HMRC has issued a warning about so-called ‘phoenixism’ tax avoidance schemes. These seek to avoid income tax charges by winding up a company and claiming the profits at more favourable capital gains tax (CGT) rates, before restarting activities under a new company.
Experts at Whitley Stimpson, one of the largest independent accountancy practices in the area, with offices in Banbury, Bicester, High Wycombe and Witney, say it is important that businesses and individuals are aware of the realities of these schemes, as the penalties for getting caught are severe.
Ian Parker, a director at Whitley Stimpson in Banbury says:
“These ‘Phoenixism’ schemes attempt to portray a company’s undistributed profits as ‘capital distribution’, rather than a dividend or other income distribution, thereby being taxed at a lower rate. They are deliberately misleading the taxman, even when Government legislation has been tightened and the HMRC has detailed reasons why attempts to get around the new rules will not work.”
In 2015 the government announced the introduction of targeted anti-avoidance rule (TAAR) legislation to end this type of phoenixism. HMRC now says some scheme promoters claim to have come up with a ruse that avoids the income tax charge and gets around the TAAR legislation.
“Worryingly, champions of Pheonixism now claim that by making an artificial modification to the arrangements, such as selling the company to a third party rather than winding it up, for example, the TAAR does not apply. However, HMRC maintain these schemes are within the scope and purpose of the TAAR legislation”, warns Ian.
HMRC also says phoenixism arrangements that claim to involve payments to shareholders taxed as capital instead of income are caught by the TAAR, or other provisions, and says it will investigate any attempts to avoid the income tax charge. If caught, the penalties can be severe, at up to 100% of the undeclared tax. Even filing an inaccurate return can be heavily penalised.
Whitley Stimpson suggests it is essential to talk to a trusted accountant if businesses want to look at ways of reducing their tax burden as much as possible within the framework of the law. The firm has a team of hugely experienced and highly qualified specialists who advise on all tax matters for both businesses and individuals.
For further details, please contact Ian Parker, on 01295 270200 or ianp@whitleystimpson.co.uk.