On 24 March, HMRC published a summary of responses to the December consultation on Company Distributions, together with details of the Government's position on the issues raised. The December consultation was covered in my 3 February blog.

Today is the closing date for responses to a Government consultation on the tax treatment of company distributions.  You can read the consultation document here.

The direction of travel, per the consultation, is clear.  Anyone thinking of liquidating their company should consider these new rules carefully.

Finance Bill 2016 includes provisions designed to prevent taxpayers converting profits generated in a company into a capital receipt in the hands of the shareholder(s). Taxpayers may want to consider winding-up their companies or making substantial dividend distributions ahead of 6 April 2016 as a result of these measures and the changes to the taxation of dividends.

Broadly, the intention is that a capital distribution made in the winding-up of a company will be taxed as income if:

The Enterprise Investment Scheme (EIS) can provide very significant tax relief for investors in unlisted companies but a recent case in the First Tier Tribunal (“FTT”) shows how strictly the rules of the Scheme are interpreted.

One of the many conditions of EIS relief is that the shares issued to the investor must not have any preferential right to a company’s assets on a winding up. The requirement is included so that an investor cannot obtain the tax advantages of EIS relief while being shielded from the economic risk of the investment.

The facts

This Court of Appeal decision in (1)TopBrandsLtd(2) LemioneServicesLtdv (1) Gagen Dulari Sharma (2) Barry John Ward (as former liquidators of Mama Milla Ltd) (2015) is noteworthy as it underlines that the “illegality defence” is still in a state of flux and in need of clarification by the Supreme Court.

The Court of Appeal has refused to allow a liquidator of a company that was the vehicle for a VAT fraud to rely on the defence of illegality in defending a claim for breach of duty under section 212 of the Insolvency Act 1986: Top Brands Ltd and others v Sharma (as former liquidator of Mama Milla Ltd) [2015] EWCA Civ 1140.

In Winnington Networks Communications Ltd v HMRC^[1], the Chancery Division Companies Court (Nicholas Le Poidevin QC) refused the taxpayer company's application to have HMRC's winding-up petitions dismissed, as it had failed to provide evidence that it had a real prospect of successfully disputing the debt claimed by HMRC.

Background

The Tribunal has upheld HMRC's decision that a company (Danesmoor Ltd) should not be entitled to recover input VAT incurred on professional fees for a corporate restructuring. HMRC had not allowed the recovery of the input VAT on the grounds that the services were not provided to the company. The appellant argued that the advisors had been engaged and paid for by the company directly in connection with the restructuring and as such the input VAT should be recoverable.

On 22 April 2015 the Supreme Court handed down its judgment in the case of Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23, which was heard in October last year.  In short it decided that: 1) defendant directors cannot raise illegality as a defence to a claim by a company where the directors themselves acted wrongfully; and 2) a claim in fraudulent trading under Section 213 of the Insolvency Act 1986 (Section 213)has extra-territorial effect.

Background

In the recent case of HMRC v Munir & Others[1], HMRC successfully applied to the Court for committal of three company officers for contempt of court where an order appointing a provisional liquidator was knowingly breached.

 Background