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Detail of outcome
The Government has decided to introduce a time-limited disincorporation relief in Finance Bill 2013, to run for five years from April 2013
The independent Office of Tax Simplification’s (OTS) review of small business tax identified a population of businesses which want to “disincorporate” - change their legal form from a limited company to self employed - but a number of tax charges and administrative issues might be preventing this.
The OTS recommended that the Government introduce a relief against these tax charges alongside simplified administrative procedures for disincorporation. The full OTS report can be found at:
The OTS published two reports on this area – a discussion paper in July 2011 and the final report in March 2012.
This consultation built on these by: focusing questions specifically on those businesses identified by the OTS as most likely to want to disincorporate; further investigating the nature and scale of demand for the relief; examining some of the design parameters; and looking more closely at issues around creditor protection.
The consultation followed the Budget 2012 announcement that the Government would consult on the OTS proposal.
The Government was interested in views from a range of audiences, including individual businesses and their representatives, as part of this consultation. It was also interested in views from insolvency practitioners reflecting the links to the Companies Act.
The proposed disincorporation relief will:
- allow a company to transfer goodwill and an interest in land to its shareholders so that no corporation tax charge on the company arises on the transfer
- not extend to tax charges that might arise on the shareholders where, for example, the assets are distributed
- apply to companies with qualifying assets not exceeding £100,000. Qualifying assets are goodwill and land and buildings used in the business
- run for five years from April 2013.
Legislation will be introduced in Finance Bill 2013 to introduce disincorporation relief. The draft of this legislation was published on 11 December and is now open for technical consultation. The deadline for responses is 6 February 2013.
The OTS small business tax review also made recommendations on simplifying the tax system for the smallest businesses. As a result of this, on 27 March the Government launched a consultation on introducing a new, simpler cash basis for small self-employed businesses to calculate their tax from April 2013.
The consultation document can be found on the HMRC website using the following link:
The Government has also responded to this consultation and has published draft legislation on 11 December.