phoenixism

[rootsnall]

A bit of a long shot but has anyone looked into this HMRC guidance on new rules to avoid phoenixing. Shutting down a Ltd to avoid income tax.

CTM36305 - Company Taxation Manual - HMRC internal manual - GOV.UK

Now I thought the whole idea behind it was to just stop you opening a new Ltd asap, which I have no intention of doing. I'm 'retiring' and shutting down my Ltd but had intended maybe doing a bit of work via an umbrella somewhere along the way.

But looking at Condition C below it looks I'd be caught by this even if working through an umbrella. I'm guessing it's highly unlikely this would ever get picked up but I'm trying to keep myself as low as possible on any radars for IR35 purposes. So getting picked up on this could then open a can of worms with regard to other investigations. So is it worth it to save a grand or so.

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A distribution in a winding up made to an individual on or after 6 April 2016 will be treated as if it were a distribution where certain conditions are met. For the rule to apply, all of the following conditions must be met:
•Condition A: The individual receiving the distribution had at least a 5% interest in the company immediately before the winding up
•Condition B: the company was a close company at any point in the two years ending with the start of the winding up
•Condition C: the individual receiving the distribution continues to carry on, or be involved with, the same trade or a trade similar to that of the wound up company at any time within two years from the date of the distribution
•Condition D: it is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to Income Tax.

[Amanensia]

No. An individual employee is not "carrying on" or "involved with" a trade by virtue of their employment.

[rootsnall]

No. An individual employee is not "carrying on" or "involved with" a trade by virtue of their employment.

Thanks. Makes sense to me, but this seems a bit typical HMRC vague below ( ie. you don't really know you are safe ) when it starts talking about 'Activity'.

CTM36320 - Company Taxation Manual - HMRC internal manual - GOV.UK

Condition C is met where the individual receiving the distribution in the winding up continues to be directly or indirectly involved with the same or similar trade or activity as the company being wound up at any time within two years from the date of the distribution.



The condition is widely drafted to prevent the rule being easily avoided by subtly changing the type of trade or activity of the company, or by changing the structure in which that trade or activity is carried out (for example by transferring the company’s trade to a partnership).



Condition C is met not only where a new company is created after the winding up of the company in question – it will apply wherever the individual receiving the distribution continues to carry on, directly or indirectly, the same or a similar activity.

[jamesbrown]

The consensus opinion is that an umbrella scenario wouldn't be caught, even by "activity". But "activity" definitely gives pause for thought w/r to future interpretations and guidance. A new company or self-employment would both qualify as a trade. Activity...

OTOH, there are situations even with a trading scenario where you might not be caught, providing there was no intention to avoid tax. For example, let's say you moved abroad for an employment and it didn't work out. Grey area though.

[northernladuk]

We need a sticky on shutting down companies and MVL. There is a question on it daily and I imagine this is just the start.

[northernladuk]

The consensus opinion is that an umbrella scenario wouldn't be caught, even by "activity". But "activity" definitely gives pause for thought w/r to future interpretations and guidance. A new company or self-employment would both qualify as a trade. Activity...

OTOH, there are situations even with a trading scenario where you might not be caught, providing there was no intention to avoid tax. For example, let's say you moved abroad for an employment and it didn't work out. Grey area though.

Indeed. The move in itself is fine. The problem I see is many contractors being very short sighted and jumping at the chance to shut the company without thinking longer term. If they have resigned themselves to being inside for the next couple of years fine. If they make a mistake, go brolly for three months and then snap up an outside gig then totally not fine. They have quite clearly carried on as a contractor with the brolly just been a forced short term option.

I suspect many many people are going to get caught by this in the coming year.

[rootsnall]

We need a sticky on shutting down companies and MVL. There is a question on it daily and I imagine this is just the start.

Agreed. I did have a look around and it's a bit here and a bit there. I thought I'd be clever getting ahead of the pack but It's why I'm packing in, I've had enough

[jamesbrown]

I suspect many many people are going to get caught by this in the coming year.

Yeah, assuming they don’t effectively close down ER in April (which feels unlikely), there will be a lot of people in that grey area in the coming years. That’s the sort of situation that can lead to altered guidance too, landing even more in trouble (with capital distributions, not just ER). Imagine, a change in IR35 having all sorts of secondary FUBAR consequences in other areas that take years to work out; that’d be a first

[cojak]

We need a sticky on shutting down companies and MVL. There is a question on it daily and I imagine this is just the start.

Ok ok, I do something this weekend.

Particularly since I’ve done it.

[tenten]

Worth remembering that the TAAR in question only applies to winding-up/liquidation.

As I understand it, you can strike-off and start a new Ltd co to trade via as long as your company is solvent and has less than £25K capital to distribute: Striking off a company - RossMartin.co.uk