Reports have emerged that the abnormally large number, more than double the normal amount of companies were 'wound-up' in March 2016. It seems many company directors decided to act in advance of the changes to the tax rules that were introduced in April 2016.
From the 6th of April 2016 all directors in UK that are winding up a solvent company are now not allowed to claim entrepreneurs’ relief from the capital gains tax due on any gains, if they continue to work in the same line of business for the next two years.
HMRC introduced theses changes to patch up a loop hole that allowed people to avoid income tax by saving up retained profits in a company, then winding it up. To pay a greatly reduced rate of Capital gains Tax (CGT) before starting up with a new company in the same line of work. Some industries had become so notorious for doing this that HMRC had to step in an stop the ability for everyone.
The question of how many of these wound up businesses owners have already registered new companies doing exactly the same work again and how many were genuine cases may never be answered. But from our experience and perspective it certainly looks like the majority was for tax reasons.
Entrepreneurs relief on capital gains tax allows tax to be charged at 10% rather than the higher standard rate and solvent liquidations accounted for 66% of all liquidations in March 2016, compared to an average of 35% over the previous two financial years.
By Anni Khan at Tax Affinity Accountants
Tax Affinity Accountants are experts in Tax and Accountancy. Based in Worcester Park and Surbiton they are considered in the Industry to be experts accountants for small businesses. Helping and supporting business throughout the UK, they regularly help new and established businesses to succeed.
For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.
Our experienced accountants and tax advisers provide valuable insights into practical every day questions and issues.
Add blog to our blog directory.
Ask your own question: If you would like to have a tax related question answered here, please send your question to firstname.lastname@example.org.