

That having been said, are you suggesting there is any hope of a distribution for ordinary shareholders? I was under the impression that the chances of that are nil but I've not followed the Carillion debacle.

[moorfield]

But are the shares officially valueless?

https://www.pwc.co.uk/services/business ... lders.html

Current position

Carillion PLC (“Carillion”)’s listing with the London Stock Exchange has been suspended. At the present time Carillion shares cannot be traded on the exchange.

The Special Managers are considering whether or not Carillion’s listing will ultimately be cancelled and its shares de-listed as part of that process.

Unfortunately, as a result of the liquidation appointments, there is no prospect of a return to Carillion’s shareholders.

Although it still sits on my spreadsheets as a "holding", I've written off CLLN already, not expecting anything back now.

[Alaric]

That might be so but HMRC can only refuse a claim so nothing lost, assuming the poster wants the capital loss in 2017/18 in any event.

I was thinking that it would be an own goal if the poster sold for a Capital Gain equal to the cost of Carillion shares and HMRC then disallowed the claim. That's assuming the 2017-18 CGT Allowance has already or will be utilised in any event and we are talking about actions that might be taken before April 5th.

[PinkDalek]

That might be so but HMRC can only refuse a claim so nothing lost, assuming the poster wants the capital loss in 2017/18 in any event.

I was thinking that it would be an own goal if the poster sold for a Capital Gain equal to the cost of Carillion shares and HMRC then disallowed the claim. That's assuming the 2017-18 CGT Allowance has already or will be utilised in any event and we are talking about actions that might be taken before April 5th.

Aha, good point, I'd missed the I'll shortly be in the process of sorting out my Capital Gains Tax calculations for the current tax year.

Even so, all the information available, including the extract from PwC (the Court appointed a number of PwC individuals as special managers to support the Official Receiver as liquidator from https://www.pwc.co.uk/services/business ... llion.html), in an later reply by moorfield, would suggest, to me at least, that a Negligible Value claim would succeed.

I have no bottom dollar but, if I did, I'd be willing to wager it on this.

[Bouleversee]

Can one not just ask HMRC if one can claim it is of negligible value? I can't think they could possibly turn you down. Having said that, Interactive Investor still has it down at l4.2p and a value based on that, whereas Iweb (and IIRC Selftrade) have it down as nil.

[Breelander]

Can one not just ask HMRC if one can claim it is of negligible value? I can't think they could possibly turn you down. Having said that, Interactive Investor still has it down at l4.2p and a value based on that, whereas Iweb (and IIRC Selftrade) have it down as nil.

14.2p was the closing price on Friday 12th January, on Monday 15th they were suspended. The 'nil' figure is the expected return for shareholders, I would have thought HMRC would be likely to accept the expected value.

In a liquidation, shareholders will only receive any cash if there are surplus assets after a firm's creditors have been satisfied...
...As the firm's liabilities appear to be greater than its assets, I believe shareholders should expect to record a total loss on this stock.

http://www.iii.co.uk/articles/474695/wh ... areholders

[Davidsb]

Hi Bouleversee -

Having said that, Interactive Investor still has it down at l4.2p and a value based on that, whereas Iweb (and IIRC Selftrade) have it down as nil.

I can confirm that Selftrade is still showing a value of 14.2p/share.

I am currently attempting to close down a Selftrade dealing account which held a number of securities including CLLN. All except CLLN have been sold, with the proceeds being transferred out of the dealing account to the nominated bank account.

I asked ST how to remove CLLN from the portfolio in order to close the account. The very helpful advice (in writing) was that I could transfer the shares, regardless of the LSE suspension, to another ST dealing account at no cost, provided both investors signed the appropriate Gifting of Shares form (pdf available for download from the ST website).

Having submitted the form, I sat back to wait the couple of days it would undoubtedly take for ST to action the transfer. Imagine my surprise when ST then telephoned me to explain that the transfer could not happen because the shares were suspended.....

I now have it in writing from ST that, whilst I cannot transfer the shares to another dealing account, there is absolutely nothing to prevent me gifting the shares to charity. I have agreed that this should happen, and I look forward to the new instructions being implemented. I am not, however, holding my breath.....

;¬)

[PinkDalek]

...I now have it in writing from ST that, whilst I cannot transfer the shares to another dealing account, there is absolutely nothing to prevent me gifting the shares to charity. I have agreed that this should happen, and I look forward to the new instructions being implemented. I am not, however, holding my breath ...

You are probably already aware but for others who are holding in a taxable account, such a gift would mean that no capital loss would be available for CGT purposes.

[absolutezero]

Thanks for the comments.
I think the consensus is wait and see.
I'm not particularly wanting the capital loss in this year's claim but I will want it eventually.

[PinkDalek]

Thanks for the comments.
I think the consensus is wait and see.
I'm not particularly wanting the capital loss in this year's claim but I will want it eventually.

You don't need to go down the negligible Value claim route at all. You can claim the capital loss in respect of the year in which the company is finally liquidated, as that liquidation constitutes a disposal for CGT purposes, and you'll have at least a further 4 years to claim after that date.

In slightly more detail see https://www.gov.uk/capital-gains-tax/losses

Extract only You don’t have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset.

[absolutezero]

Thanks for the comments.
I think the consensus is wait and see.
I'm not particularly wanting the capital loss in this year's claim but I will want it eventually.

You don't need to go down the negligible Value claim route at all. You can claim the capital loss in respect of the year in which the company is finally liquidated, as that liquidation constitutes a disposal for CGT purposes, and you'll have at least a further 4 years to claim after that date.

In slightly more detail see https://www.gov.uk/capital-gains-tax/losses

Extract only You don’t have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset.

Thanks.
So I will have to wait until CLLN is officially wound up. Which could be some time away!

[PinkDalek]

Thanks for the comments.
I think the consensus is wait and see.
I'm not particularly wanting the capital loss in this year's claim but I will want it eventually.

You don't need to go down the negligible Value claim route at all. You can claim the capital loss in respect of the year in which the company is finally liquidated, as that liquidation constitutes a disposal for CGT purposes, and you'll have at least a further 4 years to claim after that date.

In slightly more detail see https://www.gov.uk/capital-gains-tax/losses

Extract only You don’t have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset.

Thanks.
So I will have to wait until CLLN is officially wound up. Which could be some time away!

In that situation, yes, but there is still nothing to stop you going down the Negligible Value claim route previously discussed, as long as you are still the beneficial owner of the shares when you decide to make the claim.

[Gengulphus]

Thanks for the comments.
I think the consensus is wait and see.
I'm not particularly wanting the capital loss in this year's claim but I will want it eventually.

In that case, definitely don't do anything about it now. You haven't realised the loss yet, and won't actually realise it until you cease to own the shares, either because you somehow transfer them to a new owner or they cease to exist. A negligible value claim is simply a device to speed that up, basically producing the same effect as you would get by transferring them to a new owner without quite a few of the complications - essentially you and the taxman agreeing (assuming the taxman accepts the claim) to pretend that you have transferred them to a new owner. So if (and for as long as) you don't want to speed it up, don't submit a negligible value claim.

You don't need to go down the negligible Value claim route at all. You can claim the capital loss in respect of the year in which the company is finally liquidated, as that liquidation constitutes a disposal for CGT purposes, and you'll have at least a further 4 years to claim after that date.

First, a wording point that can be important when trying to understand what's going on: that "finally liquidated" should be "finally dissolved", and the "liquidation" that follows should correspondingly be "dissolution". For instance, Companies House records of the company will be changed to record its status as "Dissolved", not as "Liquidated" or any similar word. (So in particular, Carillion's Company House record currently recording its status as "Liquidation" doesn't indicate or even suggest that it has happened!)

Specifically, a company is dissolved as the final step of any process to bring an end to it: it is the step that actually causes the company and its shares to cease to exist. So it is also the step that causes you to actually realise the loss (*). It can't be done until every last detail of the company's affairs has been wound up, which typically takes a few years even for small companies. As an example that I am (unfortunately!) familiar with, Coffee Republic plc (a small company that was traded on AIM) went into administration at the start of July 2009 (see https://www.investegate.co.uk/coffee-re ... 59521371V/ and https://www.investegate.co.uk/coffee-re ... 25102798V/), but its Company House record shows that it wasn't dissolved until 12/12/2012, over 3 years later.

And that sort of delay is basically why negligible value claims exist. Without them, shareholders would be stuck for years on end owning shares suffering an irrecoverable total loss, but unable to dispose of those shares at all easily and so actually realise the loss for CGT purposes. By having the device of negligible value claims, tax law basically acknowledges that that's unfair and that while shareholders still own the now-worthless shares, they should be able to choose to be treated as though they had sold them.

Note that word "choose". Making a negligible value claim is not obligatory - so if you don't want the loss now, simply don't make one! Things will proceed on the basis of the actual situation that you still own the shares and haven't realised the loss. If you continue not making the negligible value claim for future tax years, that will remain the case - until the company is finally dissolved, but that's very likely to be quite a few years away. So basically, one should aim to make the negligible value claim for a tax year in which one can use the loss as effectively as possible - ideally (*), entirely used to offset gains on residential property that aren't covered by either your CGT allowance or your unused basic-rate Income Tax band, so that they would be taxed at 28%. That ideal may of course be impractical to achieve - for instance, I don't invest in residential property, so my maximum saving is on gains taxed at 20%. And holding off on making a negligible value claim does run the danger that the company will be dissolved - if it is, you immediately cease to be able to make any negligible value claim about it, and so are stuck with having to realise the loss in the tax year containing the dissolution date, however ideal or non-ideal that tax year is for you.

(*) Note that you do still own the shares right up to the dissolution date, unless they are actually transferred to someone else's ownership (which if it happens, I am pretty certain you'll know about). In particular, your Carillion shares will probably disappear from your broker account long before the company is actually dissolved (I know my Coffee Republic shares disappeared from my broker account in a matter of months, not years). That doesn't indicate that the shares have ceased to exist or that you have stopped owning them, just that your broker has stopped telling you that you own them. (I'm not certain exactly what causes brokers to do that, and indeed it might quite possibly vary between brokers. One plausible guess (but only a guess, not something I know) is that it might be the official trading status of the shares - technically, trading in Carillion shares is only suspended at present, rather than its listing being completely cancelled. It's utterly clear that it will be cancelled in due course, but in circumstances like Carillion's, only suspending trading is treated as high-priority: follow-ups like cancelling the listing proceed at normal bureaucratic speeds...)

(**) As CGT rates currently stand - if they were going up or one wanted to bet on them going up, one might want to hold off on the negligible value claim even if the current ideal were achievable because of the prospect of the CGT saving being greater if the loss were used in a future tax year.

In slightly more detail see https://www.gov.uk/capital-gains-tax/losses

Extract only You don’t have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset.

A few cautions about that quote:

First, it is not about negligible value claims, but about claiming losses. The timing rules about negligible value claims are different, specifically that you can make the claim about any asset that you still own and that has become of negligible value during your period of ownership. So in particular, it must have had non-negligible value when you acquired it, you must have owned it continuously since then, it must have negligible value when you make the claim, and you must still own it when you make the claim. It basically doesn't matter how long ago you acquired it or how long ago it became of negligible value (where I'm including the weasel word "basically" only because negligible value claims might well be affected by some overriding rules about how far CGT can look back at all, which IIRC are about not looking back beyond some specific dates in 1965 and/or 1982). But equally, the condition about still owning the asset means that there is no 'grace period' after you cease to own it - as I said above, when the company is dissolved, you immediately cease to be able to validly make any negligible value claim about it.

There is a further timing aspect to negligible value claims: if successful, they result in you being treated as having realised the loss, so the question arises of when you are treated as having realised it. The answer is that it's a date of your choice, provided you say what it is within the claim (if you don't, it's the date you make the claim) and that date is (a) after the asset became of negligible value; (b) in the tax year that you make the claim or one of the previous two tax years. So with regard to Carillion, given that it became of negligible value in the current 2017/2018 tax year:

* Currently, it is possible to validly make a negligible value claim to have realised the loss only on dates within the 2017/2018 tax year. I would be very confident of such a claim succeeding if made today and for the loss being realised today, given the statement that "Unfortunately, as a result of the liquidation appointments, there is no prospect of a return to Carillion’s shareholders" in https://www.pwc.co.uk/services/business ... lders.html. And usually, the exact date that a loss is realised within a tax year doesn't matter for CGT, so in the absence of any special considerations that's the date I would claim to have realised the loss if I were making a claim today (which I'm not).

* On 6 April 2018, assuming that the company hasn't been dissolved by then (I would be absolutely staggered if it were, as liquidations and similar processes of large companies simply don't get completed that quickly in practice) it will additionally become possible to validly make a negligible value claim for dates in the 2018/2019 tax year. At the same time, it will become possible to complete a tax return for the 2017/2018 tax year, so for people who want to have realised the loss in the 2017/2018 tax year, it's very natural to make the claim in the 2018/2019 tax year but for the loss to be realised on a date in the 2017/2018 tax year (obviously, one after the shares were suspended, and I don't think there would be any point in making it for any earlier date than 05/04/2018 in the absence of special circumstances) and include it with the 2017/2018 tax return. I suspect that's the most frequent pattern for negligible value claims about publicly-traded shares in practice: a claim for the loss to be realised in a tax year, made while filling the tax return for that year during the following tax year. As I think I will have sufficient gains for 2017/2018 to want the Carillion loss, it's what I myself currently intend to do - but that's not yet a firm decision. That's partly because I'm not quite up to date on calculating what gains and losses I have already realised, and partly because it is possible e.g. that some other company will release news before the end of this tax year that makes me want to sell and realise another big loss before the end of this tax year (it would be silly to commit myself to realising the Carillion loss by submitting a negligible value claim until I'm certain that it won't end up being used to offset gains my CGT allowance would cover anyway!).

* On 6 April 2019, still assuming that the company hasn't been dissolved by then (I would still be pretty amazed if it were) it will additionally become possible to validly make a negligible value claim for dates in the 2019/2020 tax year.

* On 6 April 2020, still with the same assumption (which I'd guess will be becoming somewhat less likely to be the case by then, but still a lot more likely than not) it will additionally become possible to validly make a negligible value claim for dates in the 2020/2021 tax year, but cease to be possible to make one for dates in the 2017/2018 tax year.

* On 6 April 2021, still with the same assumption (which is obviously less likely than it was a year earlier, but I don't really have any feel for how likely it will have become) it will additionally become possible to validly make a negligible value claim for dates in the 2021/2022 tax year, but cease to be possible to make one for dates in the 2018/2019 tax year.

And so on at the start of each tax year until the company is finally dissolved, when it will cease to be possible to make a negligible value claim at all, even for tax years before it was dissolved.

I've a few more cautions about that quote, each fortunately a lot shorter than the first:

* A negligible value claim is not a replacement for claiming a loss - it's just a preliminary to it for use in cases where you still own the asset and it has become of negligible value. I.e. you still have to claim the loss, which basically means telling the taxman about it, with details such as your disposal proceeds and allowable costs from which the amount of the loss can be calculated. A negligible value claim only establishes the disposal proceeds as being the negligible value (typically £0.00) and doesn't give the other details, so it doesn't by itself claim the loss.

Normally, losses are claimed simply by giving their details in the relevant tax return, so this isn't an issue if the relevant tax return details the loss as well as including the negligible value claim. It might be more of an issue if the negligible value claim is made by separate letter (which is fine) and the taxpayer has the impression that they've done everything needed - they do also need to give the taxman full details of the loss (which again is normally done in the relevant tax return but can quite legitimately be done in a separate letter).

* In the case of a loss that you are treated as having realised because you've made a successful negligible value claim, the "4 years after the end of the tax year that you disposed of the asset" time limit on claiming losses is 4 years after the end of the tax year in which you are treated as realising the loss as a result of the claim. Not the end of the tax year in which you made the negligible value claim - it could be as little as 2 years after that.

* Claiming a loss late does not alter the tax year in which it was realised, and it applies to your tax affairs from that tax year. For instance, a loss resulting from a share sale now, in the 2017/2018 tax year, can be claimed at any time up to and including 5 April 2022 - but it will be a loss that enters into your tax calculations for the 2017/2018 tax year regardless of when you claim it. If it will uselessly be used up offsetting a gain in the 2017/2018 that is covered by your CGT allowance, but would have been useful to offset a gain in excess of your CGT allowance in the 2018/2019 tax year, you're out of luck and delaying claiming the loss won't change that: all it will achieve is to make you and/or HMRC have to revisit your tax calculations and payments/refunds all the way back to 2017/2018...

Basically, you choose the date that you realise a loss (or gain) when you choose to sell the asset (or otherwise dispose of it, e.g. by gift), or if you make a negligible value claim about it, when you choose the date named in the claim. Or you have the choice made for you as the date you cease to own the asset if that happens without any choice on your part, e.g. when the asset is shares in a company and that company is taken over or dissolved. Claiming the loss is merely informing the taxman of its details, not an opportunity to make any further or changed choices about it, nor to make any further choices about how it affects your tax beyond the fact that it's essential to claim it within the 4-year limit if you want it to affect your tax at all.

* On the possibility of claiming losses late, as stated in the previous bullet, it doesn't actually do any good compared with claiming them at the normal time in the tax return for the year concerned, just causes more revisiting of tax returns, calculations and payments that would otherwise be done and dusted. I believe it's really only intended for cases where the loss wasn't claimed at the normal time through ignorance or mistake - e.g. when HMRC didn't require the taxpayer to submit a tax return for the relevant year and the taxpayer didn't have to pay any extra tax beyond that paid by PAYE, or when the taxpayer somehow wasn't aware that they'd realised the loss, or when the taxpayer had done a tax return for the year concerned but without the capital gains section because they hadn't realised they wanted to claim the loss and none of the other reasons for including it applied. Not for cases where the taxpayer deliberately chooses to delay claiming them... That doesn't mean one cannot deliberately delay claiming them, but it does mean that if one does, it's a good idea to take care to stick pretty strictly to the rules.

In particular, if one submits a tax return for a tax year and it includes the capital gains section, it really ought to provide details of every loss one knows one realised in that tax year, otherwise the declaration at its end that it is complete and correct to the best of one's knowledge and belief is false - and making a false declaration to the taxman is quite a serious offence. I wouldn't expect omitting a loss one has realised to even be noticed at the time, but there's probably a fair chance that it will be noticed if and when one later claims the loss. Even then, I wouldn't expect it to result in anything more than a request for an explanation from the taxman - but take care about that explanation! E.g. "I didn't want to claim the loss at that point" isn't a valid explanation when you've declared that (among the many other details in the tax return) you've declared all losses you know you've realised in the tax return. "I failed to understand that I'd realised that loss" is better in general - but is pretty implausible if you've made a negligible value claim about the shareholding concerned!

So all in all, I reckon it's generally best to make negligible value claims and claim losses in the normal process of submitting the tax return for the tax year concerned, accompanying that tax return, which you normally do in the following tax year. The ability to claim losses later can be useful, but is best kept for cases where you inadvertently failed to do so at the normal time.

Gengulphus

[Lootman]

A negligible value claim is simply a device to speed that up, basically producing the same effect as you would get by transferring them to a new owner without quite a few of the complications - essentially you and the taxman agreeing (assuming the taxman accepts the claim) to pretend that you have transferred them to a new owner. So if (and for as long as) you don't want to speed it up, don't submit a negligible value claim.

I agree with the advice there if the investor wants to delay taking the tax loss.

But if you wish to accelerate the loss then selling a near worthless share for a peppercorn price in order to crystallise a loss is a fairly standard thing, and I have employed that myself a couple of times. I do not see that there is any "pretending" going on there. You merely have to be able to demonstrate that the holding is near worthless which, in this sad case, it fairly clearly is. And that you transferred the beneficial ownership of that asset.