TAAR: Why you should stop worrying about the new anti-phoenixing measures
When the details of the Finance Act 2016 were first published, new measures such as changes to the Targeted Anti Avoidance Rule (TAAR), were met with a fair degree of interest by company owners.
However, as the months have gone by and these changes have started to bed in, what was initially just a talking point has become a cause for concern for many of the businesses I talk to.
The TAAR was introduced by the Government to prevent what is known as “phoenixing” – the process whereby shareholders receive capital distributions on the winding up of company then go on to run a similar business in another form, such as carrying on the same business as a sole trader after winding up the company, or continuing the same trade through another company.
If you are caught by the TAAR then you could see your capital distributions being taxed as dividends at an income tax rate of up to 38.1 per cent – and not as capital gains tax which may attract entrepreneurs’ relief at the much more favourable rate of 10 per cent. The rules make quite a difference.
The crux of the matter lies in whether or not you are trying to avoid paying income tax by phoenixing the company, which is something only you, or the clients you are advising, can decide.
Many people I have spoken with worry that the anti-phoenixing rules will catch them. In many cases, the TAAR is not a problem; clients just need reassurance that they are 100 per cent commercial. But there are cases where we need to look more closely at the rules and their application to the particular situation.
Crucially, businesses should note that the TAAR can only apply if you are liquidating and not selling your business. We may be able to help you with opportunities to sell the company as a money-box, instead, so if this might be helpful, please call or email us at once.
Although the anti-phoenixing rules are still fairly new, The Miller Partnership has many years’ experience in advising on such motive-based tests in taxation law. The chances are, the rules won’t apply to you, but if you think that they might, please talk to us. We can help.
Even in wholly commercial cases, HMRC might decide to enquire into the situation, because they think that the TAAR might apply. Those cases will also need careful handling, to ensure that we are able to convince them of the commerciality of the winding up. The evidence will be a major factor in HMRC’s decision, so call us if you are thinking of winding up your company, and we’ll help you make sure that you have all the proof you will need.
The changes to the transactions in securities rules mean that, apart from considering the TAAR, if you are planning to wind up or liquidate your business, you must get tax clearances from HMRC first. It’s vital you do so and I cannot stress this course of action strongly enough.