Changes to ESC C16 run contrary to state policy

Currently ESC C16 provides a simple, straightforward and inexpensive way for a company to be wound up at the end of its life without the need for a formal liquidation, but with the same tax consequences as if it had been liquidated, writes Andrew Gotch, chairman of the Owner-Managed Business sub-committee at the Chartered Institute of Taxation.

However, the government has brought this concession into law in a way that is far more restrictive, limiting it to companies whose total distributions come to no more than £25,000.

The CIOT and the Institute of Chartered Accountants of England and Wales had written jointly to Exchequer Secretary David Gauke, the Labour Treasury team and other members of the committee considering the legislation asking them to withdraw or reject the legislation to allow it to be amended.

Without amendment, the effect of the legislation will be to impose significant additional financial and administrative burdens on small and medium-sized businesses, directly contrary to the government’s stated policy in this area.

It is claimed that the £25,000 limit is necessary to limit the scope for evasion and avoidance by taxpayers. However, HM Revenue & Customs have not been able to show us any evidence of abuse of the current concession, and the minister conceded that there were ‘no figures’ showing whether there was any abuse.  

Also, the example given to the House of Commons Committee by the minister of an ‘avoidance opportunity’ was something that would fall squarely within existing anti-avoidance legislation; and for which HMRC clearance is customarily required.

So it is particularly disappointing to see the new legislation passed even though there is anti-avoidance legislation addressing the same area. The implication that restrictive tax legislation is justified simply because HMRC does not have the resources to administer the anti-avoidance legislation currently in place is a matter for great concern, and does not bode well for future anti-avoidance legislation.

In short, if there is evasion or abuse then HMRC should tackle it as such - rather than implementing further restrictive legislation that effectively imposes financial and administrative penalties on an innocent majority while leaving evaders and abusers unaffected.