URGENT HELP!! Divi before 6th or wait for correct advice on ER?

[segster]

Hi all, very much appreciate any urgent assistance here as my accountant has not been too helpful!!

I informed them in November 2015, I will be ceasing trading on 12th Feb 2016 and going perm.
I now have roughly 45k available to pay in dividends.

However the plan was always to do an MVL, liquidate and pay the 10% CG via Entrepreneurs Relief.

I have not received any clear instruction, was waiting for them to complete their company close procedure, not answering my calls etc..etc

Am now told after HMRC guidance was issued last week, I can not qualify for ER as I will be entering in to the same "business activity or trade" and should take out the 45k as Dividends now at 25%, before it goes up to 32.5% next week!

I cannot find the official HMRC guidance to interpret myself, and found only this article here, which seems to focus on the 2 year limit:
The End Of The Entrepreneurs’ Relief Boom Years? | Forbes Dawson

I am not convinced that going from a consulting role to a permanent employee position with different aims and objectives constitutes the same "business activity". Is this maybe in reference to the 2 year rule? Am not convinced I am being given the correct advice.

It is worth noting that I have no intention to return to consulting via my own LTD within the next 2 years, so if it was this alone it would not constitute a problem.

Any advice GREATLY appreciated!!! Many Thanks

[mudskipper]

Not sure there's a definitive answer - have a read of this thread http://forums.contractoruk.com/futur...l-clarity.html

[segster]

Thanks, interesting thread. So it likely comes down to me making my own interpretation of the Finance Bill, as there is clearly no time.
If its unclear it would not stand up in court, no?

Either way its worth about 4k (after liquidation costs), a lot to me, not much to the revenue.

[TheCyclingProgrammer]

As there's no definitive answer you're going to have to weigh up the risks and take a punt on this I think.

If you put some if the money aside to cover the extra tax liability just in case then I think worse case scenario if ER is denied is you've lost out on liquidation costs.

[jamesbrown]

If you put some if the money aside to cover the extra tax liability just in case then I think worse case scenario if ER is denied is you've lost out on liquidation costs.

Well, and interest as a minimum, plus whatever new regime of dividend taxation is in place at the time (likely many years from now). Time permitting, I'd have taken a 20k dividend and struck off with 25k (no MvL needed). In your current situation, I'd probably suck up the 4K difference.

[Maslins]

You'll see in the thread linked to above that there is split consensus from this forum.

For me, I just can't see why they would attack your situation. There is no phoenixing. The closure is a one off. Yes if with £45k net assets you did an MVL, the reason for the MVL rather than a strike off would be tax motivated...but the reason for closing in the first place is presumably due to you finding a permie role that you want to settle in, at least for the foreseeable future.

Many business owners will make money by selling some kind of skill, be it IT consultancy, accountancy, plumbing, whatever. It would be ridiculous for the tax system to mean that the person behind the business couldn't do anything using that skill for at least two years.

Whilst I accept there is ambiguity in the wording of the legislation, I don't see the risk for you. Your situation is not the target IMHO. Yes some will say I'm biased...but the flip side of the argument is that my username on here makes it pretty clear who's posting, so saying something I didn't believe for possible short term financial gain wouldn't be a good tactic for me.

Obviously if 12 months down the line you quit the permie role and went back to contracting that would change things.

[MrMarkyMark]

Well, and interest as a minimum, plus whatever new regime of dividend taxation is in place at the time (likely many years from now). Time permitting, I'd have taken a 20k dividend and struck off with 25k (no MvL needed). In your current situation, I'd probably suck up the 4K difference.

I don't think that is the answer the OP was really after

[jamesbrown]

I don't think that is the answer the OP was really after

I know It rarely is. The issue I have is the unusual terminology of "activity". They put that in for a reason and, until they offer an explanation (and perhaps even afterwards), it remains risky. I don't believe they will offer much guidance on this, because I think it's intended as constructive ambiguity. The problem with ambiguity is that a future gov't may choose a different interpretation, and a case law precedent will need to be set. The OP should also remember that there is now a 5k zero-rated threshold every year for dividends, so perhaps they could whittle it down over time (the accounts would be pretty simple).

[TheCyclingProgrammer]

I'm with Maslins on this. In the face of ambiguous legislation the best you can do is try and interpret it in the context of why it's being introduced.

The motivation here is to stop those who routinely close their company and claim ER to gain a tax advantage with no intention of ceasing trading (they just start back up again hence, "phoenixing"). I don't think there is an intention to prevent somebody who is returning to full time work from taking advantage of ER.

Employment is not trading but is it an "activity" in the simplest sense. But it's not a business activity which is what I would hope is meant in this context.

The risk of course is that this is HMRC we are talking about and there's nothing stopping them from using ambiguous legislation to their advantage (or trying to anyway). Hopefully as a result of the consultation they will issue some guidance that will clarify this.

[jamesbrown]

Employment is not trading but is it an "activity" in the simplest sense. But it's not a business activity which is what I would hope is meant in this context.

The risk of course is that this is HMRC we are talking about and there's nothing stopping them from using ambiguous legislation to their advantage (or trying to anyway). Hopefully as a result of the consultation they will issue some guidance that will clarify this.

I think there's merit in this view too.

There's an excellent post around here somewhere by Iliketax (I don't recall if it's in the linked thread) where they note the different usage of business and trade in legislation. Activity is different, and broad. They could've chosen the language of trade or business. They did not, and there's a reason for this, even if the scenario in the OP is unlikely to be the target. At the very least, I'd suggest the OP waits for the passage of the FB through Parliament over the coming months, as detailed scrutiny may reveal the intention (which could be used as evidence in future).