Tax (and the dreaded A word) Avoidance & Solvent Liquidations!

January 22, 2016 by · Comments Off on Tax (and the dreaded A word) Avoidance & Solvent Liquidations!
Filed under: insolvency, Liquidation, Taxes 

You may not have noticed, but tucked away in the small print of the Chancellor’s Autumn Statement was a provision (effective from 6 April 2016) designed to tighten up on the ability of shareholders to tax efficiently extract capital from a business by way of a solvent liquidation. Whilst it is arguable that HMRC always had the ability to argue that capital distributions were in fact income, the new provisions make HMRC’s position clearer. So, where HMRC forms the view that a company’s reserves are in excess of those required for use in the ordinary course of business, then any capital distribution out of liquidation may be challenged, on the grounds that the main purpose of the winding up was to obtain a tax advantage. Furthermore, where a company is part of a group structure, group reserves will also be taken into account.

Further, there will now be specific anti-avoidance legislation that tackles what HMRC calls “phoenixism”. Where a liquidation is followed by involvement in a similar trade or activity within two years, then the capital distributions will be treated as income.

There are other changes, but these are the most commonly encountered.

So, if you have clients who are considering a solvent liquidation they may be best advised to start the process (and make distributions under the present rules) as soon as possible, and certainly before the end of the tax year. If you would like to discuss this issue further, please do not hesitate to contact us.

Business insolvencies increase in the second quarter

August 8, 2012 by · Comments Off on Business insolvencies increase in the second quarter
Filed under: insolvency, Retail 

The trend of high business insolvencies has continued through the first half of 2012. Figures for the second quarter show that insolvencies were up 1.5% compared to the first quarter and up 6% compared to the previous year.

Among the types of business featuring in the list of business failures are equipment supplies, equipment maintenance, design and PR agencies and IT consultancies. These failures are clearly in large part due to the lack of demand from other businesses for their services, owing to the need to cut back in difficult economic times. This is worrying because the enterprises offering business services are supporting those larger concerns that it is hoped will drive the economy back into growth.

The most prominent business sector in trouble is retail. The reduced footfall and the tight grip of shoppers on their purse strings have been widely publicised and the retail sales figures are given prominence in the media each month. The problems in retail are clearly connected with the need for consumers to save more, spend less and reduce the amount of personal debt that has accumulated over many years. Prudent measures that are good for the household are not good news for the retail sector, which is suffering from the decreased demand.

The construction industry is unable to pull out of the slump and has recorded a large number of insolvencies. Cutbacks in public expenditure have led to the postponement or cancellation of a large number of public contracts and the slack cannot yet be taken up by the private sector.

Perhaps more surprisingly the hospitality and tourism industries have also recorded a high rate of insolvencies due to reduced demand. The tourist industry has hit difficulties due to bad weather, less domestic consumer spending on holidays and a reduction in non-Olympic tourism. The only silver lining, which will come too late for many businesses, is the boost expected as a result of the London 2012 Olympics.

Funding dilemma for small businesses

August 8, 2012 by · Comments Off on Funding dilemma for small businesses
Filed under: Creditors, Debt, Liquidation 

Recent controversy about high interest loans to business has highlighted the problems facing small businesses that cannot obtain further funding from the bank. The peer-to-peer lending website Wonga.com announced in May that it would open up facilities for online business lending in addition to its existing procedures for personal loans. Loans up to £10,000 would be available to businesses for periods up to a year. Inevitably the interest rates will be much higher than those for bank loans. Wonga has suggested that these loans would be useful to businesses needing short term cash for purposes such as taking advantage of discounts for cash payment or for bulk purchases.

Wonga are not the first peer lending site to offer facilities for business loans. Other online lenders such as Funding Circlehave already moved into this area. For businesses the option of higher interest loans is by no means new as there have always been high interest alternatives to bank loans. Also, small business directors have frequently resorted to the use of the personal credit card to bridge short term gaps in funding. The main problem is that funds may not be there to repay the debt in the short term, leading to growing debts and compounding interest. A business may then quickly find it impossible to continue as a going concern.

A business that has been unable to obtain additional funding from the bank and is looking around for other sources of finance should explore all alternative avenues before looking at high cost loans from online lending sites.  For example a business should look at freeing up extra funds through renegotiating payment terms with creditors to create more breathing space. A fresh look at debt collection may reveal that there is scope for collecting money earlier from trade debtors. Inventory could perhaps be managed more efficiently, reducing the need for expensive storage space.

Many potentially profitable businesses cease trading in their first few years owing to liquidity problems. The online lending sites have opened up one more possible source of funds. The responsibility is on small businesses to make correct decisions on funding. A potentially profitable small business must review the potential sources of funds and make a decision on the basis of accurate cash flow projections. Above all a business faced with a liquidity crisis should seek professional advice.  An adviser will have a much better overview of the alternatives and opportunities and can work with the business to manage the situation in a way that will not lead to growing debt and interest problems.

Atlantic Law – all at sea

February 28, 2012 by · Comments Off on Atlantic Law – all at sea
Filed under: Liquidation 

The London law firm Atlantic Law LLP, branded “reckless”, is facing liquidation following a winding-up petition. This is the latest saga to hit the firm following their £400K fine by the Financial Services and Markets Tribunal, for aiding a Spanish boiler room scam.

The firm got in to trouble after it approved investment advertisements issued by unregulated Spanish stockbroking firms, which subsequently ripped off at least 130 people.

The firm, currently trading as Stanwyck and Bond, has offices in Cumberland Place London.

Not a Lotta Love for Glasgow Rangers on Valentines

February 17, 2012 by · Comments Off on Not a Lotta Love for Glasgow Rangers on Valentines
Filed under: Administration 

February 14th 2012 saw Glasgow Rangers enter administration. The duo brought in to help with the Club’s restructuring are now dealing with the administration, following what has been dubbed an ‘unprecedented duel’ with HMRC. Hopes of holding off creditors for 10 days following the filing of their intention to appoint administrators were dashed when HMRC stepped in to try and appoint their own administrators with claims that the Club owes £9million in unpaid PAYE and VAT. There is also a question of some unpaid tax that could cost the Club around £80million.

A Game of 2 Administrations for Portsmouth FC

February 17, 2012 by · Comments Off on A Game of 2 Administrations for Portsmouth FC
Filed under: Administration 

Confirmed today, Portsmouth Football Club have gone into administration for the second time in as many years. UHY Hacker Young were administrators first time round, during which there was a falling out with HMRC. As a result, despite being the likely candidates to take the reigns again, HMRC have successfully blocked UHY Hacker Young from winning the bid, with PKF announced as the administrators. The Club’s parent organisation Convers Sports Initiatives (CSI) entered administration back in November 2011.

Oakwood Joinery goes into administration

February 8, 2012 by · Comments Off on Oakwood Joinery goes into administration
Filed under: Administration 

Oakwood Joinery is the UK’s largest independent manufacturers of windows and doors. The Administrators have commented that despite efforts to secure the future of the business, the economy and “difficulties in accessing finance for new machinery”, plus the recent collapse of a deal with a buyer, has led to the company going into administration.

“Madhouse” retail fashion chain goes into administration

February 3, 2012 by · Comments Off on “Madhouse” retail fashion chain goes into administration
Filed under: Uncategorized 

Poor sales performance over Christmas and the New Year has ended with the Deluxe Retail trading arm “Madhouse” entering administration. 700 jobs at the fashion retail store are in danger as corporate accounts show net losses nearing £200,000. Administrators have been appointed. This is yet another hit for the high street retail sector.

Leaving on a jet plane…

February 3, 2012 by · Comments Off on Leaving on a jet plane…
Filed under: Restructuring 

13,000 jobs globally are under threat as the parent company of American Airlines reveals restructuring plans that aim to reduce staff costs in an attempt to save a over £1billion a year. Competitor research has shown that the airline needs to make some massive improvements financially as well as looking at their existing fleet – could they be greener and more fuel efficient? The airline plans to invest an average of $2billion a year over the next few years so that by 2017, American Airlines will have the youngest fleet in North America.

Ruffled Feathers at Peacocks

January 23, 2012 by · Comments Off on Ruffled Feathers at Peacocks
Filed under: Administration, Retail, Unemployment 

Nearly 50% of jobs at Peacocks HQ in Cardiff have been axed since Tuesday 18th January when Administrators, KMPG, were called in to deal with the struggling clothes retailer. They have announced that 249 redundancies have taken place leaving only 266 staff at the Head office. All stores remain open and will continue to ‘operate as normal’ while the search for a buyer continues in earnest.

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