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Contractors warned over new winding-up rules

PSC contractors completing their tax return may be hit by  new rules if they received a distribution on winding up on, or after 6th April 2016 – and remain involved in similar trade.

Issuing this alert, the ATT said the rules stop people lowering their tax liability by converting what might otherwise be received as a dividend into a capital payment by winding up.

The rules apply where the winding up person continues to be involved with a similar trade at some point in the next two years, and the main aim is to lower their income tax bill.

“[In this] case,” said the Association of Taxation Technicians (ATT), “any distribution on winding up will be subject to income tax, and not the lower rates of CGT which normally apply.”

The new rules were created to tackle tax advantages arising from ‘phoenixing’ – the practice of liquidating a company and then incorporating afresh to carry on much the same activities.

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