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New anti avoidance rules and closing a Ltd Company

Are there any ways for trying to plan around the new anti avoidance rules for closing Ltd Co's?

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The new anti avoidance rules on the closure of a small Limited Companies aim to treat the final distribution as income (dividend) rather than as a capital gain which generally would mean increased tax bills at that point.

Just wondering if there any tips or hints for planning round this?

One of the attractions of a Ltd Company it seemed to me was the ability to roll up profits within the Company and then when it closed the final distribution could be treated as a capital gain.

I believe this is no longer the case.

Small Limited Companies can still time the distribution of profits so dividends are only distributed so that the tax payer stays within lower rates of income tax and pension contributions could be made.

Are there any other ideas for planing to consider?

It seems to be getting to the point where the tax advantages of a small limited company are fast disappearing.

Replies (16)

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By johngroganjga
01st Sep 2017 09:20

I think the anti-avoidance rules you are referring to are those relating to phoenixing - closing a company and then starting a new one shortly afterwards (simplifying somewhat).

They do not affect the tax treatment in plain vanilla cases of company closure.

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By Matrix
01st Sep 2017 09:23

Surely the rules only enforce the transactions in securities legislation which always applied if a company was phoenixed. I understand that the distribution would only not qualify for CGT treatment if the company was liquidated and a similar company set up within 2 years. Or are you referring to something else?

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Replying to Matrix:
By Ruddles
01st Sep 2017 09:58

The TiS legisaltion is distinct from the TAAR relating to distributions in a winding up. Although in both cases there has to be a demonstrable tax motive for them to apply.

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By anneaccountant
01st Sep 2017 09:58

Many thanks.

So they key is not to do something similar soon (within 2 years) after closing down a limited company.

Must say looking at the new dividend rules etc the advantages of operating via a limited company are fast disappearing especially if significant profits are being earned..

With CT at 19% and HR dividend tax at 32.5% that's a marginal rate for HR tax payer of approx 45% compared with 40% IT plus 2% NI if self employed and earning significant profits!

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Replying to anneaccountant:
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By Matrix
01st Sep 2017 10:19

"So they key is not to do something similar soon (within 2 years) after closing down a limited company."

If the company is closed via liquidation, this was helpfully pointed out by Portia a few months ago.

My point on the TIS rules was that, if the phoenixing was tax motivated, then I would not have advised a client to go ahead even before the new anti-avoidance rules were introduced.

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Replying to anneaccountant:
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By mattchapman
06th Sep 2017 09:41

I see where you are coming from, but i feel a big benefit of the Limited company option still, is not having to take all dividends out in the year earned, thus being able to withdraw some profits in a future year and so not incur so much higher rate tax. There is also the option, for many, of making their spouse a shareholder to further split the profits in the company.

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By Portia Nina Levin
01st Sep 2017 10:32

Personally, I expect HMRC to be issuing counteraction notices, as a matter of course, where there has been significant moneyboxing, moving forwards.

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By gbuckell
01st Sep 2017 10:38

How many counteraction notices have you ever seen? My grand total is zero and I have dealt with a handful of cases where one should have been issued!

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Replying to gbuckell:
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By Portia Nina Levin
04th Sep 2017 10:36

So, is your suggestion complacency?

What will have been the purpose of amending the definition of a transaction in securities to explicitly include a distribution on a winding up, if the legislation (as amended) is to never be used?

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Replying to Portia Nina Levin:
By gbuckell
04th Sep 2017 10:54

Not suggesting anything - merely making an observation!

I note in particular that the new rules do not require a counteraction notice. This undermines rather drastically the idea of doing something and disclosing it as such on the Tax Return in the hope that a counteraction notice is never issued.

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Jennifer Adams
By Jennifer Adams
04th Sep 2017 07:33

As john says - you are thinking about the Pheonix rules and the new TAAR rules (Chapter 3 of Part 4 of ITTOIA 2005).
However with regard to rolling up of profits and cash I would draw your attention to HMRC CGT manual CG64060 where it states that 'the long term retention of significant earnings generated from trading activities may amount to investment activity' ie having a large amount in the bank sitting there doing nothing. A non trading activity may effect the claim for entrepreneur relief.

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By MBK
04th Sep 2017 13:41

If the numbers are big enough, there are specialist providers out there who are buying companies at a discount to NAV to avoid the TAAR.

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By Portia Nina Levin
04th Sep 2017 14:06

My response is not valid in the circumstances described by MBK.

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Replying to MBK:
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By Portia Nina Levin
04th Sep 2017 14:05

Damn you AWeb!

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Replying to Portia Nina Levin:
By Tom Herbert
05th Sep 2017 12:40

What have we done now Portia??

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Replying to TomHerbert:
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By Portia Nina Levin
05th Sep 2017 13:23

All I did was click a button, and two posts popped up, rather than the expected one. I believe this is now a long-standing issue Tom.

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