business recovery corporate insolvency procedures: company tax issues david payne
TRANSCRIPT
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Business RecoveryCorporate Insolvency Procedures: Company Tax Issues
David Payne
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Introduction
Inter-company balances
debt forgiveness/ debt to equity swaps
Moving assets out of companies
Getting some money backResearch & Development
Capital Allowances/IBAS
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Intercompany Balances
Terminology
Company A – “Creditor” (lender/ provider of good services)
Company B – “Debtor” (borrower/recipient of goods and services).
Co A Co B
£10m
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Inter-company Balances
Funding debt (loan relationship) v Trade debt
Loan relationships – money debts arising from lending
“Connected parties”
Control
“Ability to secure affairs are conducted in accordance with their wishes”
Holding shares/ majority votes/AA/other powers
Majority votes
Greater part of loan and share capital
Right to majority of surplus assets as a winding up
Articles
Any other powers (shareholders agreement/options)
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Removing unpaid inter-company balances
Debt forgiveness or debt waiversTrade – release taxable/ bad debt allowable unless relevant arrangement or compromise
Loans “impairment” = bad debts
documentation - deed of waiver
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Impairment of debt
Lender Impairs a loan (under GAAP)Borrower may still recognise loan in full
tax relief if unconnectedno tax relief if connected
Claw back of previous impairment relief on becoming connected (APs commencing on or after 1 Jan 2005).Creditors in Insolvent liquidation/administration can claim tax relief if impairment made after commencement
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Debt waiver
Creditor releases debtor from obligation to settle loanRelease taxable for debtor if unconnected unless:
Part of a voluntary arrangementDebtor is in insolvent liquidation/administrationConnection broken because lender is in insolvent liquidation etc
Release not taxable if connected
If connection ends any release in future APs are taxable Uplift on value of debt purchased at a discount is taxable for APs on or after 1 Jan 2005
Planning point - deal with inter-co debt prior to acquisition
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Debt to equity swaps
Capitalisation of loans
Release of liability under debtor relationshipNo credit brought to account
Replace loan with share capital
CGT Base cost = value of loan
S17 TCGA 92 – restriction on capital losses where company insolvent
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Connected parties and late interest
Tax relief for Interest on accruals basis unless:
Parties are connected (wide definition)
Interest not paid 12m from y/e
Corresponding credit not brought into account under Loan relationship rules
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Moving assets out of companies
Disposals to third partiesShares
Other tangible assets
Internal re-organisations
Reorganisations & de-mergers
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Substantial Shareholdings
Disposal of shares/assets related to shares
Substantial shareholdings Exemption (SSE)Capital gains tax free/ capital loss not allowable
Primary exemption
Secondary exemption
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Primary exemption
Substantial shareholding held in the company invested in throughout a 12m period beginning not more than 2 years before disposal
Substantial = “not less than 10%”
Investing company
trading company or qualifying group throughout period before and immediately after disposal.
Company invested in
Trading company/ qualifying group throughout period and immediately after disposal.
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Secondary exemption
Primary exemption failed
Where investing company status fails because no longer trading after sale, SSE still possible if the company is liquidated as soon as practicable
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Disposals of other tangible assets
Chargeable assetsGain = proceeds less allowable expenditureIndexation
Relief vs. capital losses b/f / “other”cy lossesShelter gain - rollover relief (qualifying assets)Transaction with Connected persons Group tax planning opportunities
Liquidations – retain CGT group (S170(11)TCGA92) Match gains with lossesGroup rollover relief
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Internal re-organisations
Hive downs – transfer of a going concernParent controls 75% subsidiary before and after transfer (beneficial ownership)
Timing crucial – Undertake before liquidation commences, or administration share sale contractTax treatment mandatoryNo cessation of tradeLosses & TWDV preservedLosses c/f restricted if relevant liabilities retained exceed relevant liabilitiesCA planning
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Hive downs: other tax issues
Transfer of chargeable assets – NGNLExit charge on uplift in value if sale < 6yrs
Mitigation tax planning Intangibles – see later
VAT – TOGC
Stamp duty/ SDLT group reliefclaw back on sale within 2 (SD) or 3 (SDLT) years
No cessation of trade no terminal loss relief/balancing adjustments.
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Reorganisations & De-mergers
S136/139TCGA92 reorganisations
S110 CA liquidations No tax for shareholders or for company on disposals of assets/shares if ‘scheme of reconstruction’
‘Bone fide’ transaction / tax clearances
S110 - exit charge
Partitions - stamp duty relief restricted
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Getting some money back
Research & Development150% - SME
125% -Large
Create terminal loss and carry back
Take the tax credit
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Getting some money back
Industrial Buildings Allowances
(and Agricultural Buildings Allowances)
IBAs to be withdrawn over a 4 year period08/09 3%
09/10 2%
10/11 1%
11/12 nil
No balancing adjustments
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Getting some money back
Capital Allowances
April 2008First year allowances (FYA) on Plant and Machinery – scrapped
Annual Investment Allowance on expenditure up to £50,000 (2008/09)
FYA for small enterprises (2007/08) – 50%
FYA for medium enterprises (2007/08 – 40%