New Year, New You?

The start of the year is often a time for looking forward and planning the year ahead. Given the introduction of the dividend tax in April 2016, a number of business owners are now considering whether or not they should continue to trade as a limited company. There are many matters to consider from a commercial perspective, but the good news is that reverting to a partnership or sole trader can be done tax-free in the form of disincorporation relief; always good news! Disincorporation relief was introduced by the Finance Act 2013. It is designed to make it simpler for those operating smaller companies to disincorporate businesses that are not suited to be run as companies and to circumvent the burdens of corporate compliance. As mentioned earlier, disincorporation involves the transfer of a business from a limited company to a sole trader or partnership. Disincorporation relief is a form of ‘roll-over’ or deferral relief that is available when a company changes from a private limited company to an unincorporated form. The company must transfer its business to some or all of its shareholders. In effect, the qualifying assets are transferred below market value and the shareholders then accept the reduced transfer cost for all future disposals. The company also avoids a Corporation Tax charge on the disposal of the assets. A transfer will be a ‘qualifying transfer’ for the purposes of disincorporation relief only if: • the business is transferred as a going concern; • the business is transferred together with either all the assets of the business or all the assets of the business apart from cash; • the total market value of the qualifying assets at the time of the transfer does not exceed £100,000; • the shareholders to whom the business is transferred to are individuals; and • the shareholders have held shares in the company throughout the 12 months before the transfer. Disincorporation relief was originally introduced for a fixed five year period and is due to end on 31 March 2018. It remains to be seen if the relief will be extended.  If you are thinking of reverting to a different business structure, please do contact us today!