TAAR Rules - 2 Distributions

[Lance]

Correct but just be warned. Don't rely on HMRC to ASK for tax that you owe due to you changing your circumstances they have no idea about.

not telling them something that you know they need to know is tax evasion.
The whole point of self-assessment is it is the individuals responsibility to tell HMRC.

[northernladuk]

I am happy to pay any additional tax on 5% distribution from Jun, should HMRC ask for it. What I do not want to risk is additional tax on Mar-21 distribution.
By the sound of it, you are saying that HMRC can not apply TAAR on Mar-21 distribution so I can move ahead with new IT company setup if I am prepared to bear extra tax on 5% distribution from Jun-21 should HMRC ask for the same.

Correct but just be warned. Don't rely on HMRC to ASK for tax that you owe due to you changing your circumstances they have no idea about.

[MollyDolly]

I am happy to pay any additional tax on 5% distribution from Jun, should HMRC ask for it. What I do not want to risk is additional tax on Mar-21 distribution.
By the sound of it, you are saying that HMRC can not apply TAAR on Mar-21 distribution so I can move ahead with new IT company setup if I am prepared to bear extra tax on 5% distribution from Jun-21 should HMRC ask for the same.

[Lance]

Hi,

I have liquidated my business in Mar-21.
I had 2 distributions:
1. 01-Mar-21: 95% of funds
2. 01-Jun-21: 5% of funds

I know that if I have opened a ltd company in same trade as last one prior to 01-Mar-23 then I would have fallen into TAAR and may become liable for additional tax. Now that I have passed 01-Mar-23, do you think I can open ltd company again without falling under TAAR? If I open ltd company again now and become liable under TAAR, would it be for all the distribution or just the one on 01-Jun-21? Could HMRC ask for tax on Mar-21 distribution under TAAR?

Thanks.

The immediate question I have is whether paying a bit more tax on 5% of the distribution is that big a deal?

You're clear now of the main chunk, and by the time you take the annual CGT allowance into account there can't be a huge amount to pay (unless you MVLed a significant chunk of your lifetime allowance).

[jamesbrown]

Let me give some background into my case.

I have been working with a client for some time outside IR35 using my 2 director ltd company (husband and wife).
In 2020, the client decided to identify all contractors as inside IR35 and bound me to go via an umbrella company. I migrated to an umbrella from 2020 till date. I closed my business in 2021 as I did not see any reason why I would go back to limited company route as my work was inside IR35 for this client and for other clients in my work area the trend was inside IR35 only.

Now I want to start another IT company to provide support to my clients. This would be in addition to my current contract which will continue to be inside IR35 and would be managed via an umbrella company. I plan to open a branch of my business in Asia too. I plan to serve multiple clients and will have some employees too (in Asia and in the UK). I would leave my current contract as soo as my business is established in next 3-6 months.

If I open my IT company now, I understand that my second distribution from Jun can cause problems. My question is, would this issue be limited to second distribution only where HMRC may say that the second distribution amount needs to be taxed as personal income or HMRC can question my first distribution too and ask for more tax on first distribution too?

I know there are no black and white answers to these queries but would like to seek opinion from those who know this area better. I am happy to bear additional tax cost for second distribution, if HMRC comes after me but certainly not in a position to pay any additional tax on first distribution so wanted to take informed decision.

Thanks.

Most of that isn't relevant to the question you posed. I think I answered your question, which is that the 2-year rule applies to each distribution separately. So your first distribution is not a problem, in principle, but your second distribution is a problem (whether HMRC considers the first distribution a problem is a separate question, but the legislation is clear that it should not be). That said, I would personally wait until after June, rather than fixing the error with your second distribution, but YMMV.

Your case is no more special or different than countless other people who made premature decisions about closing their business and are now asking whether they can start again and avoid the TAAR.

[northernladuk]

Plenty of threads on this including one very recently so lots to read up on.

You can search the forums using teh google method. I've done a search on terms 'two distributions' in the link below. Try different keywords and you'll find them,

https://www.google.com/search?q=two+...hrome&ie=UTF-8

I closed my business in 2021 as I did not see any reason why I would go back to limited company route as my work was inside IR35 for this client and for other clients in my work area the trend was inside IR35 only.

Ah that old short sighted cookie. Plenty of others did the same which is why there is a lot of questions about it on the forums at the moment.

The risk is against the 2nd distribution only and being 5% you can either risk it or pay it back (can't remember the proper term). It's explained in the other threads or ask your accountant when you are setting up the new company.

[MollyDolly]

Let me give some background into my case.

I have been working with a client for some time outside IR35 using my 2 director ltd company (husband and wife).
In 2020, the client decided to identify all contractors as inside IR35 and bound me to go via an umbrella company. I migrated to an umbrella from 2020 till date. I closed my business in 2021 as I did not see any reason why I would go back to limited company route as my work was inside IR35 for this client and for other clients in my work area the trend was inside IR35 only.

Now I want to start another IT company to provide support to my clients. This would be in addition to my current contract which will continue to be inside IR35 and would be managed via an umbrella company. I plan to open a branch of my business in Asia too. I plan to serve multiple clients and will have some employees too (in Asia and in the UK). I would leave my current contract as soo as my business is established in next 3-6 months.

If I open my IT company now, I understand that my second distribution from Jun can cause problems. My question is, would this issue be limited to second distribution only where HMRC may say that the second distribution amount needs to be taxed as personal income or HMRC can question my first distribution too and ask for more tax on first distribution too?

I know there are no black and white answers to these queries but would like to seek opinion from those who know this area better. I am happy to bear additional tax cost for second distribution, if HMRC comes after me but certainly not in a position to pay any additional tax on first distribution so wanted to take informed decision.

Thanks.

[jamesbrown]

Each distribution is considered separately w/r to the two-year rule within the TAAR. However, the second distribution would be at risk and you may also risk some additional scrutiny from HMRC. Personally, I would wait until after June but YMMV.

Honestly, the time to think properly about this was two years ago. You don't MVL to take a short-term tax advantage, it's really for the long-term (e.g., retirement).

[MollyDolly]

Hi,

I have liquidated my business in Mar-21.
I had 2 distributions:
1. 01-Mar-21: 95% of funds
2. 01-Jun-21: 5% of funds

I know that if I have opened a ltd company in same trade as last one prior to 01-Mar-23 then I would have fallen into TAAR and may become liable for additional tax. Now that I have passed 01-Mar-23, do you think I can open ltd company again without falling under TAAR? If I open ltd company again now and become liable under TAAR, would it be for all the distribution or just the one on 01-Jun-21? Could HMRC ask for tax on Mar-21 distribution under TAAR?

Thanks.