Phoenixing.... or not?

[b0redom]

Hi All,
I'm currently running a Ltd with myself and Mrs b0redom as equal shareholders. Following b0redom jnr #3 starting school, she is going to return to work. I am considering closing down myco, extracting the profits and taking entrepreneur's relief, and starting up a new company with myself as sole director and shareholder.

Is this phoenixing? I would have thought that as the company structure was changing I should be OK? What's the panel's advice?

[DaveB]

Hi All,
I'm currently running a Ltd with myself and Mrs b0redom as equal shareholders. Following b0redom jnr #3 starting school, she is going to return to work. I am considering closing down myco, extracting the profits and taking entrepreneur's relief, and starting up a new company with myself as sole director and shareholder.

Is this phoenixing? I would have thought that as the company structure was changing I should be OK? What's the panel's advice?

Get some professional advice, but if the business of the new company is broadly equivalent to that of the old one you may well get caught out if HMRC come sniffing around.

[Maslins]

I think to avoid transactions in securities biting, you need to be able to argue some commercial reason for doing it, other than it leading to lower tax bills.

Yes you may want to change the shareholdings...but there'd be nothing to stop her transferring her shares in the existing company back to you and you continuing to trade via that as sole shareholder.

From a practical perspective, unlikely you'd get caught (haven't seen anyone challenged yet) and you could attempt to argue that for some reason your wife wouldn't transfer her share back...but I imagine if HMRC were to challenge and push the case you'd struggle to argue your corner.

[northernladuk]

The company structure can be changed by other methods and is normal in most business for this to change so forget that as your evidence. So all that is left is you gaining some tax advantage to then continue in the same industry..

I'd say it's very close I am afraid. I'd be taking professional advice on this one.

[ContrataxLtd]

Hi All,
I'm currently running a Ltd with myself and Mrs b0redom as equal shareholders. Following b0redom jnr #3 starting school, she is going to return to work. I am considering closing down myco, extracting the profits and taking entrepreneur's relief, and starting up a new company with myself as sole director and shareholder.

Is this phoenixing? I would have thought that as the company structure was changing I should be OK? What's the panel's advice?

Hi b0redom

You've definitely got some risk in doing what you described but just how much risk I'm not sure, probably quite low in my opinion but we are getting into untested waters.

Let's look at the situation if instead of Mrs b0redom being the second shareholder it was another business partner. You wanted to take the business is different directions blah blah blah so wanted to close the company down and you set a new one up doing a very similar thing. This would probably be OK so applying that logic you should be OK. However, because it's your wife as the second shareholder I think the risk is increased somewhat so we need to look at the actual legislation to determine things.

As there is a transaction (the closing of the company) which involves a security (your shares) the transactions in securities rules could catch the transaction, but only if certain criteria are met. The criteria are:

• Was there a transaction in securities? – Yes there would be;
• Was the transaction of a type which is caught by the legislation? – Yes it would be, the distribution would have been taxable as a dividend if you didn’t liquidate the company.
• Was the purpose of the transaction to obtain an income tax advantage? – This is the important bit.
• Was an income tax advantage actually obtained? – The is almost certainly yes, you wouldn’t do it otherwise.

To avoid the transactions in securities legislation you have to answer one of the above as NO, this pretty much means that you have to answer the third point as NO. Therefore, the main purpose of the transaction can’t be to obtain an income tax advantage, the income tax advantage merely has to be a side produce of the transaction so you have to justify that the transaction is to allow the closing of the company so the shareholders can each go their separate ways.

Overall I would agree with Maslins, probably a hard one to actually justify if push comes to shove ut it would be unlikely to get to that point.

Martin
Contratax Ltd

[b0redom]

OK, so how about if I come to the end of a contract. Wind down the company, go via an umbrella/permie () for a few months, and then spin up a new company with the new structure? Is that the same? Does that make any difference, or could it still potentially be seen as aggressive tax avoidance?

[DaveB]

OK, so how about if I come to the end of a contract. Wind down the company, go via an umbrella/permie () for a few months, and then spin up a new company with the new structure? Is that the same? Does that make any difference, or could it still potentially be seen as aggressive tax avoidance?

It's still the same question. Why did you do it? If you can point to a plausible reason other than to gain a tax advantage you should be ok, based on what the pro's have said above. Otherwise you are taking a risk.

[ContrataxLtd]

OK, so how about if I come to the end of a contract. Wind down the company, go via an umbrella/permie () for a few months, and then spin up a new company with the new structure? Is that the same? Does that make any difference, or could it still potentially be seen as aggressive tax avoidance?

Again, still carries some risk but it's getting smaller and smaller in my opinion. Change of a contract is always better than during a contract as that's pretty much a no no. If you were doing it you'd want a completely different name, new assets, new website etc.

Could all change after the Autumn statement anyway, ER could be removed and then it's a whole different ball game.

Aggressive tax avoidance, don't get me started on that phrase............

Martin
Contratax Ltd

[northernladuk]

Could all change after the Autumn statement anyway, ER could be removed and then it's a whole different ball game.

And there will be some rich pickings for HMRC when a raft of ER applications come because it's being removed. Real business case or convoluted situation because it's going.... It will be like taking candy from a baby for them.

[DaveB]

And there will be some rich pickings for HMRC when a raft of ER applications come because it's being removed. Real business case or convoluted situation because it's going.... It will be like taking candy from a baby for them.

It would depend on the other changes. If T&S, SDC and permie after a month go through, you could make an argument that you are winding up the business as it's no longer viable.