Post MVL opportunity - too risky?

[ASB]

The other thing that bothers me a bit is that things are based on intent - trouble is that is a very vague hurdle. Especially when if push comes to shove all one really has is actuality.

Still the powers that be are pretty much masters of obfuscation and guaranteed uncertainty.

[JB3000]

The other thing that bothers me a bit is that things are based on intent - trouble is that is a very vague hurdle. Especially when if push comes to shove all one really has is actuality.

Still the powers that be are pretty much masters of obfuscation and guaranteed uncertainty.

I don't think it has anything to do with intent/motive. If you have completely ceased trading then there is no problem with gaining a tax advantage. However if the reality is you have gone back into contracting after a holiday or a few months of being a permie then don't be surprised HMRC challenging the capital distribution as trade obviously didn't cease (hence the restart). If you stopped contracting today a self assessment tax return for 2014/15 would be due and this could be submitted in say July 2015. If HMRC doesn't challenge by July 2021 you are home and dry. If you have gone back into contracting during the intervening period (despite claiming to have ceased trading) expect an avalanche of questions and ongoing requests for tonnes of information in order to justify what you have done.

[JB3000]

I think most (probably all) of the accountants in this thread would frown upon that, myself included. That's not the situation described in the OP though.

@JB3000 what the OP not being Stelios/Branson has to do with anything I don't know. Yes, they are contracting and there is little in the way of a real long term business value behind them, but the laws don't preclude that, indeed they're specifically there to enable people to get retained cash out of a closing company tax efficiently.

I've found another HMRC example of a transaction in securities (from this page):
"A holds all the issued 100 £1 shares in company X (reserves £80,000) and the 100 £1 shares of company Y (reserves £80,000). A exchanges the 100 £1 shares in X for 80,000 £1 redeemable preference shares and 10,000 £1 Ord shares issued by Y. Circumstance E is present and the tax advantage counteracted is the income tax payable if A had received a dividend of £80,000 from company Y. If any of the 10,000 £1 ordinary shares in company Y are subsequently repaid, the tax advantage obtained by not paying income tax on the amount repaid may also be cancelled in the year of repayment."

This one's even further from the OP's situation than the last.

Key thing from what I can see is that both HMRC examples there is nothing commercial to the arrangement at all. It's also all happening at the same time, with not even a brief period where trade is discontinued. They are both clearly playing around with the share structure in an attempt to create a CGT situation.

They're a million miles away from a contractor stopping contracting, closing the company, then at some future point re-starting contracting. I think you're scaring people unnecessarily. Sure, you may well argue I'm biased, but there's a few accountants on here who (AFAIK) don't have any links to MVL firms who seem to think it'd be outside the rules.

Liquidation hasn't really changed the tax option here, contractors were able to get cash out of a closing company with CGT treatment beforehand, with an application under ESC C16. I don't have any approval letters to hand, but I believe they would typically have a clause about the contractor confirming they didn't intend to return to the same business short term. Would be interested to know whether that had any indication of timescale to it. Inevitably as the break between closing a restarting changes, people's perceptions on whether it might be caught changes too.

Chris, in all fairness, you are completely over complicating the situation and tying yourself up in knots.

You say I am scare mongering; however it appears you are terrified at the thought of losing recurring business. Presumably you were benefiting very well from liquidating the companies of the same director-shareholders every few years when their company bank balances hit 6 figures.

The only accountant that has taken your side is Craig at In Touch- the guy who seems to think laying off the coffee is the answer to a HMRC investigation! Seriously? Really?

Whereas the behemoth Nixon Williams provides an infinitely more realistic and sensible perspective of transaction in securities (I can't recall Craig even mentioning TIS). It would be good if representatives from SJD and ClearSky (as much larger firms of contractor accountants) join the party and share their thoughts.

[JB3000]

Here you (Chris Maslin at MVL Online) have stated that the OP would be ‘outside the rules’ – that is simply not the case because a tax advantage has been gained by the OP (irrespective of his intentions at the time) as a result of closing and re-opening. His situation could therefore come under scrutiny by HMRC – he does have a defence (not expecting to continue at the point of liquidation), but if a judge saw it the same way as JB3000 then he could be in trouble.

I agree with NW.

[JB3000]

Interesting angle...but then I'm sure every new venture JB3000's friends Stelios/Mr Branson establish have links with multiple people they've worked with in previous businesses. Does that make them all the same business? I don't think so. Reality is I guess that everyone has a bit of personal goodwill, being their reputation for previous work done.

Re the ESC C16 bits, that's interesting but disappointing as it doesn't help clear anything up:
"The assurances include:
- The company
- does not intend to trade or carry on business in future; and..."

If they literally mean the company itself as it states, you'd be getting it struck off, so surely that's a given?! If they meant the key individual(s) behind it, then potentially it's extremely wide ranging, as there's no suggestion of same trade (note it's not carry on the business)...so surely it must be the former. That in itself doesn't seem to in any way prevent someone under the old rules from closing down Oldco obtaining CGT and starting up Newco straight away, so unfortunately I don't think it does give us anything more to go by.

Chris, if you can't even comprehend such a basic sentence like "does not intend to trade or carry on business in future" then I simply don't think I will be able to teach you.

[ContrataxLtd]

Chris, in all fairness, you are completely over complicating the situation and tying yourself up in knots.

You say I am scare mongering; however it appears you are terrified at the thought of losing recurring business. Presumably you were benefiting very well from liquidating the companies of the same director-shareholders every few years when their company bank balances hit 6 figures.

The only accountant that has taken your side is Craig at In Touch- the guy who seems to think laying off the coffee is the answer to a HMRC investigation! Seriously? Really?

Whereas the behemoth Nixon Williams provides an infinitely more realistic and sensible perspective of transaction in securities (I can't recall Craig even mentioning TIS). It would be good if representatives from SJD and ClearSky (as much larger firms of contractor accountants) join the party and share their thoughts.

Hi JB3000

I don't like blindly quoting HMRC manuals but in this case I do think they offer some input to this debate.

Firstly, I feel that the intent of the transaction plays quite a big part in this. As per HMRC, CTM36805 - Particular topics: transactions in securities: tax advantage from - introduction

If the person in question can show the transactions were carried out for bona fide commercial reasons (or in the ordinary course of making or managing investments) and that obtaining a tax advantage was not one of the main objects of any of the transactions the avoidance legislation will not apply. This is known as the ‘escape clause ‘. The onus of proof rests with the taxpayer to demonstrate this exception applies.

Therefore, if the intent of the transaction was purely commercial then the rules don't apply. I do however appreciate that this may be a hard one to prove if a similar business is setup shortly after the first one ceases to trade (especially before the liquidation of FirstCo is complete) and it is up to the tax payer to justify the intention but in my book, closing a company down to take up a permanent role is a commercial reason.

If we then specifically look at the liquidation, CTM36850 - Particular topics: transactions in securities: liquidation

An ordinary liquidation (in which a company is wound up following the complete cessation of its business or the transfer of that business to a person unconnected with its original shareholders) is not within the scope of this avoidance legislation. This legislation can however apply to counteract a tax advantage obtained in consequence of the combined effect of a transaction in securities and the liquidation of a company.

Based on this, if there is an ordinary liquidation and no 'funny transactions' swapping shares with companies etc. then I don't feel the liquidation would be caught under the rules. This is partly based on the fact that if trade hasn't ceased then surely there can't be a liquidation?

On round up, I think it's very hard to say with certainty whether the rules would apply or not because it's one of the many situations where the rules don't specifically take into account the way contractors work. On balance, yes the TIS rules need to be considered and the specific circumstances of each case should be looked at on its own merits but generally I feel that taking up a permanent role (for a substantial period of time) would be a commercial reason for closing a company down thus avoiding the TIS but until this is taken to tribunal no one can say for sure.

Hope this adds something to the debate!

Martin
Contratax Ltd

[TheCyclingProgrammer]

I just want to point out again while we are quoting HMRC manuals that the TIS manuals still don't appear to have been updated for the most recent legislation.

Notably, the get out clause of "for commercial reasons" has been replaced by a clause that states the anti avoidance rules will not apply if tax avoidance was not the main motivation for the original liquidation and it's up to HMRC to prove otherwise.

[ContrataxLtd]

I just want to point out again while we are quoting HMRC manuals that the TIS manuals still don't appear to have been updated for the most recent legislation.

Notably, the get out clause of "for commercial reasons" has been replaced by a clause that states the anti avoidance rules will not apply if tax avoidance was not the main motivation for the original liquidation and it's up to HMRC to prove otherwise.

A very good point TCP which is why I don't normally like using HMRC's manuals, although possibly relevant here because a lot of the inspectors will still use them in cases even though they don't always reflect the actual legislation!

[northernladuk]

A very good point TCP which is why I don't normally like using HMRC's manuals, although possibly relevant here because a lot of the inspectors will still use them in cases even though they don't always reflect the actual legislation!

Someone has forgotten to fill the inside of the enclosed letters like O and B on your images on your website... Just saying like...

[ContrataxLtd]

Someone has forgotten to fill the inside of the enclosed letters like O and B on your images on your website... Just saying like...

Thanks NLUK, wouldn't expect anything less from you I actually think the designers did it like that on purpose though but we're getting off topic now..............