Developments in the Targeted Anti-Avoidance Rule (The TAAR)

Mike Chapman, Corporate Tax Director has contributed to this month’s Tax Talks Newsletter by the UK200 Group, the UK’s leading quality assured membership association of independent accountants and lawyers. In the article Mike discusses TAAR, Corporate ‘phoenixism’ and HMRC guidance.

The 2016 Finance Act introduced a new Targeted Anti-Avoidance Rule (TAAR) in respect of the tax treatment of company distributions in a winding up which potentially has far-reaching consequences for shareholders. The measures, effective from 6 April 2016, are designed to avoid perceived corporate ‘phoenixism’. Where the TAAR applies, liquidation distributions will be treated as income in the hands of shareholders rather than, as used to be the case, a distribution of capital. The conditions are:

Mike Chapman, Corporate Tax Director

• An individual, who owns at least a 5% interest in a close company, receives from the company a distribution in respect of shares in a winding-up;
• Within a period of two years after the distribution, the individual continues to be involved in a similar trade or activity;
• The circumstances surrounding the winding-up have the main purpose, or one of the main purposes, of obtaining a tax advantage.

Widely different tax rates could be charged depending whether or not the TAAR applies. If the distribution is capital and CGT Entrepreneurs Relief applies, the tax rate could be as low as 10% whereas tax on income could be as high as 38.1%. As the TAAR also relates to shares in investment companies the spread in tax rates would be between 20% and 38.1%.
From the outset the provisions caused concern amongst tax practitioners and commentators because the scope of the legislation as drafted is very broad and HMRC’s guidance on the interpretation of the law at the time was next to non-existent. To compound matters HMRC stated that there would be no clearance facility to obtain rulings on the application of the TAAR leaving taxpayers and their advisers in a state of confusion as to the relevance of the new rules to their own circumstances.
To read the article in full please visit Tax Talks – TAAR, UK200 Mike Chapman, Corporate Tax Director, Knill James

Mike Chapman is Knill James’s Corporate Tax Director,  having joined the firm in January 2015. He takes the lead on all corporate tax consultancy matters within the firm having previously been with a number of national mid-tier and big four practices. Mike is an experienced speaker on technical issues and a regular contributor to local business publications.