Tax & admin · 8 January 2018

Tax experts warn company owners over new HMRC winding up rules

Details of any company liquidation should be provided in HMRC self-assessment forms
Details of any company liquidation should be provided in HMRC self-assessment forms

Taxpayers have been warned to consider the impact of new HMRC regulations if they’ve received payment after winding up their company in the previous tax year, ahead of 2018’s self-assessment deadline on 31 January.

According to accountancy body The Association of Taxation Technicians (ATT), owners who’ve received payment after winding up their firm on or after 6 April 2016, and who continue to be involved in “similar activities”, could be at risk from breaking tax rules.

The new legislation was introduced to stop individuals lowering their tax liabilities by changing what may otherwise be received as a dividend into a capital payment, by winding up their business.

Read more: The difference between insolvency, liquidation, bankruptcy and administration

HMRC’s new rules were introduced to tackle so-called “phoenixing” – the practice of liquidating a firm then immediately establishing a new company, carrying on the same activities, in order to make the most of tax advantages.

The first tax returns the new rules will apply to will be those for the tax year ending 5 April 2017.

In a statement advising taxpayers, co-chair of ATT’s technical steering group, Yvette Nunn, said: “We have written to HMRC asking for further guidance on the application of the rules, including how HMRC will apply penalties if they consider an error has been made in a tax return.”

When filling out this year’s self-assessment tax return, Nunn urged those taxpayers that may be affected to provide additional details on any winding up activities they’re engaged in within the white spaces of the self-assessment form.

“Any extra information provided should include details on the background of a liquidation, along with a statement on why the taxpayer believes the rules do not apply to them,” she added.

“If there is any doubt as to whether these rules may apply, taxpayers and their agents should consider providing additional detail in the white space of the self-assessment return, as this may provide some protection from penalties.

“Deciding whether the rules apply is complicated by the subjective nature of the conditions, the lack of any clearance facility and the limited practical examples in HMRC’s guidance.

“It is unclear whether if a taxpayer genuinely believes that they do not apply, but if HMRC concludes they do, penalties will be imposed.

HMRC urged to publish guidance on planned self-assessment allowances

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Tax & admin