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.

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 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.