HMRC have provided their first examples showing how they might apply the new targeted anti-avoidance rule (TAAR) to combat "phoenixing" which was introduced by Finance Bill 2016.

The TAAR is one of a number of measures to extend existing Transactions in securities anti-avoidance provisions, and is intended to prevent “phoenixing” whereby a company is wound up and the shareholders receive a capital distribution rather than a dividend before going on to start up a business in a similar field.

Although there is no provision in the legislation for any statutory clearance procedure HMRC are beginning to receive clearance applications and have written to the Chartered Institute of Taxation with a standard reply which they are using in response to these requests.

HMRC’s letter restates the four conditions that must be met for the TAAR to apply:

  • Condition A & B require the company to be close and for the individual to hold 5% of the shares.
  • Condition C is that the individual continues to carry on the same or similar trade or activity within two years.
  • Condition D is that it is reasonable to assume, having regard to all circumstances, that there is a main purpose of obtaining a tax advantage.

Condition C will be interpreted widely by HMRC: anything done by the company can be continued as a sole trader, via a partnership, through another company or by a company of an associate.  Working as an employee for a spouse or connected person in a similar trade will also meet condition C.

HMRC’s view is that condition D will narrow the application of the TAAR to “circumstances where, when considered as a whole, the arrangements appear to have a tax advantage as one of the main purposes”.

HMRC recognise that the continued absence of guidance and the policy of HMRC not to provide clearance on this matter may cause difficulties and have therefore produced three examples of how condition D might be applied, see Transactions in securities: case studies.


Transactions in securities (signpost)