MVL and entrepreneurs relief

[jmo21]

Just had an email from my accountant on their current thoughts on how the budget will affect contractors.

He mentions it looks like it will now be harder to get entrepreneurs relief than before.

And then he goes on to mention even though there are changes to ER it could still save approx £800 a year, "but this would involve creating a new company every year".

I've went back to him asking whether this a recommendation to do, and that it is against my understanding of how you can claim ER (eg. doing it every year would be absolutely against the rules)

Sigh!

Edit: meant to post in Accounting, admins, could you move please?

[TheCyclingProgrammer]

There was a lot of negative stuff in the budget but nothing to do with ER unless I missed something obvious. Nothing has changed there (not yet, anyway). What changes is he talking about?

Shutting down a company to claim ER on a capital distribution and then continuing to trade as a new company is just making you a target for the anti-avoidance legislation in the TIS rules which could see all your capital distributions treated as dividend income (and taxed accordingly plus interest and possibly penalties) if you get caught. Bad advice.

[jmo21]

Agreed.

He has come back to me saying simply "Who is to know what is in someone's head when they close down a company".

Maybe I'm not acting like a real enough businessman who flies by the seat of his pants at all times, opening and closing companies left, right and center, letting them crash and burn etc

No detail on ER changes, just mentions there will be some, which will make it harder to claim.

[TheCyclingProgrammer]

He has come back to me saying simply "Who is to know what is in someone's head when they close down a company".

Well if there's any kind of gap between shutting down and re-starting, then you *might* be able to make a case. If there is no gap at all, it will be blatantly obvious.

No detail on ER changes, just mentions there will be some, which will make it harder to claim.

Again, heard nothing about ER changes and can't find anything about it in the budget document.

[jmo21]

I'm not planning on doing MVL anyway, so won't affect me either way

[Lumiere]

Shutting down a company to claim ER on a capital distribution and then continuing to trade as a new company is just making you a target for the anti-avoidance legislation in the TIS rules which could see all your capital distributions treated as dividend income (and taxed accordingly plus interest and possibly penalties) if you get caught. Bad advice.

Are there any known cases of this happening to humble contractors?

[northernladuk]

Are there any known cases of this happening to humble contractors?

Question is... Do you want to do this and be the first one?

[alphadog]

Are there any known cases of this happening to humble contractors?

I am not aware of any cases. Certain accountants who recommend this route probably only do so because there haven't been any cases.

Probably only a matter of time before either:
a) Hector finds one to take through the courts to prove a point, or
b) Osborne eliminates ERCGT for "PSC's"

... particularly following the recent budget where "PSC's" have been targeted head on in other areas.

My guess is that time is of the essence for anyone considering ERCGT

[Lumiere]

Question is... Do you want to do this and be the first one?

I really doubt I would be the first one if I wanted to try it, more like 10001st.
Just curious if there are any grounds for this statement, or it is just another contractor's spooky tale.

[TheCyclingProgrammer]

Are there any known cases of this happening to humble contractors?

None that I know of, and personally I think the risk is a bit overblown on this forum sometimes - the endless debates about how whether or not the TIS rules would apply because honestly there is no clear cut answer. The rules aren't clear cut and open to interpretation. But I'd suggest repeatedly shutting down and starting up again is making yourself a very easy target.

Put it this way, if HMRC ever decided to start pursuing this are they going to go after the people who legitimately closed their company down for whatever reason then came back to contracting again say, 6 months later or are they going to pursue the obvious cases of shutting down and starting up again just to gain a tax advantage?