Company reorganisations, sales and liquidations - all change from 6 April 2016
HMRC has always been able to invoke anti-avoidance legislation in certain circumstances to tax proceeds on shares or securities, for example proceeds of sale, as dividends rather than as capital, subject to various exemptions including there being no tax avoidance motive for the recipient. It is possible (probably advisable) to obtain clearance in advance on transactions. If HMRC wish to take the point they had to issue an assessment, there was no requirement to self-assess.
From 6 April the position is changing – to start with the tax position will need to be dealt with under self-assessment.
HMRC are looking to tax proceeds on sale as income rather than capital where there is any tax avoidance motive; where the business has retained cash, over and above its working capital needs and on repayment of share capital where it was paid up other than by cash.
There will also be a focus on distributions made after 5 April 2016 as part of a liquidation process. Again, HMRC are seeking income treatment on excess cash and in phoenix situations, where a company is closed down and a similar business is subsequently begun by the taxpayer or people connected to them.
Going forward, formal tax clearances that cover the specifics of a transaction will be increasingly important. Any misunderstanding could mean not only tax at 38.1% as opposed to 10% (which is bad enough) but also interest and penalties. All of this means you have to plan in advance and have a clear idea of the structure of the transaction but retain sufficient flexibility to make changes should HMRC dispute the position. Tax clearances can take up to 30 days so you need to build this in to your timetable.
Date: 21st March, 2016
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