North East Entrepreneurs Facing Tax Hit as Rules Change on Company Liquidations

February 3, 2016

Incoming changes to the rules around how the proceeds of company liquidations are taxed could leave North East entrepreneurs facing an unexpected tax hit if they don’t execute the sale process quickly.

That’s the warning from Linda Farish, head of recovery and insolvency at RMT Accountants & Business Advisors, in advance of the introduction of measures included in the Government’s new Finance Bill that are designed to stop business owners avoiding paying the tax they should on their earnings.

As things stand, funds generated through the winding-up of a solvent company are generally assessed under Capital Gains Tax in respect of the individual shareholders, with the tax rate possibly being as low as ten per cent if Entrepreneurs’ Relief is available, and only up to a maximum of 28% otherwise.

Under the new proposals, such distributions will generally be chargeable instead to Income Tax, at rates ranging up to 38.1%, and some industry commentators have forecast a significant rise in company liquidations before the new rules come into force on 5 April this year.

HMRC is trying to prevent business owners taking capital out of their liquidated companies at a lower rate of tax than they should pay before then starting up a new business in the same industry soon afterwards.

And Linda Farish is recommending that any North East business owners who are looking to sell their companies and invest in another business are fully aware of what they need to do to both protect the fruits of their labours and stay on the right side of the new rules.

She says: “HMRC’s relentless drive to maximise the amount it brings into the Treasury is continuing apace, and these latest changes are a clear sign that they believe there are a significant number of business owners who are bending the rules around solvent company liquidations.

“Because tax is applied on the proceeds of a company liquidation at a lower rate than it would ordinarily be on income drawn from it, the temptation has clearly been for some to take their money out of it in this way and to then go back into the same business, carrying on as before but with extra money in the bank.

“The breadth of the new regulations is still a little uncertain, with further clarification expected as the implementation date approaches, and it could even be that liquidations that are put in train before they come in could still be affected by them, which may well negate the aims of anyone rushing to liquidate their company before April.

“While genuine retirees who are realising the capital they’ve built up in a business and moving on are not the prime target, there’s a risk that they could come onto the taxman’s radar if they don’t make properly sure that they’re acting within the new rules, so ensuring they’re fully informed on how they need to proceed is absolutely essential.”

For further information please contact Linda Farish on 0191 256 9500 or email

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