A recent report by R3 has shown that the number of solvent liquidations was nearly triple that in March 2015, rising from 992 to 2,663, with the monthly average for the 12 months prior to March 2016 being 768.
The number of solvent liquidations began to rise at the end of 2015 when the new rules were announced and since the monthly records began in March 2014 there have only been five months seeing over 900 solvent liquidations, December to March were four of these five months.
This increase is a direct result of the tax changes brought into effect from 6th April 2016 which now prevents shareholders of a solvent liquidation claiming entrepreneur’s relief if they continue to work within the same industry as the liquidated company within a period of two years of the liquidation date.
Andrew Tate, R3 president, is quoted as saying that there has been “a mixture of different types of companies being liquidated, including those companies owned by those targeted by the rule. However, some genuine entrepreneurs may have had to accelerate their retirement plans to avoid being hit by the tax change.”
This follows R3’s previous warnings that there may be unintended consequences for genuine entrepreneurs who were approaching retirement and needed to liquidate their company as not to fall fowl.
Tate points out “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.” This will now almost certainly mean that this handover will either not take place or the entrepreneurs may be taxed at a later date.
Luke Cockerton FIPA, Insolvency Manager