How often do you close your company down?

[ASB]

As far as I know, HMRC haven't used this in practice. That's not to say they wouldn't though, especially now that the ESC C16 restriction on phoenix companies is no longer providing the same deterrent. I have to admit I've not researched in detail, but I think it's enough just to advise caution - just because ESC C16 is gone, you shouldn't just assume phoenixing is suddenly risk free.

Clare,

I recall when I applied for ESC C16 I had to give a "I'm quitting this line of business" undertaking (I don't know what would have happened had I breached this, all very messy if caught I imagine).

Certainly I wouldn't assume pheonixing was suddenly risk free. I can also see that ER is in effect in the gift of the inspector and would be difficult to get away with regularly.

I just wonder though whether pheonixing without ER would be problematic. In this case there isn't much in the way of a tax advantage (in effect you'd just get to use your capital gains allowance). Given the costs of MVL this would be pointless overall anyway.

Certainly without substantial break it is very difficult to see any commercial justification for the action. I suppose one could try an argument that you wanted to put the assets beyond the reach of potential claims by customers should things all go wrong, but that would be very tenuous at best.

My interest was mainly "how would they attack it, because I don't know", not "I don't think they can". I think the TIS regulations, and their potential implications are often overlooked. I guess it's just another weapon in HMRC large armoury!

[BolshieBastard]

How often do you long-termers close the company down and take the money out, before starting a new one?

Every year?
Every couple of years?
Once you have accumulated 200k or more in it?
Never?

Thanks.

Every 4 or 5 years. Take all money out then close it.

[cojak]

How often do you long-termers close the company down and take the money out, before starting a new one?

Every year?
Every couple of years?
Once you have accumulated 200k or more in it?
Never?

Thanks.

Never.

[Clare@InTouch]

Clare,

I recall when I applied for ESC C16 I had to give a "I'm quitting this line of business" undertaking (I don't know what would have happened had I breached this, all very messy if caught I imagine).

Certainly I wouldn't assume pheonixing was suddenly risk free. I can also see that ER is in effect in the gift of the inspector and would be difficult to get away with regularly.

I just wonder though whether pheonixing without ER would be problematic. In this case there isn't much in the way of a tax advantage (in effect you'd just get to use your capital gains allowance). Given the costs of MVL this would be pointless overall anyway.

Certainly without substantial break it is very difficult to see any commercial justification for the action. I suppose one could try an argument that you wanted to put the assets beyond the reach of potential claims by customers should things all go wrong, but that would be very tenuous at best.

My interest was mainly "how would they attack it, because I don't know", not "I don't think they can". I think the TIS regulations, and their potential implications are often overlooked. I guess it's just another weapon in HMRC large armoury!

Don't get me wrong, I don't disagree at all. How HMRC would approach this is an unknown, it's just that the means are there should they wish to. Like many things, I think it depends on how much you push your luck.

Say you take enough dividends for two years to reach higher rates for you and the wife, then dissolve with a £24k capital gain (so no MVL necessary) CGT allowance plus ER equals around £1k in tax. Then you do it again when you start and dissolve a second company. So you've (and the wife) have had (say) £200k with only paying £4k in tax plus CT. I can see them not liking it, and invoking anti-avoidance provisions.

With the changes to ESC and MVL, we'll wait and see who the test case will be!

[Maslins]

I recall when I applied for ESC C16 I had to give a "I'm quitting this line of business" undertaking (I don't know what would have happened had I breached this, all very messy if caught I imagine).

...

Certainly without substantial break it is very difficult to see any commercial justification for the action. I suppose one could try an argument that you wanted to put the assets beyond the reach of potential claims by customers should things all go wrong, but that would be very tenuous at best.

My interest was mainly "how would they attack it, because I don't know", not "I don't think they can". I think the TIS regulations, and their potential implications are often overlooked. I guess it's just another weapon in HMRC large armoury!

Like you say, part of the ESC C16 processed involved you promising you wouldn't start up the same thing again.

My take is that the transactions in securities rules revolve around transferring the trade of the company prior to closing it down. This is the only way I think you _could_ be caught, closing down and starting a new company every few years.

With a typical contractor business, there isn't really much trade to speak of (ie when you stop one contract, until you start the next one there isn't really a business there). Assuming your new company would have a new name, you could easily get a new website etc so any branding is very different. Combine with that you'd presumably only ever do it in between contracts, meaning your new company's first client wouldn't be the same as your old company's last client...I personally feel HMRC would struggle to argue there was a transfer of trade. Might be worth using it as an excuse to get a new Macbook Pro too

...but yes, if someone's earning massive sums and doing it every year, it'd be provocative to say the least. Every 3-5 years I'm sure most people could come up with some plausible commercial reason for doing it.

[drumtochty]

Claire

Assuming a company was closed via esc16 in Feb 2012.

What would be a reasonable date to open up a new company. I agree it is nothing more than a gut feeling.

October 2012
March 2013

[Clare@InTouch]

Claire

Assuming a company was closed via esc16 in Feb 2012.

What would be a reasonable date to open up a new company. I agree it is nothing more than a gut feeling.

October 2012
March 2013

It depends on whether you could show there were commercial reasons for closing in February. Say you closed because you lost work, or went abroad, or wanted to retire. Then changed your mind because you got a new contract that was too good to refuse. That would show you did it for a reason that wasn't motivated by tax, so you'd have a good argument in my view.