VIP Video Library – Session 2

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The Irish Accounting & Tax Summit

Session 2 - Entrepreneur Relief – Tips and Traps Including Anti-Avoidance (S. 135(3A) TCA 97)

Session 2 - Presentation

Session Transcript

This transcript was created using AI and may contain some mistakes.

The topic for today. This session is entrepreneur relief, tips and traps, including empty volumes. I’m delighted to be joined today by Amanda common. Amanda works with Doyle County tax advisors and as a barrister law and a chapter, a tax advisor, she has extensive experience in the fields of tax having worked in legal firms and large accounting practices. Uh,

mostly most recently as a tax partner with Phillip Lee and prior to that as a, as a tax director with, with grant Thornton. And so just a as regards questions, you know, please do ask questions. We, we value questions. We want questions and I’m sure it’s, it makes the, it makes the course more relevant and more valid for yourselves.

So there’s two ways you can do that, uh, within the chat box. Uh, if you type in your question, if you can direct them to me and then I’ll be able to feed them in to feed them, talk to Amanda at the end, I think we’re going to have a Q and a session once she’s finished her presentation. So if you,

if you direct them to me, then that should be fine. Um, Amanda, I’ve handed over to you. Do you want to take us through the area that you’re going to cover today? Great, thanks time for like, eh, hi everyone. Um, good of everybody. Thanks for tuning in. So I’ve called the presentation entrepreneurs, leave tips and traps and anti avoidance,

which is a bit of a mindful in itself, but what am I actually going to look at? Even within that topic is probably an even more narrowed focus in terms off. What I want to look at is vendors on exiting exit shareholders. So I want to look at entrepreneurs relief and in relation to kind of that specific issue. So not in relation to just a sole trader,

but I want to look at the exiting a company. I’m going to talk to some of the other reliefs as well, more so to kind of highlight the differences between entrepreneurs relief and some of the issues that rise where people, um, where people tend to kind of mix up some of the conditions or, and some of the concessions from revenue in relation to particularly entrepreneur’s relief and retirement relief.

So there’s a lot of correlation between the two reliefs. There’s actually quite a big departure in some of the, uh, some of the requirements On some of the conditions that apply. And so that’s what I want to look at. I’m going to share my screen now, which is basically just going to, um, Pull up my slides. Um, so again,

the topics I’m going to cover. Look, I said, just going to look at some of the relevant tax reliefs. So again, because we’re looking at a vendor and, uh, exiting a company, there’s obviously only a few reliefs that are relevant. So we’re looking at a CGT event because it’s a disposable chairs. So we’re going to be looking at retirement,

really entrepreneurs, already fun participation. If that should look at that, really not going into any great detail in relation to the conditions attaching to these reliefs. Um, I am going to take as red for the large Part that people are familiar with these reliefs. They don’t need me to go through a basic exercise, are reading the requirements for the relief to you.

What I want to do is talk about them in the context of when I suppose what I’m going to pull out is that the conditions and the bits of the reliefs that are going to talk to that are relevant for the case studies where you’ll actually see a demonstration of the live issues that arise when you’re looking at the different pieces that I’ll talk about within the case studies and then going to move on to the RD avoidance provisions under a section once revived.

So final talk, 2017 introduced these anti avoidance provisions really targeting the buildup of cash on a balance sheet for that cash is then used to find it at the sale of a vendors are an exiting shareholders shares. So it’s become hugely relevant. In fact, it probably has to be looked at in relation to most transactions involving close companies and exiting shareholders. Now,

um, like I said, there’s specific it’s two one, three, five, and again, it’s relevant for one knowing when it applies and two, knowing how to just have to structure your transaction so that you can basically work within one, three, five are working within section one, three, five. So exiting the company as a shareholder. Again,

weirdly there’s a limited market. So when I’m exiting a shareholder, there’s only a few people that will ever be in the market for private limited companies shares that’s the existing shareholders, the company itself. But I suppose the company itself is really a hybrid of the existing shareholders because the company itself means that obviously the proportion is shareholding for the existing shareholders would be adjusted once I exit my shareholder using the company.

And so obviously they will need to be on board for any, um, any exits funded by the company. And it also would be, Oh, but funded by the company. So again, the existing shareholders are incredibly relevant where I am using the company to exit the shareholders of the kind of board in the same thing. Really, the only difference is who’s funding and a third party,

and then an MBO, which you see more often than not, but the MBO transactions are the ones that have kind of been hit the most by the one three, five. And again, it’s like, I’ll talk to relevant examples. And again, how to look at section one, three, five, and mechanisms maybe to circumvent at falling within the remit of section one,

three, five, one aspect. I do want to talk about it, just pay a little bit of attention to before I move on to kind of the specifics around the reliefs is buybacks and share redemptions. The reason this is relevant, probably where the most common mechanisms of exiting a shareholder. Mmm I’m a fan of buybacks. And one of the reasons is,

and again, we’ll talk to it when we look at one, three, five, but in fact, by max four out of three miserable and three, five, so revenue in revenues guidance, they specifically say a buyback. It doesn’t fall within one 35. So the minute I do the buyback, I don’t need to concern myself with section one, three,

five, which again is, is a useful thing in itself and share redemption. And a buyback is great, and it’s a great method of exiting a shareholder. However, there are certain conditions attaching to my buyback and what obtaining CGT treatments we’re talking about. Entrepreneur’s relief fundamental to whether I can or can’t claim entrepreneur’s relief is that I have a CGT transaction as opposed to an income distribution.

So it is crucial that I qualified for the conditions to get CGT treatment, because if I don’t, then I’m in an income distribution. I’m not looking at entrepreneurs really for any of the CGT relief at all. So my step warden, before I look at a buyback is to make sure that I’m looking at the relevant conditions and that I’ve determined that I qualify for CGT,

a CGT transaction, as opposed to an income distribution. Obviously our tax rates are relevant to 33% versus 55. Yeah. And dividend withholding tax for the company where I end up in an income distribution as opposed to a CGT event. Um, one thing I will touch on is stumped your teeth. Again, it goes, it’s more just to highlight stopped using on buybacks.

It’s a kind of an accepted treatment, but more often than not, I’ve seen a kind of misconception around the treatment. So I’ll talk about it very briefly in relation to the buybacks, what to do for statutes to make sure you don’t call a off, incurring a charge to stop to shoot when there was an age, um, before I move on,

I suppose, buybacks, like I said, they’re, they’re a very valuable way of being able to exit a company or exit a shareholder because you get to use the folders within the company and not fall foul of section one, three, five, sometimes a buyback will work. So there is various occasions where it’s an inappropriate solution. The first of those is where my remaining shareholders don’t end up in the proportionate ownership that I wanted them to post the exit of my exit and shareholders.

So I need to always be aware of the fact of what’s going to happen when my remaining shareholders on what proportion they will end up only the company and ask once I’ve exited to make sure that that is what everybody wanted and hopes to achieve the second and the biggest hurdle I would always have is do I have the reserves and the company in order to fund my buyback?

If I don’t, I’m not looking at buyback at all. And a buyback will not work where I’m looking at a striker to exit. Mmm. And then the last bit is that I need to look to make sure that a quantified for CGT treatment. So again, CGT treatment is the kind of default position for buybacks is I am and income distribution under section one 30 or less qualified for CGT treatment under section one 76 of the TCA.

So we’re looking at section one 76, I need to, and I sometimes approach when I’m at working with clients, when I’m working with these kind of reliefs myself, I approach it almost like an exam question where I make myself write out the conditions for the relief. And then I literally go through them one by one to make sure that I’m qualifying and that I’m meeting all of the conditions.

The reason I say it is it’s very easy to look at a set of conditions and just kind of without actually doing the exercise of seeing whether the condition is met is just take a, kind of a, an immediate, responsible gay. I know this is a trading company. Again, when I’m looking at a trading company, I’m looking at the whole year mainly trading tests.

So I need to make sure that I’m looking at a minimum turnover at 50% arrived from trading activities. So I need to make sure that I’m comfortable on my trading analysis. The holding period for buybacks is important. And the reason it’s important is it’s a five year hold Mmm. For entrepreneur’s relief. I’m only looking at a three year homes. So it’s quite easy to have gone through my conditions for entrepreneur’s relief and then just accidentally forgotten that it’s in fact,

a five year hold for the buyback to qualify for buybacks as CGT treatment. My shareholder must be read on ordinary raise on the stage. Again, most people take it as red. It’s a good exercise to make sure particularly the ordinary residents test is mash. And my whole year, mainly for the benefit of the company is trade. And I’ll talk to this in a few minutes.

This is a subjective test. God what’s happened is revenue really issued a huge amount of guidance around what totally made me for the benefit of the company’s trade. There is a significant body of case law, I suppose, at this stage as well. And determining what quantifies under the company’s trade, um, revenue’s view is now that they are most because their guidance is so prescriptive in terms of what totally and maybe for the benefit of the company is trade that there should be no reason that’s,

uh, except in exceptional circumstances that somebody looks for a pretty transactional opinion from revenue revenue of also in there gardens given a significant amount of information in terms of what they want. And from an information point of view, my view is always, if you’re asking for permission at you’re probably in a, in a difficult position anyway, uh, and you should actually be able to establish yourself totally,

or maybe for the benefit of the company’s trade without needing a blessing from revenue to confirm your view and the remaining shareholding test. And this one is important. I, again, I kind of adopt my own an exam technique for making sure that this one is correct because it’s one that you see done incorrectly quite often. So I cannot hold more than 75% of what I held pre the buyback in order to qualify for CGT treatment.

So in order to determine that I need to do the zones, I need to do the exercise. I need to look at what can I share I’ll do before what’s my shareholding after and check the numbers to make sure that I’m selling an off quantify and for the 75% test. So the easiest way to do it is to get the total issue, chair,

competence, the company. Hmm. So look at my share, my exiting shareholders issue chair in relation to the total issue, chair cup, get a percentage, multiply that by 75%. That is the percentage that I cannot own more than at the end of my buyback. So once I have that percentage of cannot hold more than that, that percentage at the end of my buyback.

And then what I do is I redo my issue, chair, CAPA, my shareholders percentage, following the buybacks, but what I need to make sure I do is I deduct from above the line and below the line to figure out what their percentage of issue chair copies, posts the Bible. So if I take an example where I have a shareholder who owns a hundred issued shares of a total issue,

checkup of 400, that means that I’m a 25% shareholder. When I multiply that 25% by 75 that’s 18.75. And what that means is that I can’t hold more than 18.75 after the buyback. Otherwise I haven’t met this reduction of 75% test, I’m going to sell 50 shares. So off the sale of 50, what I’m going to do is to determine what percentage of the issue chair cup,

my own post, the buyback. I now only own 50 shares, but my total issue chair cap in the company is only 350. So I need to make sure that I deduct for above and below the line to make sure I get the correct percentage. And that gives me, so I’m now looking at 50, over three 50, which is 14%,

which means that I am onto the 18.75. And I qualify for buyback treatment because I’ve done and I’ve not exceeded the subject 5% of what I have preached the Bible. So again, guys, I know what sounds like a really basic exercise, but it’s Wharton that I see Dawn incorrectly quite often, if you fall follow the test you’re in and income distribution,

and you’re not looking at reliefs at all, and nor are you looking at CGT rates. So it is a, it is very important. And were you looking wholly or mainly for the benefit of the company is trade. And again, revenue, like I said, they’ve been very prescriptive. A lot of the stuff is very obvious. There’s a disagreement over the management of the company.

I have a dissenting shareholder who wants to exit. What I need to look at is from the company’s perspective, is it to the benefit of the company’s trade? So I need to look at how much is it going to cost the company to exit the shareholder and will that have a significant negative impact on my company’s trade and its ability to trade into the future?

So what I need to be able to look at is future strategies, financing the buyback, how the company is going to finance itself, going on the viability of its trade posts, the buyback, given the fact that it’s probably going to have divested itself of a significant reserve at buildup in order to be able to finance the buyback. All right. Sorry,

Amanda. Just one question though, that’s just come in and it’s just in relation to the last slide, just to clarify is the period of ownership of the shares five years or three Five for buyback three for entrepreneur’s relief. So for buyback, for CGT treatment, it’s for my buyback is five years. Perfect. Um, so as sorry on my, so where I’m looking at holding them mainly for the benefit of the company is trade cause I need to document.

So in the event that revenue ever comes to question the analysis of how it was determined that it was for the benefit of the company trade. I need board minutes, I need directors meetings. I need to do an actual thorough investigation or at least a reason’s decision that looks at those aspects of the company’s viability, how its funding, how its future strategy looks following the buyback and divesting itself of a significant amount of its reserves.

So again, it doesn’t need to be a tone. It just needs to be a consideration of unsolved, some reasons decision as to why this, for the benefit of the company’s trade or the Congress, why it would not have impacted the company’s ability to continue trading. And so it is important that it’s looked at, um, undocumented document document is the only thing.

And that I think is important and crucial and tends to just get missed in terms of the, kind of the theory behind what I’m doing and why I am doing the buyback. So the stamp duty piece is again, relatively straight forward, but again, one of those ones that you kind of see a lot of people think there’s actually an exemption for buybacks and stamp duty.

There actually isn’t sometimes he is like one of those very unique taxes in terms of it is a tax based on instruments. So the obvious rule is no instrument, no stamp duty. So what I’m looking for in a buyback is to make sure that I don’t inadvertently put an instrument in place that becomes liable to stamp duty, where I’m looking at the transfer of shares and SFDA is not,

it’s charged with stamp duty. It’s in fact, the stock transfer for normally I needed a stock transfer form in order to be able to write up the company’s books and to show ownership and a full transfer of the legal interest revenue have recognized that where I’m in a share or where I’m in a buyback to share, is it being confluent? So there’s no requirement for a stock transfer form because a company’s books don’t need to be written up I’m on,

I don’t need to prove ownership and in order to be able to, to, um, so I don’t need to do a stop transfer for form. And obviously I don’t fall under section 31 because there’s a carve out is for and contracts for shares. So what’s important is that adult inadvertently put a stock transfer form and place. If I do, I have just executed an agreement that is subject to fee.

So the key is not to do your stock transfer forms on what you’re essentially relying on. It is the spa. And then the cancellation of the shares following the buyback is in fact, the analysis and I’ve taken that extract from the revenue commissioners where they actually recognize that treatment for the buyback. So again, it’s not an exemption, it’s an actual, just an acceptance of the way.

And legally the way an agreement for a buyback will actually help them and the requirements, the non requirements for want of another way of putting it after the stock transfer form. So leaving buybacks, and I suppose looking at our reliefs on the exit is what I, what I said here is not going to go into the different beliefs that all, or the difference analysis on the conditions attached the release.

I suppose, what I want to do is really lift out of square. The reliefs are different. Um, so our tests tends to be different for each of the companies. So my definition of chargeable, the business assets is different for retirement on entrepreneur’s relief. My holding periods are different. I’m a concession rules are different. So we’re on token concession rules.

I suppose there’s a difference. There’s a couple of very significant differences in entrepreneur’s relief. I’m sure people are familiar with them now, but it always does good as opposed to just re rehash them and just highlight them because they get like they sometimes get forgotten because we’re used to dealing with retirement relief, um, the departures between retirement and really fun entrepreneurs relief,

to be honest with you, I don’t really understand why revenue did it however they exist and the need to just see. And you just need to be mindful of them when you’re working with the two at reliefs participation exemption, I suppose I’ve just included in there because it’s the only other CGT relief that you look at when you’re looking at at just those other shares in a company.

But obviously participation exemption is a holding company. So it’s a company relief as opposed to an individual shareholder relief. And, but again, when you’re working with the three of them, it’s the idea that holding period being different and is what’s important. And then obviously what we’ll look at is you’re charged with business offsets. Um, and really when I don’t qualify for relief,

which is the important bit when I’m looking at a company and when the shares fall out of the release is different for retirement relief than it is for entrepreneurs. And So just as you’re moving between slides there, Amanda, just, uh, the, uh, just to highlight the fact that in the chat box, the billing for the downloads has just gone in.

So if you click on that download, hopefully that should bring you to the slides. So just to flag to everyone, just to click the link and then download the slides while they’re there. Perfect. Okay. So entrepreneur’s relief is again, most people are familiar and adds a 10% rate to tax on the first million and it’s a lifetime limits. We’ve all kind of been waiting for that limit to go up.

It hasn’t done. I think it’s probably safe to say in the current climate is won’t be doing, um, I know the UK have looked at reducing their entrepreneur’s relief limit. So again, it’s just that million, it is a lifetime limit. So you need to be careful and historic transactions guys. And again, it’s one that people became very familiar with doing for retirement relief in terms of,

let me see your historic transactions to see whether I’m eating into my threshold because entrepreneur’s relief, doesn’t have an age limit attaching to us. It is crucial that you look at historic disposals of office chairs on just caters for relief and by the relief applied. And whether that threshold has been is being utilized or has been utilized before you go and give a client the full million I’m and looking at the relevant individual it’s around this beneficial owner.

And I suppose this is the first test that’s slightly different for, um, than it was for retirement relief. This kind of terminology of a beneficial owner was different. And what it means is that I need to be illegally a beneficial owner of the charge for business offers and what that meant was older and section one Oh two H, which was my transfer between spouses.

So for retirement relief, a transfer between spouses means that I can look at the holding period of my transferring spas for the purposes of the new holding styles. Um, and that does not follow through for entrepreneur’s relief. So for entrepreneur’s relief, I cannot track the ownership period of one spouse to another spouse, unused the historical period for one spouse for the,

uh, the new acquiring spouse, like have to build up my three years holding period for the new spouse, which is, and that is different from<inaudible>, which basically allows you to track ownership periods through, from one buyers to another spouse. Similarly, you have this aggregation of periods of ownership on another departure for retirement, for need versus, um,

entrepreneur’s relief is on the incorporation of a business. So I don’t get to track that ownership period from a periods where I was a sole trader and I incorporated my trade. I need to build up the three years holding period at Denovo once I’ve incorporated my trade. So I need to build up that three year holding period where I’ve incorporations or trade. So again,

it’s important to us because that is a departure from retirement today. And it’s very easy just to assume that the same things apply. Why would they not, and how, whenever they haven’t seen fed to just to push through some of those concessions that apply to retirement or even to entrepreneurs, or maybe so their significant departures in terms of just ownership. And the only one that does track true is my five six,

five eight seven. So where I do a reorg that qualifies for five and six or five and seven, I do take the period of ownership for the old chairs. And that is taken into account as, as my working, working periods. So entrepreneurs relief in charge, but business offsets. And again, I suppose entrepreneur’s relief is different from the other relief.

So it turns out it’s actually a much broader relief because what it is is anything other than the holding of securities and assets as investments, the holding of development land or the development or lessening of land is a qualifying business. So it’s very easy in terms of they’ve kind of framed it so that there’s only a few things excluded. Everything else is included. So rather than working on the basis of what is included,

that just made it very definitive list of what’s not included, anything else is included. So it makes it very easy for entrepreneur’s relief. It’s a broader test, a lot more folds within the remit and then does for retirement relief. And again, what we’re looking at is chairs in a company. And so rather than assets used for the purposes of the business.

So similarly, when I’m looking at shares as a qualifying asset, what I’m looking at is the business of the company wholly, or mainly of anything that is not the holding of investments, the letting of land, the development of land. So again, it’s a very easy test and the next piece that’s relevant to what I’m looking at chairs as a qualifying assets.

So I’m either a company that consists wholly or mainly of a trading business. That’s not what of my excluded businesses. And again, wholly or mainly guys is greater than 50%. So 51% upwards are 50% born in whichever way you want to look at us. Mmm. Or I am holding company of a qualifying group. So the easiest way to look at the holding company is on the requirements for holding companies a very straight forward,

where am I holding company? I will qualify where I am holding company of a qualifying group. The qualifying group basically means that all of my 51 subsidiary percent subsidiaries our trading companies. So companies that are engaged in qualifying businesses, then my holding company, quantifies, where I have subsidiaries that are less, that 51% subsidiaries, I won’t necessarily fall out of the definition of a holding company provided that the holding company itself it’s engaged wholly or mainly in the holding of shares of greater than 51% subsidiaries.

So I’m looking at the holding company. I look at the holding company. I see what subsidiaries it’s. Gosh, what I need to have is that wholly or mainly the subsidiaries are 51% subsidiaries of qualifying businesses. So where I have a holding company that has three subs, two of which are 49 investment companies and only one is a trading subsidiary. I don’t quantify it cause that holding companies and activity is not the wholly or mainly holding 51% subsidiaries of trading companies.

And in fact owns more non trading subs than it does trading subs or qualifying salts. So it’s important that I look at the definition on it’s basically. So I don’t need to go through the exercise off. I hook up my holding company. I look at myself, anything that’s greater than 51% needs to be a subsidiary that’s involved in a qualifying business wholly,

or maybe in a qualifying business, if it is not. So if I have a greater than 51% sob, but not involved in qualifying or isn’t totally, or maybe involved in the qualifying business, my holding company has. So it don’t qualify for the relief. So it’s an Olin or an all out game when you’re looking at entrepreneurs relief. So I need to look and what it is is the easiest way to do it is it’s a company by company test.

So, and this is where there’s a departure from entrepreneur’s relief versus retirement to relief for retirement relief. You kind of look at the group as a whole participation exemption. You look at the group as a whole, so it’s good. The group is the group only, or mainly trading I’d send her money for participation as the group wholly or mainly trading for entrepreneur’s relief.

I need to do each company. It’s my company, a holding company, or is it a trading company who is engaged in a qualifying business wholly or mainly in a qualifying business. So I need to go through each of the different companies and look, is it a holding company or is it a qualifying? Is it a trading company and a qualifying business?

Anytime I have to say no, it means the whole group has gone. Um, so it is important that the test is applied again, like I said, the biggest difference is that the company by company, um, requirements for entrepreneur’s relief. And again, it’s an all in or all out where we’re looking at retirement relief and again, retirement relief.

It’s good to talk about really the departure between retirement and entrepreneur’s relief. Again, I’m over 55 from looking at retirement relief and retirement relief is also a lifetime threshold. So I need to be careful where I’m looking at anybody who’s over the age of 55, they’re using up their retirement threshold, but they’re also potentially looking up they’re using up their entrepreneurs really threshold because both reliefs,

Farrah qualify are automatic, which means that I’m using up my threshold. Despite the fact that I may not use one of the reliefs on a particular transaction. So I’m not going to go through the interaction between retirement relief and entrepreneur’s relief. Again, just the simple rule of Tom is where I qualify for both retirement is an entrepreneur’s relief. I’m going to make sure that I haven’t used up my threshold.

And before this transaction, I then calculate, what is my relief applying or what is my tax bill applying each of the different reliefs. And then I choose the one which gives me the lowest tax answer. That’s a simple rule for when I’m having an interaction between retirement relief and entrepreneur’s relief. Again, insuring that I have the full entitlement to my lifetime thresholds before I do that,

the biggest difference between entrepreneurs are they fund a retirement ready for spare. I’m looking at basically the company owning something it’s not supposed to own. So I look at a wholly or mainly trading test for the group when I’m looking at retirement relief. So my rule for retirement relief is I’m looking at the whole year, mainly trading test for the group or from my individual company where I’m over 50%.

That means a qualify for retirement relief. But then I need to look at, into the company itself and see how many assets that are non chargeable are chargeable non-business assets. So assets that the company holds under investment assets and where that happens. I have a dilution of my retirement tree. So I’m entitled to my retirement relief because I’m holding her may new trading.

However, the company holds assets that are charged, but non-business assets for the purpose of the CGT. So subject to CGT, but not business offsets. And I need to dilute my relief. So I qualified for the reef, but I need to dilute, whereas where you’re looking at entrepreneur’s relief and I’m looking at a particular company and I am wholly or mainly trading.

It doesn’t matter that I’m like have investment assets in the company, qualify for the relief and full there’s, no dilution of the relief. So I’m all in or all out. Whereas retirement relief, I need to be over the 50 to qualify, but once I’m over the 50, I need to look at the individual assets held by the company to see,

are there any assets that are within the charge to CGT, but non-business assets. And then I need to dilute my entitlement. I am. So again, it’s a big entrepreneurial reef is in fact a broader relief. Um, but like I said, it’s just, you just need to make sure that it’s you, don’t when you’re looking at a group position for entrepreneur’s relief,

but you look at each company in the group group to make sure you’re either a holding company or you weren’t a trading company Mmm. Engaged in Holy or maybe in a qualifying business. Otherwise I don’t qualify for entrepreneur’s really federal. So it’s an all in all out is the simplest way to put it. I have parted again goes because this is a company release.

It’s upstate relevant. A lot of people have their own personal whole, because again, I’m looking at an overall picture for participation exemptions. So I’m looking at a, is my overall, um, group holier, mainly trading and where it’s in again, I’m all in or all life. So what I want to do is look at a couple of case studies that will look at some of the issues that have arisen in practice.

I suppose, one of the things you’ll see on The next slide, a very detailed kind of share table. And it really bringing me to my first point on it’s time and time again, I see mistakes. So my requirement for entrepreneurs leave is that I hold 5% of the ordinary share capital the company. There’s always this question of what does ordinary share cup mean?

And what am I looking at? Um, or we’re still people don’t know that they need to be looking at what does ordinary share a company. And, and when I’m looking at that 5% test, what am I actually looking at? So the first thing I always do on a suggest that everybody does before they look at weather, they’re going to qualify for relief is my chair cap table.

It is so important that I have an UpToDate chair cup table for a company in determining what shareholdings people have. I’m going to, particularly when I’m looking at an exit, a shareholder is what is their percentage? What is their ordinary share cup percentage? The one thing I see dropped off chair, cop tables, his preference shares preference shares need to go in to an ordinary share cup tabled they need.

So I’m including at all of my share cup where I’m looking at I’m an ordinary shareholding, um, share a cop tables. So in this instance, what we had was a holding company, the holding company had a key employee and the owner and that holding company has a dormant company. And it also has, um, a trade coal. So when I’m looking at this at first instance,

my holding company, I have to apply my test for entrepreneur’s relief. My holding company is my holding company, a holding company that has all of it’s 51% subs as trading are engaged in the qualifying business on the answer is no. So I deal with the dispose of the trans and the whole code do not qualify for entrepreneur’s relief. Um, the reason being is the existence that dormant company.

So I have a greater than 51% subsidiary. That’s not engaged in a qualifying business and therefore the whole, the shares in the holding company fall outside of the relief in their entirety. So I have a couple of options guys, where I’m dealing with dorm and companies. Again, your first port of call should always be to do your draw, your group structure,

draw your percentage. So your group and group holdings, to make sure that you’re identifying what my 51% subs are. Then when I look at my 51% SOPs, I need to see what they’re doing and need to see. Are they wholly or mainly engaged in a qualifying business? And quite often you will see in a group structure is dormant companies. Quite often,

you will end up in circumstances where your clients forget to tell you that there are dormant companies, because they’re just the dormant company is just such a non entity that people just tend to forget that it exists. So it’s crucial, but those get identified because they’re just, like I said, they just knock everything off the relief, as opposed to just reducing one of the simplest ways to get rid of the dorm and company.

Obviously I could liquidate it, liquidations, have time and costs associated with it. If I’m in a hurry, which I was for this particular instance, you can just send out your dorm. And so just get it out of the group for the period four, um, the transaction. So the disposal of the shares and hold code, it says, I’m looking at the day.

I found a whole recall as to whether it’s a qualifying a company. So is it a holding company? Um, I know my dorm and the company has gone. It’s obviously a holding company because it holds it’s 51%. So subsidiary is a qualifying as a trading company involved in a qualifying business. Mmm. The other thing that happened with this client or this,

but this is where it’s relevant is now they didn’t have the percentages, right. But the reason the share cap table became hugely important is<inaudible> the client actually taught the two employees down at the trade CoLab were in fact 5% shareholders. So had told them that they qualified for entrepreneur’s relief. Um, so we had been looking at exiting the two employees down at the trade call level.

But when you went in and did the share cop table, not only were they not 4% shareholders, the word 5% shareholders, Dave ward. And so once we actually did the proportions, that weren’t the word, 5% shareholders at the outset, then there was talk about issuing the new shares and doing all sorts of things to get them up to the 5%.

But then in fact, when we looked at the share cap table and I’m looking at my ordinary share cop is guys where I’m looking at the ordinary share cop test. It is my nominal share capital that I am looking at to determine my 5%. So it is the nominal chair cop that relevant. And to be Bilcare in the last column on the right,

you can see that the nominal chair cop was so off the Mark, that there was no prospect that we were going to be able to talk these guys up, to get them anywhere near 5%. Um, but there was a lot of misconceptions in terms of wash, uh, what I suppose the clients push and was in existence, what they’ve communicated to the relevant people.

And then also when you go in and do the share cop table, if when it was first looked at desk, there was this, everybody had been looking at the issue chair cup, a figure, as opposed to the nominal chair cups, where I’m looking at an ordinary share cop. It is the nominal check up. That’s the relevant figure. Mmm.

Again, this is kind of one it’s caseload and then actual plan or company law is the one that you really is relevant in determining, but what’s relevant for my ordinary share cup and share capital is actually money. It’s a figure on, that’s why you’re looking at your, your share, your nominal share cap figure to determine. So it’s the amount paid off in the shares.

That’s relevant for a share cup I’m on the ordinary share cup thicker. So again, like I said, they were just there things I see happening in real life and just share cup tables, group structures, and kind of sitting with the client and getting the full details, particularly stuff that they’ve just started to think is irrelevant because, you know, I have a dorm accommodation that doesn’t do anything.

What relevance has that got to anything that we’re doing now it’s hugely relevant. And like I said, it’s not that it can’t, it’s not instrumental, but it can be dealt with. And, but can you imagine if that dorm a company suddenly became somebody just mentioned as post the transaction and we would have had a difficult, a few difficult conversations to be had in terms of really quantifying for relief.

Okay. So looking at the case study two, and this one is very straight forward. I’m looking at my beneficial owner, husband and wife. And this was again, one that came looking at a sale a couple of days later, having come from the advice, obviously we’re overlooking and entrepreneur’s relief. It is not possible for me to have sows topped up my wife to a 5% hold in order for her,

for them both to qualify for entrepreneur’s relief. Because if I had, and given her a cost at 4% shareholding, she would have had to build up three years ownership in that 4% shareholding Mmm. From the data I transferred to her as opposed to retirement relief, which would have given her the 5% shareholding, obviously retirement would, if that sort of planning is out the window anymore.<inaudible>,

isn’t aware that obviously if I, if the husband transfers to the wife and quantifies for retirement relief at that 4%, and the value of that 4% would have been eroded the threshold, his lifetime threshold on that retirement. So it’s not something you’d be looking at, but it is something you need to be careful off for entrepreneurs where they phase you can’t top up that the spouses need to build up the ownership from the data transfer as opposed to carrying ownership periods.

So this case study involved again, a couple of key employees and two owners, again, everything here was being done. Two try and get relief to all of the employees. You can see one of the employees on three 50, the other too long, 250 to 250 shareholders only have a 4% interest in the company. So again, there was a lot of things you looked at there was an imminent sale.

So again, once you’ve been eminent, say otherwise, very little flexibility around what you can or can’t do. Um, and because we’re looking at nominal share cap, and again, well, this came to me with the solutions already having been given to the client, but the solutions wouldn’t have worked. And so the solutions were to do either a subdivision of the share cup,

thinking that the subdivision would have increased share numbers or similarly to do a bonus issue on that the bonus issue would have increased sharing numbers. Obviously my issue there is my nominal share cap. Isn’t moving if I’m doing either of those two things. So it doesn’t actually achieve in terms of giving me, um, giving me any more shareholding for the purposes of determining my percentage nominal share cap holding.

So it just wouldn’t have worked. The only real thing that could have been done here is to top up employee two and three I’m in a, in a chair scheme, but that they would have had to build up the three years ownership in any new chairs that were issued in their own race. So because it was an eminent sale, there wasn’t anything that could be done for employee two or three,

certainly nothing, nothing obvious on the face of uncertainty, the solutions that were brought to the table weren’t solutions that would have achieved anything in terms of qualifying for the relief. So case study for, and I think most people are aware at this stage, but it’s, again, this is where there is a departure for retirement relief on entrepreneur’s relief in terms of revenue have not the concession,

uh, or the treatment of liquidations for entrepreneur’s relief is very particular to entrepreneur’s relief. And it’s easier just to go through what, what the treatment is for entrepreneur’s relief. I would only qualify Mmm. On the liquidation for entrepreneur’s relief, where my trading company, so a holding company put into liquidation will never qualify for entrepreneur’s relief. So they’re just, those are the shares on a liquidation of a whole global,

just, just, well, not quite Oh five already. What the requirement is is that I have a trading company and it is the trading company that’s put into liquidation while the trade is still active. So I can’t sell off all my assets and then liquidate my trading company and qualify for relief. I actually need to appoint my liquidator, where the company is still trading in order to qualify for relief.

So it’s obviously a very particular circumstance in which I would qualify on the liquidation of a trading company. Again, guys, that needs to be monitored. And if it is a case by case of a liquidator or a liquidation, so it’s an asset sale, as opposed to a sheriff sale, you need to look at the timing of the appointment and the liquidator very carefully.

And you need to make sure that you were straight trading or the trade call is still active. At the point of the appointment of the liquidator again, activity is where the test becomes a little subjective. What is activity do I make it, have I, do I need to be invoicing and have turnover coming in and on a regular basis, do I need to have the same level of activity that I did when I was at the peak of white rage?

What is the level of activity? And I guess that’s where the subjectivity comes around. The level of activity required in order to yeah. State that the company is still trading and there is case law to support that, that activity level doesn’t need to be anywhere. Um, it doesn’t need to be significant to continue to be trading, but I obviously need to make sure I haven’t taken steps to discontinue my trays.

So active steps, like do you registering for tax or doing a cessation to trade set of accounts? And so it is important again, that I just manage that if I am looking at that, the timing of the appointments liquidator is crucial and the only way that this would have qualified. Okay. Again, I’m looking at this group and I need to look at the group and see,

does, is this a qualifying group for the purpose of entrepreneur’s relief? My holding company owns a hundred percent shares and another holding company, which owns a hundred percent shares in a trading company that totally remained me involved in the quantifying business. So in fact, how they sold their shares in the hold call, they would have qualified for entrepreneurs reading. I am.

So that’s the only way that I would have qualified for entrepreneur’s relief on this particular structure. So again, guys, one of the things that, like, I see it in practice a lot, it is principle that people do consider the instruction of a holding company before they do it. It’s not always the right answer and it obviously produces effective tax relief and participation exemption at all.

Mmm, there are merits to having a whole cost structure, but I do need to consider when I’m inserting a holding company, what the exit strategy is, the timing of the exit strategy and how imminent the exit strategy is before I make that determination to put a holding company in. And it’s not always the right answer. And it does need to be looked at as kind of in the hole,

as opposed to just kind of that kind of knee jerk reaction of just putting all of the company. Like I said, it doesn’t always produce the results that you wanted to produce, and that needs to be looked at. Obviously we don’t have a gas, right. Crystal balls for looking into the future. And, but there should always be a, a discussion around exit strategies and Pinterest strategies in advance of putting any structure in place to make sure,

but we don’t preclude the ability to qualify for relief as opposed to enhancing, uh, tax treatments. So we’re, I’m looking at my entrepreneur’s relief. The questions for the release guys are yeah, relatively straight forward. What I need to look at is how do I own more than 5% of the ordinary shares? Well, I need to do a chair,

a cap table. That’s all I can say. Keep saying about that as the sharecrop table is crucial to the answer to that question. I need to look at my timing period. If I am doing a buyback, I need to make sure that I have the five years to do my CGT treatment for them back. So do not mix up those holding periods.

Um, and then I need to make sure that I’ve looked at my 50% working in a managerial or technical capacity in the company or a qualifying group of companies. So again, it’s just it, if the rehash of the questions for relief and they need to do it like an exam question, that’s my only advice I do it. I totally just taught myself making mistakes or going and making assumptions that aren’t necessarily correct.

Again, guys, just on a very brief on here to shareholders trading company, I’m looking at a future at some point at the moment, this, eh, the structure is not great for entrepreneur’s relief because I have a dorm of coal in the structure. I also have a 51% subsidiary. That’s not engaged in the qualifying business. And so we need to look at restructuring that business if I want to make trade cold qualify for entrepreneur’s relief.

So again, where I have time and sales are not imminent, I do need to look at structures on a need to look to see, do I need to start looking at the structure and working with the structure for a future transaction or a future and qualifying for relief and just tidy up as structures with the view to quantifying for relief so that they’re not doing and on,

uh, like honor an eminent sale because an eminent sale makes it very difficult to do any structuring. Um, and again, similarly here Treyco, propco, HoldCo my proper goal is going to take me out. So what I need to do is I need to, I can consider various things showing up my propco and typing that out. Or perhaps I move everything up into HoldCo on the basis that the trading a company’s value is bigger than the prop CO’s value,

and that I’ll get my whole era mainly trading. And if I move everything open to the whole call that I land up with the trading company, that’s totally remaining engaged on qualifying business to unqualify that way. So section one, three, five, and again goes a no, I probably timing wise, it looks like I’m not going to spend enough time on three five,

but one, three, five is really the discussion around one, three, five is relatively succinct at this stage in terms of where I’m working with a clothes company, which as we all know, the majority of Irish, private limbs of companies are, I have a sexual three, five issue where I am using the funds on the balance sheet in the company to fund the acquisition of the shares of an exiting shareholder.

So in short hand, I have a one, three, five issue of I’m looking into the balance sheet of the company in which the shares are being sold. So in lots of circumstances, that is the case. And the issue is with one, three, five Regi were, it was very broadly drafted. There’s no bone, a fetus test included revenue kind of had this whole thing that they were looking to stop mischiefs that were going on in the market,

um, where you look solely at the legislation, the boards kind of way, that legislation being drafted. There are a huge number of transactions that have been caused within the remit of the legislation. Revenue have issued very robust and detailed guidance around one, three, five, and I suppose your biggest issue again, and this is probably academic. It is actually an issue in terms of my legislation always trumps guidance.

So from a legal perspective, revenue, we’re actually acting outside of their powers to override something that’s drafted the legislation. So if there is no bone fetus test in the legislation, it means there is actually an abort, a fetus chest that I can rely on to get myself out at revenue. I’ve obviously said they have appliable the feeders test for that. Technically you have the power to do that.

However, we’ll take their guidance. And that’s obviously, like I said, it’s robust, it’s a detailed guidance. So to the extent that things are written into the guidance, we’re going to rely on them. I said, it’s kind of an unhappy position in real life because the guidance actually can’t override the provisions of the legislation. Um, but we’ll,

we’ll take what we’re given and revenue have indicated that really was the don’t intend to capture Bonaventure’s transactions, but didn’t intend to capture bona fitters and be O’s. They appreciate that sometimes the balance sheet of the company has to be leveraged off in order to be able to exit the event at the vendor shareholder. Really what they’re attempting to capture is where my vendor shareholder has had an active role in securing the use of those funds to pay for the chair.

So knowledge they’ve said is not sufficient. So my vendor shareholder might know that the funds may we used to fund and what the content was, the contact and active roles. So they can’t do, and they can’t pass a section 82 declaration. And so for financial improvement, financial assistance for the acquisition of the companies on chairs, so where they are a director in the company,

if they do that, they obviously have taken an active role in the use of those funds. So the other piece that revenue of said is like I said, knowledge is not sufficient. It really, they do want this, that they’re tough being an active role taken by the vendor shareholder and in relation to the arrangement to use the funds to pay for the shares.

So they give a number of examples and we look to the examples that probably kind of brings out their told process a little bit more to shareholders. One wants to retire and don’t try benefit test here would assume this role trade benefit tests, cash reserves builds up of 1.4. So the exit shareholder wants 700 grand for the exit at two, as a value for their exit and shares.

And the remaining shareholder doesn’t have the phones in their own rice. So what they’re going to do is set up a new code and Madigan this you would see in practice quite often, a new code set, Nope, a hundred percent owned by the remaining shareholder. There is a shared purchase agreement entered into, and, and for the acquisition of the shares new CO’s going to buy the shares.

There is the consideration is left outstanding. So no consideration has paid over. And once the share has moved as a dividend page from the trade code BBL into new code, which is then used circled back as a new code to pay and to pay for the shares. So in revenues, they have used this and said, it is, this is a one 25 transaction because the vendor shareholder has to have been a party and taken an action in relation to this structure and the arrangements to ensure that the funds BBL we’re used to acquire it’s shares are funded chairs.

What revenue have said in relation to one, three, five is had NewCo obtained, external financing. There’s a chance that section one, three, five wouldn’t have applied. So the room for one, three, five is it’s all around this external finance thing, or my day on the day off the transaction test. So if we look at the second example,


we basically have a standard MBO style transaction, 10 million is being funded externally. And then the rest of the consideration has been done by way of a low note. The no note is redeemed several years after the actual acquisition. And I’m what revenue have said is that you look at the day, the consideration is being paid. So there’s not a look forward.

So to the extent that X it has to fund the low notes in the future, the fact that they didn’t do it on the day of the transaction, it means that it’s not a one, three, five transaction. So again, it kind of follows into their reasoning as to earn outs and deferred consideration closes revenue’s view is they don’t follow within the remit of section one,

three, five. So what they’re looking at is it’s the day off the transaction test has my vendor shareholder in some way, been involved in an action that has accessed the phones of the company and ensured that those ones would be used to buy their shares, external financing. It doesn’t matter at that post the transaction, I may refinance using the target companies funds,

uh, provided, I use external finance to fund the purchase. I can then refinance once the vendor shareholder has gone off, uh, off the pitch. So again, it really goes, what I’m trying to do is divest the vendor shareholder from anything that it has to do in relation to the use of the funds to pay for its shares. So these Victorian and financing,

and I know that sounds very easy. And for revenue, it sounds very easy accessing external finance. Like it’s not that easy in a commercial world, it’s also expensive. So it’s not that that provides a solution and that easily, however, it should be looked at to the extent that it can be looked at as a solution. And like I said,

there are ways that you can look at again, it is used for the revenue have said it has to be an active role taken by the vendor shareholders. So they have to have done something knowing, but the funds are going to be used isn’t sufficient. So there are ways and means around being able to do certain things within the company, from a corporate law perspective that removed the vendors,

shareholders requirement to be involved in those transactions. So there are various ways that come be looked at. Um, like I said, the fact that revenues guidance is so prescriptive. They themselves have said they’re employing a bone of feeders and they don’t intend on a, as transactions to get at cost in the mix here. Really what they’re after is this build up the cash reserves on a balance sheet.

And those cash reserves being, I say, actually, essentially capitalizing reserves. That’s what they’re kind of targeting. And so what they have within their gardens, given a couple of outs are a couple of ways to make sure that one, three, five doesn’t doesn’t apply. Like I said, buybacks guys again, because they’ve specifically said one, three, five,

doesn’t apply to buybacks to the extent that the buyback can be considered. It probably should be. Um, because it just means that you’re out of one, three, five to the effect to the at deferred consideration should also be something that could be looked at the issuing a little notes. Um, and again, uh, external finance, again, sounds like the,

you know, the easiest answer, however, I’m not, eh, I think it’s unfair of revenue to have been so particular about that because it’s like they don’t understand the commercial worlds and how difficult it is for small companies actually to access a external financing answer. Okay. The cost I had applied to consequent recently, and when they told me what their external financing cost for a daily transaction was,

it’s just, uh, they’re over on this. No other funder will come forward. So it’s just, it’s a, it’s not a pretty, it’s not a pretty world for that accessing the external financing on, uh, I’m paying for that extra home finance. So like I said, guys, where you were looking at exiting a vendor shareholder of a close company,

you have to look at one, three, five. This, again, the reality of this is probably in limited circumstances. One, three, five requires that both companies are close companies. So to the extent that I can make my acquiring company, a non close company, uh, that should be looked at so perhaps I use a, uh, not an Irish company,

uh, so that I don’t end up as a 12th company, a bank funding is your easy out. And my advice to clients now is please stop building up cash reserves, uh, or certainly start looking at cash reserves and start looking at how they can be better used so that we’re not looking at trying to exit. And, and unfunding the exit from the cash reserves that they exist in company.

And then just capturing a couple of the, the kind of controls, just exit strategy guys. I just can’t say it enough, but it really should be before I do anything, I should be talking to my client about what the exit plan is before I start looking at putting anything in place. I need to make sure my ordinary share cup test is mesh.

I need to look at historic disposals, particularly now that entrepreneur’s relief. I mean, at retirement relief, at least to have a point in time that’s relevant, whereas entrepreneur’s relief are there are people buying and selling and using entrepreneurs really on a regular enough basis that they do need to be mindful of that lifetime threshold and making sure that you have, and the room on the far side to bring a transaction and keep the whole transaction in one 35 is crucial.

Timing is crucial and really pre structuring. It is a useful time to go to clients to say, let’s start looking at what you’re about to do for the future. And let’s start tidying up this group with the view for the group qualifying for relief, so that I’m not kind of doing this with my back against the wall and an eminent sale on the,

on the horizon. Let’s say from Mike. No, thanks very much, Amanda. That was very, uh, very interesting. And I picked up a lot, my cell phone on that. So it’s a, it’s, it’s your expert insight is very, very much appreciated. We’ve a couple of questions here that I said, we’d leave them til the end,

but there’s about maybe three or four questions. So we might go through them really quickly. I know we’re slightly over time, but hopefully anyone who can stay on w w would stay on, um, the first question is from Barry. And I think this is released in relation to the, uh, the sheer redemption or buybacks. If the company is a family company,

does the connected party provision disallow a retiring parents fan to claim the exemption? No, it shouldn’t do. Um, but again, guys, I suppose your like your problem with, I mean, most buybacks are by family competence and fairness because it kind of achieves what you’re looking to achieve. I think there’s big case law, again, this subjective test from revenue in terms of what they deemed to be a connected.

It’s not actually written into the legislation. So provided I hold less than 25% in my company. I quantify revenue. I think I’ve used this kind of weird 5%. They will allow a parent for cut, just for reasons of, uh, of wanting to stay involved with the company. They say a 5% holding won’t fall out of the connected at tests,

but there’s actually no basis for revenue. Tough come up with that number. However, you’re always world stroke in this position, I would, once revenue has kind of issued a guidance or said something, you kind of have to be mindful of that. They’re telling you what their view is to hold anything further than 5%. It may mean that you’ll end up in an argument,

you know? Okay. Yeah. Yeah. The next question is if a company wants, and this is in relation to entrepreneurs, really, if a company wants to buy back a shareholder this year, but has not held them for five years, kept the company give financial assistance to say a financial, to, to say a holding company, subject to somebody’s approval procedures to buy the shares.

Or does this feel under section one, three, five, three, five transaction? Yeah. Okay. Um, next question. Uh, do the assets have to be business assets for three years or just owned for three years. Perfect. Yeah. And I think the last two questions I’ll give them to you together because I think they get to the same kind of point.

So accompany has served as cash on its balance sheet. The company is in existence for less than five years. Can the company use excess cash to buy back? 50% of the shares are, is there any anti avoidance surrounding the use of cash? I don’t understand that it’s treated as, as an income distribution in the hands of the recipient shareholder. And then the next one,

probably probably a, well, we can treat them separately if we want to put it as probably as a follow on, what do you advise when cash reserves are being built up? But this is an a governance, but this is the boredom. That’s becoming a problem because you can see from revenues, general attitude and the anti avoidance that’s coming in. I mean,

they were explicit in why they brought in one, three, five is they’re targeting reserves on balance sheets because their view is which it’s just it’s. So It did, in my view, it’s just, it’s not the right attitude. It’s not, and it’s not fair for companies build up cash reserves because companies build up cash reserves. They don’t necessarily want to take out everything,

but revenues deal is it to the extent that any cash is coming in, it should be paid out. That’s just our new, make it an income at now. What I do with clients is one of the biggest things is obviously documenting the company’s requirements to keep cash on its balance sheet. So I suppose Covance obviously horrific has provided a relatively and robust reason for the future in terms of why am might be keeping cash on the balance sheet?

The only thing I would be saying to people is you need to document. So if there is a buildup of, I’m starting to see a bit significant buildup, you simply documents the reason why the company is keeping that buildup on the balance sheet. And that will allow you have a reason. If revenue wants to come in to challenge the buildup or the use of the funds,

or that you were building it up with a view to, you know, it, it just goes to always to your vulnerabilities. We kept the cash from the balance sheet because of a future event or a future investments. We were planning or the acquisition of stock or the building of the factory or the, you know, we were looking at and it changed jurisdictions,

whatever that, I just have a documented that the director is have a meeting where they actually discussed the buildup on why they’re going to keep the buildup on the buildup. Excellent. Thank you very much, Amanda. I know I’m just conscious of the time here. Um, we probably could spend another 20 minutes or half an hour talking about, look, thanks very much for your insight today and thanks very much for you for your presentation.

Uh, that brings us to the end of today’s session. And as I said already, it just depend Amanda for her, for her time today, and for sharing with ours, her expert insights, Pat, I’d like to thank all the guests for attending the two sessions today. And hopefully you found those beneficial, uh, just as regards to the rest of the week,

the Irish, uh, accounting and tax analogy continues on Thursday. Um, the, on the technical side of things, we have the audits we have, I’ll just exempt engagements in a COVID-19 Rose, and that’s called a moons that’s presenting desk. And we also on the tech side of things, we have employee share ownership, pools, tux, and commercial considerations,

and that’s, uh, Laura Lynch was giving us, so we hope you can all join us then. And until then, I hope everyone stays safe. So thanks very much. And goodbye. Thanks guys. Bye.