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The tax sector has expressed its displeasure at the creation of a new law that restricts a concession for small firms.
The Enactment of Extra-Statutory Concessions Order 2012 has been passed in the House of Commons, giving legislative effect to six extra-statutory concessions, including ESC C16, which deals with the tax treatment of distributions to shareholders when a company is struck off the register without a formal winding-up.
Prior to the order’s instigation by the First Delegated Legislation Committee, the Chartered Institute of Taxation (CIOT) and the ICAEW Tax Faculty wrote jointly to the committee’s members, including Exchequer Secretary to the Treasury David Gauke, to urge them to withdraw, reject or amend the document.
The bodies’ concern was that ESC C16 as amended to be a statutory instrument (SI) was unnecessarily restrictive, being limited to companies with total distributions of no more than £25,000.
The measure, which is scheduled to come into effect on 1 March, will have an effect that will ‘impose significant additional financial and administrative burdens on small and medium-sized businesses, directly contrary to the government’s stated policy in this area,’ said Andrew Gotch, chairman of the CIOT’s owner-managed business sub-committee.
Ian Young, a technical manager with the Tax Faculty, took issue with the SI’s monetary cap – intended to limit the scope for evasion and avoidance – and with David Gauke’s claim before the First Delegated Legislation Committee that the average outlay even for a small, straightforward liquidation is £2,500.
‘In fact, the cost is considerably greater, as the government officially acknowledged in writing in December, when they quoted £7,500... That means the average cost is likely to be… £10,000 to £15,000,’ said Mr Young.
‘If David Gauke had quoted that figure, even the committee might have been surprised at the £25,000. Paying up to 60% to the liquidator before you get your hands on the money looks more like extortion to me.’
Mr Gotch claimed HMRC have been unable to produce ‘any evidence of abuse of the current concession’.
Referring to the order's transactions in securities legislation, he added, ‘The implication that restrictive tax legislation is justified simply because [tax officials] do not have the resources to administer the anti-avoidance legislation currently in place is a matter for great concern and does not bode well for future anti-avoidance legislation.’
"‘In fact, the cost is considerably greater, as the government officially acknowledged in writing in December, when they quoted £7,500... That means the average cost is likely to be… £10,000 to £15,000,’ said Mr Young."
Costs for simple members voluntary liquidations have been plummeting since this legislation change.
A Google search will find several companies offering them for a few thousand pounds all in. Cheapest one from a licensed firm we've found is £995 (plus VAT and disbursements).