MVL - Autumn Statement

**jamesearljones** · 8 December 2015, 12:47

Guess from further reading that tomorrow is the day the Draft Finance Bill is released which will from the sounds of it, change a lot of the rules

**MrMarkyMark** · 8 December 2015, 13:06

The bottom piece of that article says it all, really.

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**Maslins** · 8 December 2015, 14:51

We saw that BBC page...but couldn't really find anything else to back it up.

Formal things we did see were:

· 3.85 Company distributions – The government will publish a consultation on the rules concerning company distributions later in the year. The government will also amend the Transactions in Securities rules and introduce a Targeted Anti-Avoidance Rule in order to prevent opportunities for income to be converted to capital in order to gain a tax advantage. (Finance Bill 2016) (18)

· 3.92 Capital Gains Tax entrepreneurs’ relief: contrived structures – The government will consider bringing forward legislation to amend the changes made by Finance Act 2015 to entrepreneurs’ relief, in order to support businesses by ensuring that the relief is available on certain genuine commercial transactions.

So, didn't seem like anything cast iron, but both could potentially be aimed at MVLs.

For 3.92, I don't think anyone would consider a simple contractor type company going into liquidation a "contrived structure". I would expect it's aimed at something far more niche.

For 3.85, it's a fairly common scenario that a Ltd Co contractor's earning enough to take (say) £80k annual divis but only taking (say) £30k annual divis, then liquidating the £100k left after 2 years. I guess that someone could argue that this is converting income into capital to gain a tax advantage.

As far as MVL Online are concerned for the time being at least it's still business as usual.

**jamesearljones** · 8 December 2015, 16:39

Thanks Maslins,

It would be a bit of a risk for someone to start down the MVL process and have the rug pulled from underneath it would it?

**alphadog** · 8 December 2015, 17:09

Originally posted by jamesearljones View Post

Thanks Maslins,

It would be a bit of a risk for someone to start down the MVL process and have the rug pulled from underneath it would it?

Better to start now than cry into your pretzels after the rules are changed

**ASB** · 8 December 2015, 18:34

Originally posted by Maslins View Post

For 3.85, it's a fairly common scenario that a Ltd Co contractor's earning enough to take (say) £80k annual divis but only taking (say) £30k annual divis, then liquidating the £100k left after 2 years. I guess that someone could argue that this is converting income into capital to gain a tax advantage..

It is certainly converting income into capital. They are after all retained earnings. Whether it is justifiable or not is different.

It does gain a tax advantage because the capital regime is more benign. Would people liquidate if it was not taxed to capital. Some would. But those larger may well not because it would take them over 150k, increasing the tax take.

A lot does gain a tax advantage, so it will be in the firing line some time soon.

**Maslins** · 9 December 2015, 09:05

Originally posted by jamesearljones View Post

It would be a bit of a risk for someone to start down the MVL process and have the rug pulled from underneath it would it?

Firstly, let me stress we have no better information than anyone else re what's around the corner. However, I would anticipate that at the point that they do change the rules (which will inevitably happen at some point), it's likely they'd only make it apply to new liquidations from that point onwards.

I appreciate there has been some retrospective changes impacting the contractor community in recent years (eg BN66)...but more often than not when changes are announced they'll be done in a way that anyone who's already in the middle of a process will continue to follow the old rules.

**Maslins** · 9 December 2015, 09:10

Originally posted by ASB View Post

It is certainly converting income into capital. They are after all retained earnings. Whether it is justifiable or not is different.

It does gain a tax advantage because the capital regime is more benign. Would people liquidate if it was not taxed to capital. Some would. But those larger may well not because it would take them over 150k, increasing the tax take.

A lot does gain a tax advantage, so it will be in the firing line some time soon.

I don't disagree with anything you've said...but perhaps worth mentioning that using MVLs in this was isn't a new loophole mistakenly created by the govt a few years ago, it's virtually the opposite. Previously you could get the same tax treatment for any net asset value by asking nicely under ESC C16. The change in rules a few years back tightened this up, making it harder to get that tax treatment.

HMRC's own guidance on it at the time suggested liquidations would cost £5-10k, so the cynic in me thinks those in power wanted the CGT treatment to only be worthwhile for the really rich. By the price of liquidations for simple cases tumbling, arguably it opened up that same beneficial tax treatment again to the more modestly rich (I'm in no way suggesting MVL Online helps the poor man on the street...but it enables those with £tens of thousands to benefit from something that might otherwise only have been worthwhile for those with £hundreds of thousands/£millions).

**ASB** · 9 December 2015, 10:36

Originally posted by Maslins View Post

I don't disagree with anything you've said...but perhaps worth mentioning that using MVLs in this was isn't a new loophole mistakenly created by the govt a few years ago, it's virtually the opposite. Previously you could get the same tax treatment for any net asset value by asking nicely under ESC C16. The change in rules a few years back tightened this up, making it harder to get that tax treatment.

HMRC's own guidance on it at the time suggested liquidations would cost £5-10k, so the cynic in me thinks those in power wanted the CGT treatment to only be worthwhile for the really rich. By the price of liquidations for simple cases tumbling, arguably it opened up that same beneficial tax treatment again to the more modestly rich (I'm in no way suggesting MVL Online helps the poor man on the street...but it enables those with £tens of thousands to benefit from something that might otherwise only have been worthwhile for those with £hundreds of thousands/£millions).

That is absolutely true. I personally used ESC 16 when I liquidated myself. It was a very cheap way of getting the cash. MVL has been around a long time, but previously was rather more expensive.

It is, in my view at least, not a loophole in any way. However the fact that it can lead to more favourable tax treatment than other methods is merely coincidental - and understood. Ultimately the funds released have already had CT paid on them at whatever rates were prevailing - in some case much higher than they are today for those established a long time time ago.

It seems to me that the government are trying very hard to remove the differences in tax treatment between the capital and income tax regimes - at least to the extent that overall they gain a similar slice of the overall funds in either case. As such I am quite certain that there will be further changes over time.

MVL - Autumn Statement