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>>>