Consultation: Company distributions

The government’s responses to the company distributions consultation are published
At the end of December 2015, HMRC launched a consultation, Company distributions, to focus on possible tax avoidance where funds are extracted as capital during a winding-up, taking advantage of the rules for taxing company distributions. The government is concerned that individuals may choose to retain the profits within a company, and then extract them as capital on sale of the business, rather than taking annual dividends. In such scenarios HMRC would seek to tax the distribution as income. We responded to this consultation as TAXREP 31/16.
The government announced plans to launch a new targeted anti-abuse rule (TAAR) to prevent individuals from ceasing to trade and extract funds from their company as capital, with the intention of subsequently starting up a new trade (i.e. pheonixism).
In its summaryof responses, published on 24 March 2016, the government confirms that it will go ahead with the proposed TAAR. It will also address concerns regarding certain scenarios by way of detailed guidance. HMRC notes in the response document that it does not expect the majority of liquidations to be treated as capital.
Several amendments have been to the legislation being implemented in Finance Bill 2016.
While the government has acknowledged that a number of respondents have requested a clearance procedure for the TAAR, it has restated its position that clearance procedures are not generally provided for this type of anti-avoidance rule. However, HMRC will provide guidance to demonstrate how this rule will be applied in practice
Clearances provided before 6 April will state whether the proposed changes are expected to affect the clearance being given. From 6 April 2016 the clearance letter will be further amended to deal with the period from 6 April until Royal Assent is received for the Finance Bill.
  • Duncan and MC. Thank you for highlighting the problem with the link. This is now fixed. Thank you too for noting that in paraphrasing, we have turned the quote around. As you state, the correct statement is ' However, the government would stress

    that it would still expect the vast majority of distributions from a winding-up to be

    treated as capital (as is currently the case)'.

    Regarding clearances, the paper refers to clearances being given currently, pre and post April 2016. HMRC does not intend to give further clearances on the TAAR being enacted by this legislation.