Phoenixing.... or not?

[ContrataxLtd]

IIRC it's not enough that simply liquidating a company would trigger the transactions in securities legislation and I'm pretty sure the HMRC manual is quite explicit that a simple liquidation is NOT a transaction in securities.

The transaction arises when you subsequently set up a new company and there is some kind of transfer of assets between the new and old company. Specifically, this doesn't have to mean physical assets but could include intangible assets such as existing trade and goodwill.

IMO it's his last point that causes the problem. In order to say the TIS rules do not apply, you first have to demonstrate that you are not simply transferring your existing trade to the new company. Given that YourCo's trade (clients) and goodwill is more than likely inherently tied to you personally (it's you the clients want, not YourCo) I think it's hard to show you haven't simply transferred the trade to the new company without some kind of break.

Of course it should be obvious that the biggest issue of all is that this is all speculative as it's very untested. I agree with the sentiment that the risk is probably low and there are things you can do to make the risk lower, so the best you can do is take advice and make a judgement call. Do you base your decision on the facts and your (or your accountants) interpretation of the rules or do you simply do it based on the level of risk?

Hi TCP

In theory a liquidation could be caught by TIS but without another company being setup it would be extremely hard for HMRC to actually prove the main reason for the liquidation was to obtain a tax advantage and therefore in practice a simple liquidation shouldn't ever cause a problem. The HMRC manual states:

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 is because the obtaining of a tax advantage isn't the main purpose of the transaction so the rules can't bite.

It starts getting tricky when there could be a perceived transfer of assets (tangible or not) as to the actual commercial reasons for the liquidation and thus then the TIS could bite.

Martin
Contratax Ltd

[WordIsBond]

Someone suggested OP's wife gifting her shares to OP.

Is there anything to be gained by OP's company buying back her shares? You could set a price for the shares equal to the reserves and buy part of them back this year and part back next year, thus benefiting from two years of CGT exemptions.

It's not ER, of course, but it would presumably be more efficient than paying dividends.

[ContrataxLtd]

Someone suggested OP's wife gifting her shares to OP.

Is there anything to be gained by OP's company buying back her shares? You could set a price for the shares equal to the reserves and buy part of them back this year and part back next year, thus benefiting from two years of CGT exemptions.

It's not ER, of course, but it would presumably be more efficient than paying dividends.

Hi WIB

This is probably a non starter as the criteria to obtain CGT treatment on a buy back of shares is arguably harder than avoiding the TIS on a potential 'phoenixing', especially for contractors. If the CGT treatment isn't met the amounts paid for the shares would be taxed as a dividend anyway but in limited circumstances it is a way of getting some reserves out of the company (as a one off) not in proportion to the shareholding.

However, if the CGT treatment could be obtained (this is a huge if) then ER would be available just as it would through a liquidation.

If anyone was actually looking at this then the amounts paid for shares would have to be at market value (clearance from HMRC almost certainly recommended) and the buy back has to be for the benefit of trade.

Martin
Contratax Ltd

[WordIsBond]

Thanks, Martin. That's why I'm not an accountant.