Spotlight 47 Attempts to avoid an income tax charge when a company is wound up

Released 04 February 2019

HMRC has issued a spotlight highlighting schemes which claim to avoid income tax on winding up a company and the ‘phoenixism’ targeted anti-avoidance rule.

Spotlight 47 Attempts to avoid an Income Tax charge when a company is wound up provides information about tax avoidance schemes that try to avoid an income tax charge on distributions when winding up a company. The schemes try to receive favourable capital gains tax rates rather than income tax treatment by changing the way shareholders take value out of their companies.

The schemes claim get around the targeted anti-avoidance rule (TAAR) that was introduced to stop ‘phoenixism’ (winding up a company to withdraw profits as a capital distribution and then continuing to trade through another company) by making an artificial modification of the arrangements aimed at defeating the intention of the legislation (e.g. by selling the company to a third party rather than winding it up). HMRC has confirmed they will investigate any attempts to avoid the income tax charge and if it is claimed that the phoenixism TAAR does not cover the arrangements, HMRC will consider whether the General Anti-abuse Rule (GAAR) applies to these schemes. Transactions after 14 September 2016 where the GAAR applies will be subject to a 60% user penalty.

View the Spotlight at Attempts to avoid an Income Tax charge when a company is wound up (Spotlight 47).

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