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HMRC have been dealing with a lot of cases challenging Entrepreneurs Relief claims on ‘Phoenix Companies’. The practice of ‘Phoenixing’ involves Directors setting up a company for a contract, then subsequently closing it down when the contract ends enabling them to claim ER tax on the business assets above the Capital Gains Tax allowance.
The directors then open up another company when they get a new contract and repeat the process. Unfortunately, poor advice has led some company Directors to carry out this practice without being aware of the negative light it is seen in by UK Company Law or for UK Tax.
In this blog, we look at ‘phoenixing’ and the new targeted anti-avoidance rules (TAAR) set in place to prevent people taking advantage of this practice and thus benefiting from lower tax rates.