Entrepreneur’s Relief Coming to an End

Closing your company and wanting the tax benefit of entrepreneur’s relief?

Act before 5th February 2016, or lose it.

If you haven’t heard, there are proposed changes from HM Revenue & Customs (“HMRC”) that will come into effect on 6 April 2016, that affect the taxation on distributions shareholders receive via a Members Voluntary Liquidation (MVL).

Currently shareholders receiving a distribution via an MVL can take advantage of Entrepreneurs Relief and pay only 10% on the capital distribution.

The new legislation will apply to distributions via an MVL where, if certain conditions are met, the distributions will be treated as an income distribution and therefore be subject to tax depending upon personal income.

The conditions where the new legislation applies are as follows:

•    A shareholder receives a distribution in respect of shares in an MVL.
•    Within a period of 2 years from the date of the distribution, the shareholder continues to be involved in a similar trade or activity.
•    The circumstance surrounding the MVL have the main purpose, or one of the main purposes, of obtaining a tax advantage.

For any other reason there is no change in the legislation e.g. if you are retiring or closing your company so that you can be employed elsewhere, there is no change.

If the new rules a re likely to affect you, then you may want to consider winding your company up via an MVL prior to the end of the tax year and to ensure that you receive your distribution from the MVL before 5 April 2016.

If you do wish to do this, as I’m sure you can imagine, we will be rather busy over the coming weeks so have set a deadline for all instruction and paperwork submission by close of play 5th February.