Updated: 5th February 2020
A record number of UK companies were entered into liquidation during March of this year in advance of a change to tax rules that came into effect from April.
In fact, there were apparently more than twice as many solvent companies wound up during March this year than has ever been the case in a single month.
According to the insolvency trade body R3, as many as 2,663 solvent liquidations were recorded in the month, while the next highest figure on record was the 992 solvent liquidations noted in April 2015.
The key factor driving the sudden rush towards winding up solvent companies is understood to have been the changes to laws pertinent in the context of claiming Entrepreneurs’ Relief from Capital Gains Tax (CGT).
Specifically of concern to company directors around the country was the introduction of a rule change that now means a director winding up a solvent company can no longer claim relief from CGT if they go on to work in the same trade over the course of the subsequent two years.
“The scale of the spike in solvent liquidations is a surprise. We expected there to be an increase as the clock counted down, but not one as big as this,” said Andrew Tate from R3 in a statement.
The rule changes were said to have been designed to prevent company directors from winding up businesses purely or partly as a means of strategically avoiding personal income taxes.
But R3 and its experts have suggested that the consequences of the rule changes were considerably broader than initially intended.
“There will have been a mixture of different types of companies being liquidated, including those companies owned by those targeted by the rule,” said R3’s Andrew Tate.
“However, some genuine entrepreneurs may have had to accelerate their retirement plans to avoid being hit by the tax change,” he explained.
“Very often, retiring entrepreneurs who are winding up their company but selling or passing on their business will have to stay involved for a while to make the handover easier. Their presence as a consultant might be reassuring for customers, for example.
“Obviously, this means they have to stay involved in the same line of work within the two year timeframe.”
According to R3’s figures, there were unusually high levels of solvent company liquidations in the final few months of 2015 and throughout the first quarter of this year. With 78 offices stretching from Inverness down to Exeter, Real Business Rescue can offer unparalleled director advice across the UK.