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.