MVL - Autumn Statement

[Maslins]

Bit late to this, but perhaps worth having a quick look here. In particular, looks like the guy behind the consultation suggests that taking a PAYE job in a similar field after liquidating WOULD count as continuing the same "trade or activity". He does go on to say that in that situation he anticipates it unlikely the main reason for liquidation would be tax motivated, but I personally wouldn't feel comfortable in HMRC sticking to that.

I've emailed Adrian Coates with my views...which in short are that the proposed rule changes are mostly fine, they add clarity to what HMRC will deem as continuing the same trade vs one trade stopping and a new one starting (basically two years passing)...but that I feel someone liquidating a Ltd Co to take on a permie role should be clearly excluded. Otherwise, given the tax difference that can be at stake on CGT with ER vs dividends on (say) £200k is so massive, we could end up in the daft situation where someone's better off literally sitting on their backside for two years post liquidating rather than work and earn a salary, as the latter could easily end up seeing them worse off overall.

Wrote a blog post with my thoughts for anyone who's interested. I can see that Adrian Coates has read my email, but he hasn't responded yet (was only two days ago).

[MrMarkyMark]

In particular, looks like the guy behind the consultation suggests that taking a PAYE job in a similar field after liquidating WOULD count as continuing the same "trade or activity". He does go on to say that in that situation he anticipates it unlikely the main reason for liquidation would be tax motivated, but I personally wouldn't feel comfortable in HMRC sticking to that.

I've emailed Adrian Coates with my views...which in short are that the proposed rule changes are mostly fine, they add clarity to what HMRC will deem as continuing the same trade vs one trade stopping and a new one starting (basically two years passing)...but that I feel someone liquidating a Ltd Co to take on a permie role should be clearly excluded. Otherwise, given the tax difference that can be at stake on CGT with ER vs dividends on (say) £200k is so massive, we could end up in the daft situation where someone's better off literally sitting on their backside for two years post liquidating rather than work and earn a salary, as the latter could easily end up seeing them worse off overall.

Ridiculous if that's the case, although I have thought that this could potentially be an issue, when considering the changes.

Typical of the usual lack of joined up thinking

[northernladuk]

Ridiculous if that's the case, although I have thought that this could potentially be an issue, when considering the changes.

Typical of the usual lack of joined up thinking

Indeed. Particularly when many home grown consultancies get bought out because of their customer base base and the directors/owners work as permies for a period of time after, leave and start again. That's gonna be a problem for them surely.

[MrMarkyMark]

Indeed. Particularly when many home grown consultancies get bought out because of their customer base base and the directors/owners work as permies for a period of time after, leave and start again. That's gonna be a problem for them surely.

Very good point

[ChimpMaster]

<snip>I've emailed Adrian Coates with my views...which in short are that the proposed rule changes are mostly fine, they add clarity to what HMRC will deem as continuing the same trade vs one trade stopping and a new one starting (basically two years passing)...but that I feel someone liquidating a Ltd Co to take on a permie role should be clearly excluded. Otherwise, given the tax difference that can be at stake on CGT with ER vs dividends on (say) £200k is so massive, we could end up in the daft situation where someone's better off literally sitting on their backside for two years post liquidating rather than work and earn a salary, as the latter could easily end up seeing them worse off overall.

Wrote a blog post with my thoughts for anyone who's interested. I can see that Adrian Coates has read my email, but he hasn't responded yet (was only two days ago).

Exactly my thoughts as posted at http://forums.contractoruk.com/futur...ml#post2182187

[jamesbrown]

the guy behind the consultation suggests that taking a PAYE job in a similar field after liquidating WOULD count as continuing the same "trade or activity".

I think a likely outcome is that anyone switching from a company to sole trader would be caught, but not someone switching from a company to employee. In other words, I can't see "activity" remaining but, if it does, no amount of assurances from HMRC are going to be worth the paper they're written on. It will need to be tested, because "activity" is potentially all-encompassing, beyond retirement (and even then, there may be questionable situations).

[Maslins]

I think a likely outcome is that anyone switching from a company to sole trader would be caught, but not someone switching from a company to employee. In other words, I can't see "activity" remaining but, if it does, no amount of assurances from HMRC are going to be worth the paper they're written on. It will need to be tested, because "activity" is potentially all-encompassing, beyond retirement (and even then, there may be questionable situations).

Sole trader is specifically mentioned...and I think it's clear (from the name if nothing else!) that a sole trader has a "trade". So if a Ltd Co owner disincorporated, it would almost certainly fall foul of the new rules. I think this will be deliberate when considered alongside the new "dividend tax", as I imagine a fair few micro businesses will consider the reduced admin of going sole trader now the tax difference is greatly reduced. Probably not contractors though due to their clients unlikely to want to touch them as sole traders.

My previous belief was that "activity" was used as well to ensure it would catch investment businesses, not just trading ones. Seems I was wrong re this...or at least not everyone shares my assumption.

I'm hoping that there'll be a few specific exceptions, or as a minimum, examples of situations that will/won't be caught, so people can carefully align themselves with one of the "safe" examples.

[jamesbrown]

Sole trader is specifically mentioned...and I think it's clear (from the name if nothing else!) that a sole trader has a "trade". So if a Ltd Co owner disincorporated, it would almost certainly fall foul of the new rules. I think this will be deliberate when considered alongside the new "dividend tax", as I imagine a fair few micro businesses will consider the reduced admin of going sole trader now the tax difference is greatly reduced. Probably not contractors though due to their clients unlikely to want to touch them as sole traders.

My previous belief was that "activity" was used as well to ensure it would catch investment businesses, not just trading ones. Seems I was wrong re this...or at least not everyone shares my assumption.

I'm hoping that there'll be a few specific exceptions, or as a minimum, examples of situations that will/won't be caught, so people can carefully align themselves with one of the "safe" examples.

Yes, no question about sole traders; the clue is in the name. My guess is that "activity" won't make it through but, if it does, and there aren't other exclusions, no amount of guidance will eliminate the uncertainty, and that will have some perverse consequences, as you mention.

[handyandy]

Indeed. Particularly when many home grown consultancies get bought out because of their customer base base and the directors/owners work as permies for a period of time after, leave and start again. That's gonna be a problem for them surely.

I don;t think it would apply in that case as you would not be liquidating the company you would be selling it (i.e. selling your shareholding in a close company to a another individual or company). That would be an out and out capital gain as you would have paid the nominal £1 per share for 100 shares and then sell them at market value (i.e. what the buyer will pay for assets and good will).

[northernladuk]

I don;t think it would apply in that case as you would not be liquidating the company you would be selling it (i.e. selling your shareholding in a close company to a another individual or company). That would be an out and out capital gain as you would have paid the nominal £1 per share for 100 shares and then sell them at market value (i.e. what the buyer will pay for assets and good will).

Very good point.