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Changes to taxation of wind ups

Feb 28, 2017

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 By Lyndsey Hall

 Blog

Thinking about winding up your company? You may want to think again. New rules came into effect on 6 April 2016, extending to solvent wind-ups, aiming to capture people trying to avoid paying income tax.

 

This comes off the back of the Phoenix Trading rules, which discourage business owners from liquidating their business and going on to buy back the assets of the failed company and trade under another name.

 

The new rules force tax payers to report capital gains and exercise relief on their tax returns, running the risk of an enquiry if everything is not above board. This prevents company directors from winding up and avoiding paying tax by taking advantage of the Entrepreneur’s Relief under Capital Gains Tax (CGT).

 

The government has introduced the new Targeted Anti-Avoidance Rule (TAAR) under the existing Transactions in Securities (TIS) regulations, giving HMRC the power to counteract the capital tax advantage resulting from transactions made between Close Companies and their owners, if they can prove that one of the main purposes for the transaction was tax avoidance.

 

These same guidelines state that a company may not be struck off if, in the previous three months:

  • it has continued to trade,
  • changed its name,
  • or done any business other than that which is necessary to prepare for striking off.

Companies also cannot apply to be struck off if they are the subject, or proposed subject, of a section 895 scheme (a compromise agreement between a company and its creditors), or any insolvency proceedings, such as liquidation.

 

For example, a company selling ice cream could not continue to sell ice cream, but it could sell the ice cream van.

 

The government is working hard to eradicate tax avoidance, and tackling ‘phoenixing’ is a major part of this. Unfortunately, it seems that legitimately dissolution of companies may now be targeted by these new rules, as solvent wind-ups are also now a target for this legislation.

 

If you have been thinking about winding up your company and liquidating your assets, taking advantage of Entrepreneur’s Relief, you may want to contact us for practical advice.

 

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Knowles Warwick Chartered Accountants Taxation of Wind Ups Blog

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