Reply to: Entrepreneurs Relief And Multiple Companies Question

[BigRed]

I remember a program about rising damp many years ago which basically concluded it didn't exist, even with no damp proofing. Damp will rise through the mortar between the bricks but only for 3-4 courses when the bottom course is standing in a pool of water. Damp will fall and is often caused by leaky guttering or soil piled over the damp proofing. They investigated several properties where expensive damp proofing had been recommended and found a much cheaper solution in every case.

[Fred Bloggs]

OT, but most "damp proofing" companies are charlatans anyway.

Quite. A few months ago my daughter was thinking of buying a semi basement flat in a large old sandstone house >100 years old. We had a damp consultant very highly recommended to us so we met him for his opinion. Naturally, the opinion was "rising damp". While he was "recommending" his solution of an Osmosis system (involving electrodes and titanium wire connected to a low voltage supply), I actually burst out laughing. I couldn't contain myself any longer. What a bunch of charlatans.

[Fred Bloggs]

It doesn't change the fact that there has been a transaction in securities - goodwill and trade have been transferred to the new company. Unless you can prove that the main reason, or one of the main reasons, was not to gain a tax advantage, it would be caught.

My point exactly. The bloke needs to pay the tax due and get on with it.

[TheCyclingProgrammer]

It's sadly a common trick that the damp course people do to not have to honour the guarantee they give. I still see the damp course van that did an old house of mine around and he must be on his 5 or 6th different company now and it makes my blood boil.

OT, but most "damp proofing" companies are charlatans anyway.

[TheCyclingProgrammer]

I disagree, a developer will often sell to established buy to letters and use the same subbies for every job.

It doesn't change the fact that there has been a transaction in securities - goodwill and trade have been transferred to the new company. Unless you can prove that the main reason, or one of the main reasons, was not to gain a tax advantage, it would be caught.

[northernladuk]

Its funny that in most circumstances a contractor tries this we talk about phoenixing which it isn't really. The fact this guy is in building makes me think this time it is. It's sadly a common trick that the damp course people do to not have to honour the guarantee they give. I still see the damp course van that did an old house of mine around and he must be on his 5 or 6th different company now and it makes my blood boil.

This guy isn't swapping companies to avoid any responsibilities of past builds is he? If so they can lift the corporate veil and still hold him accountantable but I bet it doesn't happen half as much as it should (if at all)

[Fred Bloggs]

OP has already said that trade and goodwill (existing customers and supplier relationships) have been transferred to NewCo. Doesn't sound like drawing a line under your old business to me.

I disagree, a developer will often sell to established buy to letters and use the same subbies for every job.

[TheCyclingProgrammer]

That's right, if a builder develops a bunch of houses/flats they do it through a Ltd Co for that purpose, then shut it down. The past history of events would be crucial to your argument I suppose if it was investigated.

OP has already said that trade and goodwill (existing customers and supplier relationships) have been transferred to NewCo. Doesn't sound like drawing a line under your old business to me.

[Fred Bloggs]

Yup. I guess that could be argued it is a commercial reason.

However, where there is a clear tax advantage as well, interesting to see whether HMRC would challenge. I believe the wording was "a main purpose, or one of the main purposes" being obtaining a tax advantage rather than "the main purpose". Hence client could have to argue that tax saving wasn't really a consideration at all. I guess if they'd been doing the same thing regularly for donkeys years beforehand that might be plausible. However if previously they were getting the companies struck off, now they start liquidating, would be interesting whether they could come up with a non-tax reason for the recent change in closure method!

That's right, if a builder develops a bunch of houses/flats they do it through a Ltd Co for that purpose, then shut it down. The past history of events would be crucial to your argument I suppose if it was investigated.

[Maslins]

In the building trade it is usually to draw a line under possible liabilities from past work, I believe.

Yup. I guess that could be argued it is a commercial reason.

However, where there is a clear tax advantage as well, interesting to see whether HMRC would challenge. I believe the wording was "a main purpose, or one of the main purposes" being obtaining a tax advantage rather than "the main purpose". Hence client could have to argue that tax saving wasn't really a consideration at all. I guess if they'd been doing the same thing regularly for donkeys years beforehand that might be plausible. However if previously they were getting the companies struck off, now they start liquidating, would be interesting whether they could come up with a non-tax reason for the recent change in closure method!

[iguy2008]

In the building trade it is usually to draw a line under possible liabilities from past work, I believe.

Hi

Yes this is usual and this would be his goal (Im not sure that would apply to IT contracting though)

Thanks - Iguy

[Fred Bloggs]

Thought: why didn't he open the new Ltd in his wife's name, assuming he is married. Now I'm not an expert on this and I'm not an accountant (TBH I'm barely an IT specialist now ) but perhaps having a different director and shareholder would allow him to liquidate his original Ltd and then use the wife's Ltd for new business.

Fine line though and not something I would want to get involved with.

I can't see that working at all. HMRC look through such contrivances.

[Fred Bloggs]

Why has your friend set up a new company that provides the same services to the same clients as their existing one, if not to keep under the VAT threshold or to gain the tax advantages of ER?

In the building trade it is usually to draw a line under possible liabilities from past work, I believe.

[ChimpMaster]

Thought: why didn't he open the new Ltd in his wife's name, assuming he is married. Now I'm not an expert on this and I'm not an accountant (TBH I'm barely an IT specialist now ) but perhaps having a different director and shareholder would allow him to liquidate his original Ltd and then use the wife's Ltd for new business.

Fine line though and not something I would want to get involved with.

[Darren at Fox-Bartfield]

ER

Why has your friend set up a new company that provides the same services to the same clients as their existing one, if not to keep under the VAT threshold or to gain the tax advantages of ER?

My thoughts exactly. The rules are set up to catch those that are using the legislation to gain a tax advantage. Taking the details we have on face value, that's what it looks like unless there's something else we're missing.

Perhaps your friend could do with his accountant sending through further details to back up his assertion in writing which may demonstrate the reasoning behind his assumptions as being commercial rather than gaining a tax advantage......or the other way round!