The tax rules change on the 6th April 2016 restricting what HM Revenue and Customs call ‘phoenixing’ of a business.
From then on anyone restarting a similar business within two years of liquidating a previous one and claiming Entrepreneurs Relief (“ER”) will be back taxed on the distribution as income tax.
It has always been a problem to close one company using an Members Voluntary Liquidation (MVL) and just start another limited company (with the same business and shareholders) under the transactions in securities legislation ITA 2007, Part 13, Chapter 1. However it seemed that re-starting again as a sole trader or partnership avoided these rules.
We have dealt with an influx of limited companies wanting to liquidate, take out all the capital at just 10% tax and then start trading again but as self-employed. There are special tax provisions to watch out for under the dis-incorporation relief rules where goodwill is worth over £100,000.
The benefit of liquidating a solvent company now (that has qualified as trading and the other requirements of ER) means that usually capital gains tax of just 10% is paid on the distribution.
It is important the distribution is made before the 5th April and time is running out to do that.
If you would like further information on this please contact me.