Reply to: CGT or Dividend

[jamesbrown]

The online Tax Return form simply says I don't need to complete the CGT section because my gain was less than £12,300.

And, as it turns out, I didn't get any dividends either during that year so no need to complete the Dividend section either.

Also, not having to pay back the child allowance any more on two sprogs means I am due a repayment.

Looks like a new fly rod is in the offing.

[OrangeHopper]

The online Tax Return form simply says I don't need to complete the CGT section because my gain was less than £12,300.

And, as it turns out, I didn't get any dividends either during that year so no need to complete the Dividend section either.

Also, not having to pay back the child allowance any more on two sprogs means I am due a repayment.

Looks like a new fly rod is in the offing.

[jamesbrown]

But, anyway, to reiterate, this is all completely irrelevant to the OP.

[jamesbrown]

hence I asked the question. I interpreted it differently.

But I can only find references to TAAR applying if a company that has been wound up. Not one that still exists but has been sold. The only HMRC info I can find is for ctm36340 and that is also all about winding up.


On the plus side there's a very strong argument that providing managed services to customers, is a different business to being an IT contractor, but as we know it is pretty subjective, and HMRC often interpret what they want it to be.

It definitely includes sales (it's about the disposal of shares). There's a good article on the TiS legislation and the TAAR in Tolley, assuming you have access:

https://www.lexisnexis.co.uk/tolley/...-or-winding-up

I doubt you have a very strong argument, tbh but, by all means, seek advice. Being involved with the same or a similar trade or activity is pretty all-encompassing. Sure, if you are moving from IT consultancy to fruit and veg sales, no problem. If you are going from IT consultancy to selling computers, you should probably still sweat it (not joking).

[Lance]

No, I don't think that is true. It applies to sales too. The TAAR is explicit about continuing to be "involved with" the same or a similar trade or activity (condition C). It even applies to connected persons, so the TAAR is very broadly drawn in that regard. Obviously, seek advice, but I think this is pretty clearcut and there are no plausible ways around the TAAR, given how broadly it is drawn.

hence I asked the question. I interpreted it differently.

But I can only find references to TAAR applying if a company that has been wound up. Not one that still exists but has been sold. The only HMRC info I can find is for ctm36340 and that is also all about winding up.


On the plus side there's a very strong argument that providing managed services to customers, is a different business to being an IT contractor, but as we know it is pretty subjective, and HMRC often interpret what they want it to be.

[jamesbrown]

something I've been considering as part of PlanB/C..

If I sell my LTD. to a parent company (valued at the retained profit), and become a director/shareholder of the parent company, I believe that I don't have any TAAR restrictions as the company wasn't liquidated. Is that true?

No, I don't think that is true. It applies to sales too. The TAAR is explicit about continuing to be "involved with" the same or a similar trade or activity (condition C). It even applies to connected persons, so the TAAR is very broadly drawn in that regard. Obviously, seek advice, but I think this is pretty clearcut and there are no plausible ways around the TAAR, given how broadly it is drawn.

[jamesbrown]

You understand incorrectly. The TAAR applies explicitly to distributions made on "winding up" aka liquidating, not "striking off". Even your example is clear about that.

[JHamp82]

The TAAR doesn’t apply in these circumstances because the OP performed a simple strike off with less than £25k distributed. It only applies to formal liquidations.

As far as I understand, as per ITTOIA05/S396B/404A it does apply. In the legislation there isn't any difference in MVL where retained profits are above 25k or simple strike off where retained profits are less than 25k.

The main objective of this is to prevent individuals receiving capital distributions and pay capital gains tax(if any) instead of dividends and pay income tax.

If what you said was correct then this will be open to abuse because this would mean individuals can take advantage of CGT tax instead of dividend tax each year, by closing their company and opening up another one every year?

see below example from HMRC


Example

Mr J is a dance instructor who runs his business through his own company. At the end of each year, instead of paying himself a dividend (which would be liable to Income Tax), Mr J winds up his company and receives the profits as a distribution in a winding up, liable to Capital Gains Tax. He then immediately creates a new company and continues his dance instruction business

This practice is often known as ‘phoenixism’ (because the new company rises from the ashes of the old).

source : https://www.gov.uk/hmrc-internal-man...anual/ctm36305

[Lance]

The TAAR doesn’t apply in these circumstances because the OP performed a simple strike off with less than £25k distributed. It only applies to formal liquidations.

something I've been considering as part of PlanB/C..

If I sell my LTD. to a parent company (valued at the retained profit), and become a director/shareholder of the parent company, I believe that I don't have any TAAR restrictions as the company wasn't liquidated. Is that true?

[jamesbrown]

I would treat this as capital distribution and assuming you have no other gains to report it will be tax efficient too however I'd be careful with this as you may be caught by a legislation called TAAR.

Visit https://www.gov.uk/hmrc-internal-man...anual/ctm36305 for more information on this.

The TAAR doesn’t apply in these circumstances because the OP performed a simple strike off with less than £25k distributed. It only applies to formal liquidations.

[JHamp82]

Thanks for the advice.

Let's just say that I have been doing tax returns for over 30 years and this is the first time I have had to consider CGT. As a result, I thought it appropriate to seak advice on here.

I would treat this as capital distribution and assuming you have no other gains to report it will be tax efficient too however I'd be careful with this as you may be caught by a legislation called TAAR.

Visit https://www.gov.uk/hmrc-internal-man...anual/ctm36305 for more information on this.

[OrangeHopper]

Thanks for the advice.

Let's just say that I have been doing tax returns for over 30 years and this is the first time I have had to consider CGT. As a result, I thought it appropriate to seak advice on here.

[jamesbrown]

In that case, it's a capital distribution, not a dividend distribution, and any amount above the annual CGT allowance (and below £25k) would get a reduced rate of CGT via BADR but, in your case, the amount is £3k, which is well below the annual allowance (assuming you don't have other capital gains) and you should not have any additional tax to pay. Really, though, you should pay someone to do your SATR for you (if you don't know what you're doing) because then it will be done accurately.

[OrangeHopper]

The company was struck off so it was the final distribution of the retained profits.

I am assuming this is the subject of CGT but am not sure what to do since it was a small amount (in relative terms) as far as the tax return is concerned.

[jamesbrown]

If you received a dividend, then it's a dividend and you add it to the rest of your dividends for the tax year.

You will know whether or not it was a dividend, because you will have dividend paperwork if it's a dividend.

If you struck off the company (DS-01) and distributed the final amount below £25k (i.e., £3k), then it's a capital distribution, but you probably didn't do that.