Posted 25 January 2016 By Steve Elliott, Business Recovery and Insolvency Partner
In Business Recovery & Insolvency
Those of you who have read my recent article Planning for 2016 on the potential for an increase in the taxation of company distributions, should be aware that things have moved on apace.
The issue is now rightly receiving its share of media attention, with the Financial Times recently reporting that “Thousands of entrepreneurs are expected to liquidate their companies over the next three months amid fears that an imminent tightening of the tax rules will more than triple their bills.”
Some of the headlines and circulars that may have reached your inbox are sensationalist to say the least, and this is definitely not the end of Members’ Solvent Liquidations (‘MVL’s), or for that matter Entrepreneurs’ Relief. Indeed, the changes should not impact upon business owners who decide to wind-up their company for commercial reasons, such as a sale, retirement or move to employment.
However, what HMRC is looking to clamp down on is “phoenixsim”, and that is the focus of its consultation due to close in early February 2016.
The new targeted anti-avoidance rules (TAARs) will apply where:
- A shareholder in a close company who receives a distribution in respect of shares in a winding-up;·
- Within a period of two years after the winding-up, the shareholder continues to be involved in a similar trade or activity, and:-
- The arrangements have a main purpose, or one of the main purposes, of obtaining a tax advantage.
The devil will be in the detail of the Finance Act 2016, but it would appear to me as if the main purpose test is key. As I mentioned above, if there are sound and demonstrable commercial grounds in the first place, then the shareholder may not be caught by the rules even if they go on to be involved in a similar trade or activity.
However, for those who are like to fall foul of the rules or wish to minimise their risk, the measures are proposed to apply to distributions in a winding up made on or after 6th April 2016, so there is still a small “window of opportunity”.
Nothing is ever 100% certain in taxation but this does seem like “low hanging fruit” for the Chancellor. If you have any clients who you feel may fall in this category, feel free to contact us for an informal chat in the first instance.
To discuss this or anything else contact Steve Elliott on 01793 818300 or send him an email.