Company directors rush to liquidate before tax loophole closes

In March 2016, liquidations of UK companies who were not suffering financially hit a record breaking high.More than 2,000 companies went into voluntary liquidation according to data from Companies House, just before changes to the UK tax rules were brought to fruition in April.

The increase in March is believed to have been caused by many business owners shutting up shop to ensure they’d be able to extract money from the business. Although it seems incredibly strange to shut down a business that is doing well, many self-employed workers have unfortunately used this as a route to ensure low taxation.

HM Revenue & Customs are now introducing methods to stop businesses from taking advantage of liquidation, clamping down on business owners who are trying to access a lower tax rate. Businesses which liquidate voluntarily will now be unable to access the 10 per cent tax rates that companies get if sold or closed – from April 2016 this rate will only be available to businesses that are liquidating out of necessity.

Head of employer solutions at accountants RSM, Bill Longe said “You had business owners going, OK, I can stop now, liquidate, take out the money I have built up in the business at an extraction rate of ten per cent, and start up again. Now there has been a move to stop people doing this every few years.”