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Where Taxpayers and Advisers Meet

Company wind up / "phoenixing" issue

taxisconfusing
Posts:5
Joined:Wed Aug 17, 2016 4:22 pm
Company wind up / "phoenixing" issue

Postby taxisconfusing » Wed Aug 17, 2016 4:31 pm

Hi all,

I was sole director in a limited go through which I did contracting in the finance / management consultancy type sector. I stopped generating work c. December 2015, last invoice came in 30 Dec 2015, but the actual wind-up got processed late April as the accountants we're all that quick about it. I was planning to claim Enterpreneur's Relief on the c. £110k distribution that resulted.

I wound up the company to take an offer of permanent employment (starting mid Dec), straight after I'd stopped generating contract work. This was at a new entity, not a prior client. It looks like this isn't going to work out unfortunately, so I'm considering contracting again. (likely yet another new entity unrelated to either current employer or prior contract clients), but same sector as prior contract clients).

My accountant seems to be suggesting that if I did this, regardless of whether I did it through an umbrella or a new limited co, I may be caught by anti-avoidance rules and not only could I not claim ER, but the distribution may be treated as income. Myself, I can't possibly see how my actions could be characterised as "for the purposes of tax avoidance" --> I just wanted to take a job offer and closing the company was a natural (and required) result of my new full time employment. Any thoughts on my position most welcome! Thanks in advance.

SteLacca
Posts:448
Joined:Fri Aug 07, 2015 2:17 pm

Re: Company wind up / "phoenixing" issue

Postby SteLacca » Fri Sep 09, 2016 2:34 pm

TCGA 1992 S169I provides the legislation covering phoenixism and does not require there to be a tax advantage, and so you would lose the 10% ER in the case of phoenixism and would, instead, be charged at the prevailing CGT rate on the gain.

ITA 2007, S684 (1)(c) & (d) (transactions in securities) is the legislation that determines whether or not a counteraction notice may be issued to treat the distribution as income and specifically requires an income tax advantage to be both sought and obtained. In the circumstances described, the income tax position is not a consideration in the transaction, and so it should not be caught by the TAAR. However, HMRC may see the position differently and so you may need to be prepared to fight them, possibly to Tribunal.


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