In August HMRC published their long awaited guidance on the distributions on company winding up (or phoenixing) Targeted Anti-Avoidance Rule (TAAR) introduced by Finance Act 2016.
In short summary the TAAR was introduced to prevent taxpayers converting dividend into capital payments and applies to distributions made to individuals on the winding up of a close company on or after 6 April 2016 if: -
- The individual carries on the same, or similar, trade within two years, and
- It is reasonable to assume that the main purpose, or one of the main purposes of the winding up is the avoidance or reduction of an income tax charge.
The concern for taxpayers and advisors is that the scope of the legislation is quite wide, potentially capturing genuinely commercial transactions, but the guidance appears quite limited and rather brief.
The guidance issued by HMRC (some 15 months after the TAAR came into force) consists of only a handful of quite basic examples and despite representations made during the consultation period, the TAAR does not provide for a statutory clearance mechanism and other clearance mechanisms (such as the Transactions in Securities regime) do not necessarily extend to the TAAR.
Given the lack of detailed guidance and no clearance process the key message for individuals is that each case needs to be considered on its on particular fact pattern and care needs to be taken to understand the potential impact of this legislation before proceeding with a winding up.
TAAR Guidance issued by HMRC, but how helpful will it be?