If you have received a dividend during a company liquidation it is now vital to check the TAAR conditions before you submit your tax return to HMRC.
From April 2016 the Targeted Anti-Avoidance Rule (TAAR) applies to certain distributions on winding up. If the TAAR applies, dividends received on the liquidation of your company do not automatically attract CGT treatment, instead they are taxed as normal income dividends.
The TAAR specifically targets the practice of 'phoenixing' a company to avoid tax.
- Phoenixing describes closing down a company and then re-starting a nearly identical new company.
- This practice was being used as a way of extracting funds as capital. It may also be used for non-tax reasons, i.e. as a way of avoiding creditors or to restart an existing trade via a 'clean' company if the old one had reputational issues etc.
The TAAR must be considered each time a distribution is made during the winding up process.
As a former shareholder or even director, it is highly likely that HMRC will deed you to be careless if you fail to check the TAAR.
Use our TAAR Tool in order to work out if this complex legislation applies to you.
Useful practical tax guides around this topic
The Transactions In Securities rules may well also need to considered in any schemes to change share based income into capital.