HMRC Consultation on Company Distributions

Written by Andy Whelan on 18 March 2016

On 9 December 2015 HMRC issued a consultation document entitled “Company Distributions”, which professed to concern whether the tax rules governing distributions by companies could be “improved in order to reduce imbalances in the tax system”.

In reality, the proposals, which included already drafted legislation, were seeking to tax capital distributions to shareholders in solvent liquidations (known as members’ voluntary liquidations, or MVLs)  as income rather than capital, so at potentially much higher rates, where “moneyboxing” or “phoenixism” could be established. More details can be found in our previous blog entry from Paul Windsor shortly after the consultation document was issued.

The consultation closed on 3 February 2016. Many of the professional bodies have published their responses, and the proposals have caused no little controversy. The ICAEW consider that some of what is proposed “misjudges business circumstances” and “is absurd”. The ACCA believe that the legislation as drafted would “cause significant uncertainty and instability”.

It was anticipated that the outcome of the consultation would be announced on Budget day, 16 March 2016, but no mention was made in the Chancellor’s speech. More surprisingly, nothing further was to be found regarding the proposals in the plethora of documents published by HMRC on their website immediately afterwards.

An in-depth search of the Budget 2016 policy paper, published by HM Treasury in the afternoon after the Budget, reveals the following:

“Company distributions – As announced at the Spending Review and Autumn Statement 2015, the government will 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. The government will respond to the consultation on company distributions in March 2016. (Finance Bill 2016)”

From this, all we can ascertain is that the changes are still coming, but we still do not know precisely when, or precisely what. This timetable suggests that the changes will still be included in the Finance Bill 2016, to be effective from 6 April 2016.

As such, time remains of the essence as, to avoid the new rules as they currently stand being imposed, it is necessary for a solvent liquidation to be commenced and for all distributions to be made to shareholders by 5 April 2016. If you would like to seek further advice regarding a possible MVL, please contact one of our liquidation experts at WSM Marks Bloom.