According to the FT this month thousands of business owners may end up seeing liquidation as a better option than seeing their tax bills triple after a tightening of rules set to be introduced this year.
The article explains how new rules on dividend taxation could expose firms to rates as high as 38.1% when they come into force in April 2016.
The new higher tax rates are likely to have an impact on people who run consultancies and personal service businesses and are seen by many analysts as being ‘anti-business’.
When tax rule changes such as these first come into force, they can often prompt business owners to take early measures to avoid their impact and this latest change could hit certain individuals hard if they fail to prepare.
The HMRC has introduced the higher rate of tax on dividends to prevent shareholders from using their businesses as money boxes. It aims to put a stop to business shareholders holding on to profits that may not be needed commercially and then taking them out as capital.
Another target is so called “phoenixism”, which is the term used for a company that is liquidated and then replaced by a new company.