Reply to: Close of Ltd company

[Chart Accountancy]

Hi friends,

Is it correct that once you close a Ltd company and made use of capitals gains allowance, you can't open another one, without tax/penalty, for 2 years?

Also, can one's spouse who was a shareholder in the closed company, apply for a new ltd company without further tax implications?

Thanks

I have provided a few answers above. If you are striking off the company with up to £25K distributions and the shareholders make use of the capital distribution treatment, the TAAR will not apply so you are not restricted to open a new company without further tax implications (provided that IR35 is not being questioned).

[jamesbrown]

In order that the Anti-phonenix rules to apply, it needs to proved that winding-up was driven mainly by the avoidance of income tax and it applies to any liquidation distribution. The ER is a relief to reduce the tax rate on the capital gain so it does not protect from you TAAR. If you fail under TAAR, you will lose your entitlement to ER as the capital distribution treatment would be denied. It is only if you close via a strike off, the TAAR does not apply.

I think you need to re-read what I wrote

( Incidentally, there are four conditions to be met for the TAAR to apply. )

[Chart Accountancy]

Er, no. Stop muddying the water w/ discussion about striking off, which is not relevant for amounts over 25k because no tax advantage has been obtained (post ESC16). You are under the incorrect impression that the TiS is concerned with ER. It isn’t. The TiS is found in ITA 2007 whereas ER is part of the TCGA 1992. They are different things and you are conflating them. The TiS is about capital distributions in general. It applies first and regardless of whether you seek additional relief via ER. According to you, it is not possible to fail the TAAR unless a tax advantage has been obtained through ER, which is wrong. There is no “2 year restriction on ER”, rather on capital distributions that should’ve been declared as dividends or salary.

Alternatively, if the amounts are over 25K, the company can be kept alive for several years, to pay out distributable reserves within the shareholders basic rate bands over that time as to benefit from a 7.5% income tax charge compared to 10% ER. If however the shareholders are higher rate tax payers then depending on the amount to be distributed on the dissolution if exceeds £25,000, the entire amount will be treated as an income distribution so a member's voluntary liquidation would be likely more tax efficient.

[Chart Accountancy]

Er, no. Stop muddying the water w/ discussion about striking off, which is not relevant for amounts over 25k because no tax advantage has been obtained (post ESC16). You are under the incorrect impression that the TiS is concerned with ER. It isn’t. The TiS is found in ITA 2007 whereas ER is part of the TCGA 1992. They are different things and you are conflating them. The TiS is about capital distributions in general. It applies first and regardless of whether you seek additional relief via ER. According to you, it is not possible to fail the TAAR unless a tax advantage has been obtained through ER, which is wrong. There is no “2 year restriction on ER”, rather on capital distributions that should’ve been declared as dividends or salary.

In order that the Anti-phonenix rules to apply, it needs to proved that winding-up was driven mainly by the avoidance of income tax and it applies to any liquidation distribution. The ER is a relief to reduce the tax rate on the capital gain so it does not protect from you TAAR. If you fail under TAAR, you will lose your entitlement to ER as the capital distribution treatment would be denied. It is only if you close via a strike off, the TAAR does not apply.

[jamesbrown]

ER is a relief applied to the capital distribution so it is covered by TAAR on the winding up. The confusion caused by a few contractor accountants (even on this forum) is misleading contractors to believe that if they closed their company via a voluntary strike off, they cannot open a new company within 2 years. The 2 years restriction applies to ER.

The TAAR applies to distributions made on winding up(liquidation) it does not apply on striking off. You can read the guidance in this link: CTM36305 - Company Taxation Manual - HMRC internal manual - GOV.UK and Ross Martin has it published here as a nice summary: Striking off a company - RossMartin.co.uk

The voluntary strike off should not be confused in this instance as it not within the scope of the TAAR introduced from 6 April 2016.

Er, no. Stop muddying the water w/ discussion about striking off, which is not relevant for amounts over 25k because no tax advantage has been obtained (post ESC16). You are under the incorrect impression that the TiS is concerned with ER. It isn’t. The TiS is found in ITA 2007 whereas ER is part of the TCGA 1992. They are different things and you are conflating them. The TiS is about capital distributions in general. It applies first and regardless of whether you seek additional relief via ER. According to you, it is not possible to fail the TAAR unless a tax advantage has been obtained through ER, which is wrong. There is no “2 year restriction on ER”, rather on capital distributions that should’ve been declared as dividends or salary.

[Chart Accountancy]

Almost correct. The TAAR has nothing to do with ER, it is about a capital distribution in general (other than a strike off up to 25k, which replaced an extra-statutory concession, ESC16).

ER is a relief applied to the capital distribution so it is covered by TAAR on the winding up. The confusion caused by a few contractor accountants (even on this forum) is misleading contractors to believe that if they closed their company via a voluntary strike off, they cannot open a new company within 2 years. The 2 years restriction applies to ER.

The TAAR applies to distributions made on winding up(liquidation) it does not apply on striking off. You can read the guidance in this link: CTM36305 - Company Taxation Manual - HMRC internal manual - GOV.UK and Ross Martin has it published here as a nice summary: Striking off a company - RossMartin.co.uk

The voluntary strike off should not be confused in this instance as it not within the scope of the TAAR introduced from 6 April 2016.

[ContractingBrit]

Thanks for the useful info.

My main concern is ‐ i take up permie job, close my ltd company..only to find out permie job makes you redundant in less than 2 years(anything is possible in this climate).

Although part of me thinks, most roles come april next year will be inside IR35 anyway. So in that case, one will most likely operate under an umbrella anyway. So overall am leanding towards closing the ltd company and making use of capital gains allowance.

[jamesbrown]

If you close your company via a voluntary strike off, you are not restricted to open a new company straight away if you claimed the capitals gains allowance for retained profit capped at £25,000 including the share capital. The restriction applies only if you claimed the ER.

The Targeted Anti-Abuse Rule introduced from 6 April 2016 in order to combat 'phoenixing' (the practice of closing one company and starting a new one immediately) only applies to distributions made on winding up (liquidation) it does not apply on striking off

Almost correct. The TAAR has nothing to do with ER, it is about a capital distribution in general (other than a strike off up to 25k, which replaced an extra-statutory concession, ESC16).

[Chart Accountancy]

Hi friends,

Is it correct that once you close a Ltd company and made use of capitals gains allowance, you can't open another one, without tax/penalty, for 2 years?

Also, can one's spouse who was a shareholder in the closed company, apply for a new ltd company without further tax implications?

Thanks

If you close your company via a voluntary strike off, you are not restricted to open a new company straight away if you claimed the capitals gains allowance for retained profit capped at £25,000 including the share capital. The restriction applies only if you claimed the ER.

The Targeted Anti-Abuse Rule introduced from 6 April 2016 in order to combat 'phoenixing' (the practice of closing one company and starting a new one immediately) only applies to distributions made on winding up (liquidation) it does not apply on striking off

[jamesbrown]

You could return to contracting through an umbrella within 2 years. There's nothing stopping you doing that.

Agree, worth pointing this out. Consensus is that an umbrella would be fine because it is, strictly speaking, an employment.

[WTFH]

Thanks for this, useful info. I am glad I asked. So the reasonable time frame between closing one and opening another one is 2 years.

Effectively I am trying to gauge, how soon I can return to contracting once I close the current company and utilize capital gains. Answer seems to be 2 years.

You could return to contracting through an umbrella within 2 years. There's nothing stopping you doing that.

[jamesbrown]

Thanks for this, useful info. I am glad I asked. So the reasonable time frame between closing one and opening another one is 2 years.

Effectively I am trying to gauge, how soon I can return to contracting once I close the current company and utilize capital gains. Answer seems to be 2 years.

Yep. There may be situations where you could return sooner (e.g., you took a permie role that fell through after 18 months) but not ones that you envisaged upfront, as the TAAR is broadly drawn.

[ContractingBrit]

Broadly, yes. There's a TAAR in the Transactions in Securities legislation and you would likely fall within scope. Regarding your spouse, it would depend on the details, but the legislation accounts for avoidance via carrying on the same or a similar trade or activity with people connected to the individual (who received capital treatment). For example, if you were to work for the newly created company with your spouse, then you would be caught (other factors being equal). Likewise, if your spouse had benefited from a capital distribution and then engaged in the same or a similar trade or activity within two years, that would likely be caught too.

Sounds to me like you're trying to engineer something that the TAAR was precisely designed to tackle.

Thanks for this, useful info. I am glad I asked. So the reasonable time frame between closing one and opening another one is 2 years.

Effectively I am trying to gauge, how soon I can return to contracting once I close the current company and utilize capital gains. Answer seems to be 2 years.

[jamesbrown]

Hi friends,

Is it correct that once you close a Ltd company and made use of capitals gains allowance, you can't open another one, without tax/penalty, for 2 years?

Also, can one's spouse who was a shareholder in the closed company, apply for a new ltd company without further tax implications?

Thanks

Broadly, yes. There's a TAAR in the Transactions in Securities legislation and you would likely fall within scope. Regarding your spouse, it would depend on the details, but the legislation accounts for avoidance via carrying on the same or a similar trade or activity with people connected to the individual (who received capital treatment). For example, if you were to work for the newly created company with your spouse, then you would be caught (other factors being equal). Likewise, if your spouse had benefited from a capital distribution and then engaged in the same or a similar trade or activity within two years, that would likely be caught too.

Sounds to me like you're trying to engineer something that the TAAR was precisely designed to tackle.

[WTFH]

Well am sure am not the first one to think about this nor have I asked anyone to support it.

You make it sound like am guilty of doing something wrong when all I have done is ask a question.

Dont make assumptions when you dont know someone else's situation.

No assumptions necessary. You started the thread stating one thing, now you reveal your true intent.