In Alice through the Looking Glass the character Humpty Dumpty declares that when he uses a word it means just what he chooses it to mean, and so it is with “tax avoidance” when written or spoken by an officer of HMRC.
In 2016 a targeted anti-avoidance rule (TAAR) was introduced to prevent individuals from winding-up their close company, then continuing the same business in another vehicle, as we described in our newsletter on 13 July 2017. In Spotlight 47 HMRC declares that schemes designed to step around this TAAR, which involve selling the company to a third party rather than winding it up, don’t work, so the TAAR would apply.
This is misleading to say the least.
The TAAR only applies if a company is wound-up, it can not apply if the company is sold to a third party. If a business owner decides to sell their cash-rich company to a third party in order to release the funds, and within two years (the period defined in the TAAR), starts a similar trade or activity, the income tax charge imposed by the TAAR cannot apply. It is disingenuous for HMRC to imply that it could.
What’s more HMRC say that the general anti-abuse rule (GAAR) would apply in these circumstances if the TAAR doesn’t apply. This is also nonsense, as it was not the intention of Parliament for the TAAR to apply on the sale of a company to a third party.
HMRC is trying to frighten people away from using tax avoidance schemes, which is a good thing, but it needs to use this power in a responsible way. If a client is selling their company in order to release funds for another venture, that transaction is not tax avoidance.
Written by the Tax Advice Network