Tax-efficient Company Closure
Closing your company – Avoid this tax charge
HMRC is focused on schemes that claim to avoid the taxation charge for shareholders when closing a company. We have therefore curated this guide to help you perform a tax-efficient company closure.
The schemes try and receive favourable Capital Gains Tax rates instead of income tax treatment, by altering the approach shareholders take value out of their firms.
Up until 6 April 2016, distributions in a company which was being wound up were used to avoid paying income tax, the way this would work was that an individual or a group of people who intended to carry on trading would wind up a company to receive the undistributed profits, which would be classed as capital distribution instead of dividend or other income distribution. This resulted in the individual paying lower tax, the individual would then carry out trade through a newly formed company. This was also called as ‘phoenixism’
In 2015 the government launched new legislation called ‘TAAR” (Targeted Anti-Avoidance Rule Legislation) which would stop individuals from using the above methods to save tax by winding up companies.
There are schemes which claim they can avoid the TAAR legislation by making modifications to the arrangement of winding up to bypass the TAAR legislation. These schemes do not work as they still end up coming within the “TAAR” rules. HMRC has said they will investigate all such schemes and if under any circumstance if “TAAR” doesn’t apply HMRC will check if “GAAR” applies.
If you are using any of these schemes declare income distributions of the amount you receive in your tax return, if time limits for submitting a return has passed contact HMRC and try and settle this. Speak to an Accountant who can assess your situation and advise you on the best way forward. If you are in London a good accountant in London should be your first point of contact.
Clear House work with clients where they have used Loan schemes and are now being picked up under the loan charge or have used schemes which have come under TAAR and are now being questioned by HMRC. We are specialist Accountants and Tax Advisers in London who help businesses create smart solutions to their accounting and tax problems.
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