Liquidate the company, Renewals allowance, Payrolling of benefits

The Government issued another 645 pages of draft tax legislation and notes last week. We have picked out two issues from the draft Finance Bill 2016 which may be relevant to your clients: whether to liquidate their dormant companies and the new renewals basis for items used in let residential properties. HMRC has also set a ridiculous deadline of 21 December 2015 to inform them about payrolling of benefits.

This is an extract from our topical tax tips newsletter dated 17 December 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Liquidate the company
Where a company is liquidated the proceeds received by the shareholders are treated as capital, after the costs of the liquidation are deducted. The shareholders pay CGT on those proceeds at: 18%, 28%, or 10% where entrepreneurs' relief applies. This is a huge tax saving compared to the dividend tax rates of: 7.5%, 32.5% and 38.1% which will apply to distributions from a company in 2016/17.
 
The Government wants to prevent business owners from achieving a “tax advantage” (tax saving), by liquidating their company and starting up the same or similar business in another vehicle. There are already anti-avoidance rules which can be used against such phoenixing, which are explained in HMRC's Company Tax Manual at CT36850.
 
The draft Finance Bill 2016 includes a new targeted anti-avoidance rule (TAAR) that goes further than the current rules. If the TAAR comes into effect as drafted it will tax the proceeds from the liquidation as income rather than as capital, where all these conditions are met:
a)     a close company is wound-up and an individual (S) receives proceeds from the shares;
b)     within two years of that distribution S continues to be, or becomes, involved in a similar trade or activity; and
c)     one of the main purposes of the winding-up is to obtain a tax advantage.
 
Condition b) will apply where the same or similar business is continued as a company, or as a sole-trader or as partnership, even on a much diminished scale.
 
The TAAR is due to apply to distributions made on or after 6 April 2016. Thus to be sure of falling outside of the TAAR, the liquidation must be completed before that date. Liquidations can take many months. If your client has a company which he intends to liquidate to pay CGT on the funds it has accumulated, he needs to act fast to avoid being caught by this new TAAR.
 
Our tax experts can advise you on whether a proposed transaction involving a company's shares will be affected by the draft anti-avoidance rules in Finance Bill 2016.


This is an extract from our topical tax tips newsletter dated 17 December 2015 (5 days before we publish an extract on this blog). it was the last one of 2015. You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>