‘Money-boxing’ update
15th April 2016
Posted in Articles, Business Tax, Corporation Tax, Featured Articles by Michelle Hogan
Following our ‘watch this space’ warning a couple of weeks ago, the government has since published the summary of responses to their consultation on ‘Company Distributions’.
Transactions in Securities and the new Targeted Anti-Avoidance Rule (TAAR) on ‘phoenixing’
The draft legislation which brings capital reductions and distributions on a winding up firmly within the TIS legislation will remain, albeit with a few tweaks. The position is the same for the TAAR, which is being introduced to prevent ‘phoenixing’, the practice where shareholders receive a capital distribution on a winding up, only to embark on a similar activity in a subsequent company. Guidance on the new rules, in the form of examples, will be issued in due course.
Wider issues
The potentially good news is that the government claims to have listened to pleas for a period of stability to allow the new rules to take effect, in response to their suggestion to extend the consultation to the wider question of the distributions regime.
More specifically, the government’s suggestion of an introduction of some form of close company ‘apportionment’ charge on undistributed corporate profits presumably prompted such a chorus of disapproval from respondents that they offered up a range of alternatives instead, ranging from the reintroduction of retirement relief to taxing shareholders as sole traders. However, the government has confirmed it will not currently consider these broader changes, but continue to ‘monitor’ this area.
What does this mean?
The government appear to have been persuaded (for now) by the range of complex commercial issues that would arise in attempts to deal with money-boxing, beyond curbing opportunities for capital reductions or liquidations. However, given the increasing disparity between the top rates of tax on capital gains and income distributions (10% (with Entrepreneurs’ Relief) and 38.1% respectively, since 6 April 2016), there can only be further incentive for shareholders to retain ‘surplus’ funds within a corporate structure until an opportunity to extract them as capital comes along…
