The latest news
Second update - Thursday 2 February
Our most recent update is available here http://www.ion.icaew.com/TaxFaculty/23935 and explains what you ought to be considering if you wish to beat the 1 March deadline.
Update - Wednesday 1 February
The First Delegated Legislation Committee approved the Statutory Instrument, as expected, on Monday 30 January. We are concerned by some of the statements made to the Committee by the Exchequer Secretary and will be writing for an explanation. We are also in contact with the HMRC policy adviser to clarify some transitional issues and will issue an update posting as soon as we get clarification.
The draft Statutory Instrument (SI) which covers ESC C16 and five other concessions has been published The Enactment of Extra Statutory Concessions Order 2012 on the What’s New part of the HMRC website.
It is going to be debated by the House of Commons Delegated Legislation Committee on Monday 30 January.
This Committee is not able to change the content of the SI, it can only approve or reject it.
ICAEW Tax Faculty and CIOT have written jointly to the Exchequer Secretary, David Gauke, who will sit on Monday’s Committee suggesting that the SI ought to be withdrawn and that a new SI ought to be presented to Parliament with no limit to the amount that can be paid out prior to a dissolution and be subject only to capital gains tax. We have also written in similar terms to all the members of the Committee.
As far as we are aware it is pretty well unprecedented for an SI not to be approved.
If the SI is approved then it will apply to distributions made on or after 1 March 2012.
If you have HMRC agreement that ESC C16 can apply but make a distribution after 1 March 2012 that distribution will be covered by the new, SI, law. If that is the case and you pay out more than £25,000 all the distribution will be subject to income tax.
If you make an interim distribution before 1 March which together with distributions after 1 March come to a total of more than £25,000 then the post 1 March distributions will be subject to income tax.
So for instance if you pay out £10,000 in mid February having got the agreement of HMRC that ESC C16 will apply but pay out a second and final distribution of £20,000 after 1 March 2012 then the £20,000 will be subject to income tax. This is the technical analysis of HMRC. We have suggested to HMRC that it is not correct to aggregate the pre 1 March distribution in these circumstances as the SI specifically states that it only applies to post 1 March distributions. HMRC do not agree with our analysis.
If you have HMRC’s agreement that ESC C16 can apply but are unable to physically pay out cash distributions prior to 1 March 2012 then you should consider making a distribution in specie before that date.
You can read our earlier, pre-Christmas, posting on ESC C16 by clicking here.
If you have any queries in relation to the above, or on ESC C16 more generally, please get in touch with Ian Young ian.young@icaew.com