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The asset cap on the proposed disincorporation relief should be scrapped, the Association of Taxation Technicians (ATT) has told HMRC.
The effectiveness of the new measure – created to enable businesses to change their legal form from a limited company to self-employed without suffering a tax disadvantage – will be compromised by blocking firms with assets worth more than £100,000, claims the organisation in official response to draft provisions set out in the Finance Bill.
ATT president Yvette Nunn called the value ceiling, which would mean “only companies with qualifying assets worth safely less than £100,000 will even consider using the new relief. Otherwise, a company risks transferring its business to its shareholders and then finding out later that HMRC’s idea of the value means that the £100,000 limit has been breached.
“This could very easily happen in relation to goodwill: many small firms will not have given thought to the real value of their goodwill and, even with proper advice, it will be impossible for shareholders to know in advance what valuation will be acceptable to HMRC. If the limit is breached, no relief is due and the company has a completely unexpected corporation tax bill,” added Nunn.
She noted that no equivalent limit applies to a sole trader or a partnership transferring its business into a limited company: “The thinking… seems to be that companies with qualifying assets over [£100,000] would want to remain incorporated for commercial reasons – but that seems a very arbitrary view.
“Separately, the asset cap will have the bizarre effect that a company that has created its goodwill from nothing could get relief on gains of up to £100,000, whereas another might have made gains of only £10,000 but be ineligible for the relief because its qualifying assets were worth £105,000,” said the ATT president.
