FN-FORUM: Disincorporation: the next 'in' thing?

date posted 21st January 2004 08:44

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The TaxZone Digest
Issue 203 - 19 January 2004
News & tips for the tax community
http://www.taxzone.co.uk
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IR35 is almost certainly to be abolished from April this year,
to be replaced with something called IR591 - or a dividends tax
to be more specific. Whilst the Treasury will neither confirm
or deny this, the level of uncertainty in the business world
gathers momentum. And no one is quite sure what to do. The
likelihood of no consultation process for what could be a
fundamental reform of small business taxation is a scandal,
which many are now writing to their MPs about.

This week's Newthwire examines what may happen and what can be
done if it does. One course of action will be for a number of
those small businesses that incorporated on the back of Gordon
Brown's 2002 Budget to now disincorporate.

Not since the 1987 consultation document has there been any
serious review of the taxation of disincorporation. That now
needs to happen, as the tide of incorporations reverses to avoid
IR591. The 1987 proposals suggested the elimination of capital
gains tax at both the company and shareholder levels. The
chargeable assets would be transferred to the shareholders at
their (at the time) indexed base cost. And any capital gain
accruing to the shareholders (computed by reference to a "going
concern" value of the shares) would be held over until the
shares were sold.

The government may not have expected the level of incorporations
which happened as a consequence of the 2002 Budget, but it
certainly cannot ignore the very real scenario of mass
disincorporations. It needs to provide relief for those who are
better trading without a company structure.
Gary Mackley-Smith
Managing Director, TaxZone
http://www.accountingweb.co.uk/item/121843/786/784/785
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