Reply to: Post MVL opportunity - too risky?

[ContrataxLtd]

If you want to refer to the get out clause re: this thread, go to ITA2007 Section 685. (http://www.legislation.gov.uk/ukpga/...t/13/chapter/1)

Hi Craig@InTouch

I'm not even sure the legislation there has been updated to take into account the new rules.

As I understood it, FA 2010 basically repealed and replaced the TIS rules to allow for a full rewrite. The link you provided still has the old get out clause mentioned which includes the commercial purposes and is at s685.

Now as I understand it the get out clause can be found at s684(1) (but I can't actually find the updated legislation on the internet at the moment) and it basically states that the transaction is caught if the main purpose, or one of the main purposes, of the person in being party the transaction is to obtain an income tax advantage and the person does actually obtain an advantage.

The burden of proof to be on HMRC to prove this which backs up the points TCP had made previously.

Martin
Contratax Ltd

[northernladuk]

Never mind that, when you going to get the round in?

[Craig@Clarity]

Just on that point. Who you making tea for now that the scary one has gone?

Never mind that, when you going to get the round in?

[northernladuk]

Even the tax man likes coffee! No?

Just on that point. Who you making tea for now that the scary one has gone?

[Craig@Clarity]

The only accountant that has taken your side is Craig at In Touch- the guy who seems to think laying off the coffee is the answer to a HMRC investigation! Seriously? Really?

Even the tax man likes coffee! No?

[Craig@Clarity]

I just want to point out again while we are quoting HMRC manuals that the TIS manuals still don't appear to have been updated for the most recent legislation.

Notably, the get out clause of "for commercial reasons" has been replaced by a clause that states the anti avoidance rules will not apply if tax avoidance was not the main motivation for the original liquidation and it's up to HMRC to prove otherwise.

Agreed. Don't rely on HMRC's interpretation and "guidance" in cases like these. If in doubt always refer to the law as this is what counts at Tribunal etc, which has time and time again been demonstrated in case law. I know TCP is clued up on legislation too.

If you want to refer to the get out clause re: this thread, go to ITA2007 Section 685. (http://www.legislation.gov.uk/ukpga/...t/13/chapter/1)

It would be very harsh for the OP to be 'taken' on the basis that they had no need to use the company as they went permie and therefore had no requirement for the company to exist anymore and has even gone down the route of liquidation.

With an independent job opportunity, which hasn't yet materialise, it would be harsh to retrospectively apply tax avoidance in this specific set of circumstances if you look at the timeline of events. If the OP is genuine in all their details, there is no way to show that there was ever an "intention" for tax avoidance. Yes, there may be an income tax advantage by liquidating but this should be covered by ITA2007 S685.

MHO still stands that the the OP should not be "unduly worried" under these set of circumstances. Unless anyone is actually acting and advising the OP on a professional engaged level, you have to take the facts on face value and give general guidance on it.

On another point from other posts, ESC C16 introduced in 1985 has long been superceded and replaced by legislation which caps the distribution to £25k. So where the total reserves exceed this cap, the shareholder would have presumably sought professional advice at the time that would have lead to the MVL taking place and a capital distribution made.

Now, me thinks it's Starbucks time (other coffee outlets are available)!

[ContrataxLtd]

Someone has forgotten to fill the inside of the enclosed letters like O and B on your images on your website... Just saying like...

Thanks NLUK, wouldn't expect anything less from you I actually think the designers did it like that on purpose though but we're getting off topic now..............

[northernladuk]

A very good point TCP which is why I don't normally like using HMRC's manuals, although possibly relevant here because a lot of the inspectors will still use them in cases even though they don't always reflect the actual legislation!

Someone has forgotten to fill the inside of the enclosed letters like O and B on your images on your website... Just saying like...

[ContrataxLtd]

I just want to point out again while we are quoting HMRC manuals that the TIS manuals still don't appear to have been updated for the most recent legislation.

Notably, the get out clause of "for commercial reasons" has been replaced by a clause that states the anti avoidance rules will not apply if tax avoidance was not the main motivation for the original liquidation and it's up to HMRC to prove otherwise.

A very good point TCP which is why I don't normally like using HMRC's manuals, although possibly relevant here because a lot of the inspectors will still use them in cases even though they don't always reflect the actual legislation!

[TheCyclingProgrammer]

I just want to point out again while we are quoting HMRC manuals that the TIS manuals still don't appear to have been updated for the most recent legislation.

Notably, the get out clause of "for commercial reasons" has been replaced by a clause that states the anti avoidance rules will not apply if tax avoidance was not the main motivation for the original liquidation and it's up to HMRC to prove otherwise.

[ContrataxLtd]

Chris, in all fairness, you are completely over complicating the situation and tying yourself up in knots.

You say I am scare mongering; however it appears you are terrified at the thought of losing recurring business. Presumably you were benefiting very well from liquidating the companies of the same director-shareholders every few years when their company bank balances hit 6 figures.

The only accountant that has taken your side is Craig at In Touch- the guy who seems to think laying off the coffee is the answer to a HMRC investigation! Seriously? Really?

Whereas the behemoth Nixon Williams provides an infinitely more realistic and sensible perspective of transaction in securities (I can't recall Craig even mentioning TIS). It would be good if representatives from SJD and ClearSky (as much larger firms of contractor accountants) join the party and share their thoughts.

Hi JB3000

I don't like blindly quoting HMRC manuals but in this case I do think they offer some input to this debate.

Firstly, I feel that the intent of the transaction plays quite a big part in this. As per HMRC, CTM36805 - Particular topics: transactions in securities: tax advantage from - introduction

If the person in question can show the transactions were carried out for bona fide commercial reasons (or in the ordinary course of making or managing investments) and that obtaining a tax advantage was not one of the main objects of any of the transactions the avoidance legislation will not apply. This is known as the ‘escape clause ‘. The onus of proof rests with the taxpayer to demonstrate this exception applies.

Therefore, if the intent of the transaction was purely commercial then the rules don't apply. I do however appreciate that this may be a hard one to prove if a similar business is setup shortly after the first one ceases to trade (especially before the liquidation of FirstCo is complete) and it is up to the tax payer to justify the intention but in my book, closing a company down to take up a permanent role is a commercial reason.

If we then specifically look at the liquidation, CTM36850 - Particular topics: transactions in securities: liquidation

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 legislation can however apply to counteract a tax advantage obtained in consequence of the combined effect of a transaction in securities and the liquidation of a company.

Based on this, if there is an ordinary liquidation and no 'funny transactions' swapping shares with companies etc. then I don't feel the liquidation would be caught under the rules. This is partly based on the fact that if trade hasn't ceased then surely there can't be a liquidation?

On round up, I think it's very hard to say with certainty whether the rules would apply or not because it's one of the many situations where the rules don't specifically take into account the way contractors work. On balance, yes the TIS rules need to be considered and the specific circumstances of each case should be looked at on its own merits but generally I feel that taking up a permanent role (for a substantial period of time) would be a commercial reason for closing a company down thus avoiding the TIS but until this is taken to tribunal no one can say for sure.

Hope this adds something to the debate!

Martin
Contratax Ltd

[JB3000]

Interesting angle...but then I'm sure every new venture JB3000's friends Stelios/Mr Branson establish have links with multiple people they've worked with in previous businesses. Does that make them all the same business? I don't think so. Reality is I guess that everyone has a bit of personal goodwill, being their reputation for previous work done.

Re the ESC C16 bits, that's interesting but disappointing as it doesn't help clear anything up:
"The assurances include:
- The company
- does not intend to trade or carry on business in future; and..."

If they literally mean the company itself as it states, you'd be getting it struck off, so surely that's a given?! If they meant the key individual(s) behind it, then potentially it's extremely wide ranging, as there's no suggestion of same trade (note it's not carry on the business)...so surely it must be the former. That in itself doesn't seem to in any way prevent someone under the old rules from closing down Oldco obtaining CGT and starting up Newco straight away, so unfortunately I don't think it does give us anything more to go by.

Chris, if you can't even comprehend such a basic sentence like "does not intend to trade or carry on business in future" then I simply don't think I will be able to teach you.

[JB3000]

Here you (Chris Maslin at MVL Online) have stated that the OP would be ‘outside the rules’ – that is simply not the case because a tax advantage has been gained by the OP (irrespective of his intentions at the time) as a result of closing and re-opening. His situation could therefore come under scrutiny by HMRC – he does have a defence (not expecting to continue at the point of liquidation), but if a judge saw it the same way as JB3000 then he could be in trouble.

I agree with NW.

[JB3000]

I think most (probably all) of the accountants in this thread would frown upon that, myself included. That's not the situation described in the OP though.

@JB3000 what the OP not being Stelios/Branson has to do with anything I don't know. Yes, they are contracting and there is little in the way of a real long term business value behind them, but the laws don't preclude that, indeed they're specifically there to enable people to get retained cash out of a closing company tax efficiently.

I've found another HMRC example of a transaction in securities (from this page):
"A holds all the issued 100 £1 shares in company X (reserves £80,000) and the 100 £1 shares of company Y (reserves £80,000). A exchanges the 100 £1 shares in X for 80,000 £1 redeemable preference shares and 10,000 £1 Ord shares issued by Y. Circumstance E is present and the tax advantage counteracted is the income tax payable if A had received a dividend of £80,000 from company Y. If any of the 10,000 £1 ordinary shares in company Y are subsequently repaid, the tax advantage obtained by not paying income tax on the amount repaid may also be cancelled in the year of repayment."

This one's even further from the OP's situation than the last.

Key thing from what I can see is that both HMRC examples there is nothing commercial to the arrangement at all. It's also all happening at the same time, with not even a brief period where trade is discontinued. They are both clearly playing around with the share structure in an attempt to create a CGT situation.

They're a million miles away from a contractor stopping contracting, closing the company, then at some future point re-starting contracting. I think you're scaring people unnecessarily. Sure, you may well argue I'm biased, but there's a few accountants on here who (AFAIK) don't have any links to MVL firms who seem to think it'd be outside the rules.

Liquidation hasn't really changed the tax option here, contractors were able to get cash out of a closing company with CGT treatment beforehand, with an application under ESC C16. I don't have any approval letters to hand, but I believe they would typically have a clause about the contractor confirming they didn't intend to return to the same business short term. Would be interested to know whether that had any indication of timescale to it. Inevitably as the break between closing a restarting changes, people's perceptions on whether it might be caught changes too.

Chris, in all fairness, you are completely over complicating the situation and tying yourself up in knots.

You say I am scare mongering; however it appears you are terrified at the thought of losing recurring business. Presumably you were benefiting very well from liquidating the companies of the same director-shareholders every few years when their company bank balances hit 6 figures.

The only accountant that has taken your side is Craig at In Touch- the guy who seems to think laying off the coffee is the answer to a HMRC investigation! Seriously? Really?

Whereas the behemoth Nixon Williams provides an infinitely more realistic and sensible perspective of transaction in securities (I can't recall Craig even mentioning TIS). It would be good if representatives from SJD and ClearSky (as much larger firms of contractor accountants) join the party and share their thoughts.

[JB3000]

The other thing that bothers me a bit is that things are based on intent - trouble is that is a very vague hurdle. Especially when if push comes to shove all one really has is actuality.

Still the powers that be are pretty much masters of obfuscation and guaranteed uncertainty.

I don't think it has anything to do with intent/motive. If you have completely ceased trading then there is no problem with gaining a tax advantage. However if the reality is you have gone back into contracting after a holiday or a few months of being a permie then don't be surprised HMRC challenging the capital distribution as trade obviously didn't cease (hence the restart). If you stopped contracting today a self assessment tax return for 2014/15 would be due and this could be submitted in say July 2015. If HMRC doesn't challenge by July 2021 you are home and dry. If you have gone back into contracting during the intervening period (despite claiming to have ceased trading) expect an avalanche of questions and ongoing requests for tonnes of information in order to justify what you have done.