Reply to: Things to watch out when ceasing trading

[john@UKCA]

Interim Distribution on MVL

The final distribution will not be sorted by the 6 April if sent for a MVL now, but there is still time to get it sorted to pay a interim distribution.

The liquidator I use had 28 new cases this week - I am sure CM is expriencing the same!

[badgernumber1]

What this suggests to me is lots of these people have either been misinformed (plenty of liquidators marketing in a "liquidate now or lose out forever" way), or the company owners are phoenixing and perhaps aren't aware of rules already in existence, or feel that existing rules won't realistically be enforced (which may well be the case).

Phoenixing... or they might be giving up on PSCs, starting a new career, retiring early. But I think the uncertainty can be enough to bring forward life changes originally planned for the next year or two. All the more where there's a big 'money box'.

The ones concerning me are those signing up now, make no mention of timescales (when we'd give them a reality check) and just naively assume everything will be done pre 6 April 16.

Maybe they're encouraged by articles like this (2nd para from bottom):
Why Entrepreneurs' Relief changes at Budget 2016 are the lesser concern :: Contractor UK
Just a couple of days ago on CUK! Don't disagree with you, just saying.

[john@UKCA]

Existing TIS Rules

Significant changes are being made to the TIS provisions from 6 April 2016, but the existing provisions will continue for the remainder of this tax year.

It has long since been accepted that a transaction involving a business being transferred out of one company into another corporate entity would fall within the TIS provisions, even if the transfer was effected by means of an in specie distribution by a liquidator.

However, HMRC officials have indicated that it is accepted that if a business is simply succeeded by a shareholder (either by way of a simple transfer from a company followed by its liquidation or by way of an in specie distribution by a liquidator thereof) who then begins trading as a sole trader or is succeeded by two or more shareholders who begin trading in partnership, including a limited liability partnership, the current trading in securities provisions are unlikely to apply. Practitioners should consider making a clearance application under ITA 2007, s 701 in advance of taking these steps.

[Maslins]

Maybe not but not being able to claim the tax relief unless there is a genuine business reason is fairly clear and a rush of people closing businesses to use the tax relief that is being withdrawn is also pretty clear. Why the obvious cannot be applied to this is staggering.

My personal view is the changes are insignificant enough that I didn't expect much change in MVL numbers. However, from our numbers, and some publicly available info, there's definitely been a surge in the last couple of months, so I was clearly wrong.

What this suggests to me is lots of these people have either been misinformed (plenty of liquidators marketing in a "liquidate now or lose out forever" way), or the company owners are phoenixing and perhaps aren't aware of rules already in existence, or feel that existing rules won't realistically be enforced (which may well be the case).

Certainly anticipating a corresponding slump April 2016 onwards...I guess only time will tell if that's the case, and if/when it'll pick up again.

The ones concerning me are those signing up now, make no mention of timescales (when we'd give them a reality check) and just naively assume everything will be done pre 6 April 16.

[northernladuk]

Some of us have a legitimate reason but feel caught up in this. I'm on the cusp of retirement, delayed winding up pending some final work which never materialised (last 6 months). Suddenly realise I may miss out on planned MVL with ER. Could completely changes retirement plan. Lack of clarity re. new rules is frustrating.

And I can see why you feel frustrated. You'd be apoplectic if you got a blanket refusal because of the non legitimate ones as well I imagine. The number of people that have said something along the lines of 'must close the company to get cheap money, last chance to do so' is quite eye opening.

[badgernumber1]

Maybe not but not being able to claim the tax relief unless there is a genuine business reason is fairly clear and a rush of people closing businesses to use the tax relief that is being withdrawn is also pretty clear. Why the obvious cannot be applied to this is staggering.

Some of us have a legitimate reason but feel caught up in this. I'm on the cusp of retirement, delayed winding up pending some final work which never materialised (last 6 months). Suddenly realise I may miss out on planned MVL with ER. Could completely changes retirement plan. Lack of clarity re. new rules is frustrating.

[northernladuk]

Why do you think they are changing the rules - THE OLD ONES DON'T WORK!

Maybe not but not being able to claim the tax relief unless there is a genuine business reason is fairly clear and a rush of people closing businesses to use the tax relief that is being withdrawn is also pretty clear. Why the obvious cannot be applied to this is staggering.

[john@UKCA]

Assuming most of these are using the tax advantages how on earth can this be possible when it appears fairly obvious that it is being done for a tax advantage and not a genuine business reason?

Beggars belief.

Why do you think they are changing the rules - THE OLD ONES DON'T WORK!

[northernladuk]

Must have been all that rush of mvls before the new rules come into force!

Assuming most of these are using the tax advantages how on earth can this be possible when it appears fairly obvious that it is being done for a tax advantage and not a genuine business reason?

Beggars belief.

[john@UKCA]

We'd certainly love to, and a couple of years ago I would've suggested 3 months was common. However, the HMRC department dishing out clearances seems to have virtually ground to a halt. 6+ months unfortunately is becoming common. I would stress that's just for closure and hence final distribution, so a large chunk of the funds would normally be received much earlier on.

Must have been all that rush of mvls before the new rules come into force!

[Maslins]

I am sure MVL online do it quicker than 6 months for a just a cash rich company.

We'd certainly love to, and a couple of years ago I would've suggested 3 months was common. However, the HMRC department dishing out clearances seems to have virtually ground to a halt. 6+ months unfortunately is becoming common. I would stress that's just for closure and hence final distribution, so a large chunk of the funds would normally be received much earlier on.

[john@UKCA]

6 Months for MVL

Given the capital gains tax changes, is there an updated accurate MVL calculator for the tax year 6th April 2016?

Not only does it take at least 6 months to get the distribution of funds into your personal bank account

Doesnt have take this long, Liquidator I use did 90% of the funds in 4 weeks into personal bank account of the shareholders.

I am sure MVL online do it quicker than 6 months for a just a cash rich company.

[ASB]

You should watch out for your accountant giving you duff advice when you ask them this question.

There do seem to be a number of instances of that. The key thing - from the financial perspective - would be to ensure that the bank account is closed and any rebates on VAT etc obtained before MVL'ing.

[badgernumber1]

P.S. Understand you (OP) may be concerned about tax on MVL distributions once the new legislation is enacted.

The draft legislation makes it clear that 'phoenixing' will be targeted - this would endanger a claim for ER if you were to close/re-start with a new company or take up as a sole trader in the same field within 2 years (hopefully not if you become a permie in same field).

Otherwise, re. the 'money-boxing' issue - seems there are no published proposals to address this. That's not to say there are no imminent related changes afoot(?)

So little clarity - we might have hoped for better by now but yesterday's budget report seems to say no more than that 'the government will respond to the consultation on company distributions in March 2016.'

Interested if anyone has a different view :-)

[badgernumber1]

I asked my accountant a similar question last year. Their in-house insolvency practitioner came back with this:

'The important thing seems to be that surplus funds should not be actively invested, as this might change the company from being a trading company to an investment company, which would get rid of the ER. But simply leaving the funds in the bank, even on deposit earning interest, would not amount to an investment activity, so that would be safe.'