Anti Phoenixing Legislation

[TheCyclingProgrammer]

Does anyone know when the 2 year clock starts ticking?

Is it from the date the LTD is dissolved, from the date it ceases actively trading, the date the last engagement with a client ended, r something else. I guess this would make a difference to the OP as there is 6-7 months from when he started a perm position and when the LTD was dissolved.

I wound up my last LTD back in 2011 after going perm and did the ERS distribution of retained profits to myself and partner (50/50 shareholders) without any problems. I'm still perm but expect I'll go back to contracting again in the next few years. Interesting to hear how they are tightening up.

Its 2 years starting from the date on which the distribution was made:
Finance Act 2016

[handyandy]

Does anyone know when the 2 year clock starts ticking?

Is it from the date the LTD is dissolved, from the date it ceases actively trading, the date the last engagement with a client ended, r something else. I guess this would make a difference to the OP as there is 6-7 months from when he started a perm position and when the LTD was dissolved.

I wound up my last LTD back in 2011 after going perm and did the ERS distribution of retained profits to myself and partner (50/50 shareholders) without any problems. I'm still perm but expect I'll go back to contracting again in the next few years. Interesting to hear how they are tightening up.

[jamesbrown]

I think, if they've set out there stall with the statement "employment by an unconnected third-party is OK" then they've backed themselves into a corner as far as umbrella employment goes. Lets be honest, despite some control over what contracts you take on, being employed by an umbrella isn't that much of a leap by being employed by a consultancy.

You're right though, unless HMRC want to tackle that particular angle and there's a test case, who knows?

Yep, I agree completely.

[TheCyclingProgrammer]

I don't think it was clarified, and it probably won't be without a test case (unlikely). On the one hand, it's employment, so the full PAYE taxes are being paid (i.e. there isn't much of an avoidance angle here, beyond the capital treatment). On the other hand, it's only nominally employment, and could be argued to be carrying on a similar "trade or activity". TBH, I think HMRC would be pushing their luck with this scenario, and they have much better cases to pursue, but I don't think it has been specifically excluded, unless someone knows differently...

I think, if they've set out there stall with the statement "employment by an unconnected third-party is OK" then they've backed themselves into a corner as far as umbrella employment goes. Lets be honest, despite some control over what contracts you take on, being employed by an umbrella isn't that much of a leap by being employed by a consultancy.

You're right though, unless HMRC want to tackle that particular angle and there's a test case, who knows?

[jamesbrown]

That is correct - Condition C only arises as an issue in your case if you return to contracting again under a Ltd company within the 2 years (I'm not sure if it was ever clarified whether returning to contracting via an umbrella would count).

I don't think it was clarified, and it probably won't be without a test case (unlikely). On the one hand, it's employment, so the full PAYE taxes are being paid (i.e. there isn't much of an avoidance angle here, beyond the capital treatment). On the other hand, it's only nominally employment, and could be argued to be carrying on a similar "trade or activity". TBH, I think HMRC would be pushing their luck with this scenario, and they have much better cases to pursue, but I don't think it has been specifically excluded, unless someone knows differently...

[Paul73]

That is correct - Condition C only arises as an issue in your case if you return to contracting again under a Ltd company within the 2 years (I'm not sure if it was ever clarified whether returning to contracting via an umbrella would count).

Indeed. I did wonder about taking a contract via a previous colleagues ltd co. That effectively would constitute an Umbrella scenario

[TheCyclingProgrammer]

"Condition C will not be met where the individual is employed by an unconnected third party"

It looks like being in permanent employment at an unconnected third party (as I am) suggests I do not meet condition C, which is helpful

That is correct - Condition C only arises as an issue in your case if you return to contracting again under a Ltd company within the 2 years (I'm not sure if it was ever clarified whether returning to contracting via an umbrella would count).

[Paul73]

"Condition C will not be met where the individual is employed by an unconnected third party"

It looks like being in permanent employment at an unconnected third party (as I am) suggests I do not meet condition C, which is helpful

[Paul73]

Thanks All...Will have a read :-)

Am hopefully staying on in current PAYE role beyond my initial 12 month FTC but if not, I'd best seek out another Permie role I suspect

cheers

Paul

[jamesbrown]

If your distributions were post Apr 2016, then you're subject to the "new" rules. This basically means if you revert to doing a similar thing within 2 years of those distributions, HMRC can seek to tax those distributions as dividends instead of CGT.

If the old Ltd Co was 100% owned by you, and you doing contracting work, and the new Ltd Co is 100% owned by you, and you doing contracting work, I struggle to see that you'd win against an HMRC challenge. I think you'll be hard pressed to argue doing 6 months PAYE proves that tax was not a main motivator of the close down.

Just my view, others may see it differently.

Agree with this too.

[jamesbrown]

Hi All

My first post but I've found useful info on here before so thanks!

I wound my Ltd Company up in march last year and after the 6 month wait for due diligence for debtors and HMRCs processing it eventually dissolved in November allowing me to claim ER @ 10% capital Gains on the remaining funds.

My question is, as I have been in PAYE permanent employment since March 16, is that sufficient separation for me to be allowed to commence working under a LTD co arrangement again at the end of what is currently a fixed term PAYE contract? Or will I end up in the frame for the legislation to kick in and therefore need to wait until Nov 18 to be able to go contracting again?


Cant seem to find anything with any clarity on the various web articles

Thanks!

Paul

It's difficult to provide a definitive answer, but you'd be "at risk", whether in terms of the old TiS or the new TiS. Really, all the latter does is clarify the time period (2yrs), but avoidance still needs to be a motivation (the condition D that CP refers to). Basically, I agree with CP.

[Maslins]

If your distributions were post Apr 2016, then you're subject to the "new" rules. This basically means if you revert to doing a similar thing within 2 years of those distributions, HMRC can seek to tax those distributions as dividends instead of CGT.

If the old Ltd Co was 100% owned by you, and you doing contracting work, and the new Ltd Co is 100% owned by you, and you doing contracting work, I struggle to see that you'd win against an HMRC challenge. I think you'll be hard pressed to argue doing 6 months PAYE proves that tax was not a main motivator of the close down.

Just my view, others may see it differently.

[TheCyclingProgrammer]

There are effectively two changes to consider here.

Firstly, the Transactions In Security rules which were previously the only weapon for HMRC to tackle abuse of liquidating to gain a tax advantage have been tightened up. Secondly, there is a more specific targeted anti-abuse rule (TAAR) which covers this scenario specifically. There's a good overview here:

https://www.rossmartin.co.uk/sme-tax...s-consultation
https://www.rossmartin.co.uk/sme-tax...ions-new-rules

Conditions C and D are the ones you need to consider. You can get an idea of how HMRC considers these here:

https://www.taxation.co.uk/Articles/...5183/all-wound

Condition C has been discussed on here in numerous threads before (do a search), specifically the 2 year limit and what may or may not constitute continuing in the same trade or activity. I believe full time employment by an unconnected third party is not considered to be considered to be caught by this rule but starting up contracting again within 2 years of liquidating your previous company would be.

On the face of it you would be caught by conditions A, B and C so that leaves you with condition D which as Neil says, is about the main reason, or one of the main reasons, for shutting down your previous company was to gain a tax advantage. I'm afraid you're probably at the mercy of HMRC's interpretation here so its a judgement call. You'd be in a much stronger position if you can avoid being caught by condition C. Take a look at example 3 on the Taxation.co.uk link though.

[Neil@Intouch]

Hi Paul,

The main point would be, did you close the company down with aim to set up another company in several months to gain a tax advantage from the change in rules of entrepreneur's relief.

Or did you decide to close the company down because of genuine commercial activity i.e. contract ended or you were offered a permanent position, or as I have stated above?

[Paul73]

Hi All

My first post but I've found useful info on here before so thanks!

I wound my Ltd Company up in march last year and after the 6 month wait for due diligence for debtors and HMRCs processing it eventually dissolved in November allowing me to claim ER @ 10% capital Gains on the remaining funds.

My question is, as I have been in PAYE permanent employment since March 16, is that sufficient separation for me to be allowed to commence working under a LTD co arrangement again at the end of what is currently a fixed term PAYE contract? Or will I end up in the frame for the legislation to kick in and therefore need to wait until Nov 18 to be able to go contracting again?


Cant seem to find anything with any clarity on the various web articles

Thanks!

Paul