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The demise of C16 - an opportunity?

As most of us know, extra statutory concession C16 is on its last legs and will probably be replaced by legislation which (HMRC propose) will be exactly the same except that final distributions will only be taxed as capital gains if they are £4,000 or less. Apparently £4,000 is the typical cost to a small company of appointing a liquidator and going through a formal winding-up. Obviously they think that any company with more than that can afford to go down the liquidation route. It's also coincidentally the same amount that the Crown won't bother to chase if the share capital is re-paid.

Assuming this law goes through as proposed, it opens up an interesting possibility. Could it be worth accountants getting an insolvency license in order to specialise in those SMEs who will now be forced to wind-up rather than pay shedloads of tax on a final dividend?

I must confess, I don't know a lot about insolvency, but I assume there isn't much to it apart from a creditors meeting, advertising in the Gazette, drawing up a list of assets, chasing anyone who owes money, paying off the creditors and making sure no-one has taken money from the company illegally. For a sole owner/manager who just wants to get rid of his company and take the remaining cash as tax efficiently as possible, I would imagine this would be a straightforward process, almost a case of going through the motions.

Insolvency practitioners will charge an arm and a leg for this. We could do it for a fraction of the cost without too much work or risk for a one-man company. The only problem I can foresee is all those people who pay themselves illegal dividends, and what to do about them.

But what are the requirements for an insolvency license? Do you need any special qualifications? How much will the PII be? Would it be worth it just to cherry pick the easy jobs? There are bound to be loads of those so it sounds like a good opportunity to me. Would be interesting to know what others think, especially existing IPs.

Chris

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If only

You cleary weren't in practice in 1986!  You will require years of experience and be able to provide bonding, refer to ICAEW & ACCA or even the IP Association http://www.insolvency-practitioners.org.uk/page.aspx?pageID=59#IndOrdMem for an idea of what's involved.

Then, get the consultation document and "consult" ie tell HMRC why it would be inequitable to force companies to spend out thousands, that many can't justify.  If HMRC and Georgie boy have a problem with companies retaining profits they should be upfront about it and devise a proper tax law to penalize companies that do so.

 

 

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02nd Feb 2011 19:38

Not that tricky

You just need to pass some exams. Anyway the consultation is not over yet and I have not even warmed up with my intended lobbying, there are a lot of issues, so maybe you might want to wait a while.

Virtual Tax Support for accountants: www.rossmartin.co.uk

 

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By cfield
02nd Feb 2011 22:59

Tax alchemy

Thank you Nichola, a good and succinct article as always, but I'm not sure about your proposed alternative of letting HMRC decide under the Transactions in Securities rules. I'd imagine most ESC C16 cases are tax alchemy in the sense that share capital is usually very low, sometimes just £1, and the whole reason for requesting C16 treatment in the first place is to avoid having to pay tax on a dividend. That's why we're all up in arms about it, and so would most of the small business community if only they knew about it. 

It's worse than scrapping taper relief. At least that was well publicised because they wanted to be seen "doing something" about private equity managers "paying less tax than their cleaners" By contrast, this is a stealth tax Gordon Brown would have been proud of, given that it would be uneconomic for most people to pay £6,000 for a liquidator they don't even need.

Good luck with your lobbying, although I rather suspect this is one of those "consultations" that is little more than a flag waving exercise.

Entrepreneurs Relief is a separate issue completely of course, although there wouldn't be much point in getting C16 if you don't get the ER. Then you'd be better off taking the remaining profits as dividend if you've used up your CGT exemption for the year and are a higher rate taxpayer (or will be with the distribution) unless of course it took you into the 36.11% tax bracket. And of course, C16 may be counter-productive for basic rate tax payers, such as those entering retirement or taking a career break, even if they do get the ER, so it's not always a great idea.

Chris

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