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Brasstax: ESC C16
by David Whiscombe
We suspect that in many cases minds will have been turning to whether now is a good time to bring the life of a company to an end - either because of a desire to capitalise on taper relief while it lasts, or because of the new legislation on income-shifting. Or perhaps for both reasons.
Most readers will be familiar with Extra-statutory concession C16. This is the concession under which HMRC agree, in effect, to pretend that a liquidator has been appointed to a company so that what are in law dividends subject to Income Tax will instead be subject to CGT. ESC C16 saves the cost and complexity of a formal liquidation and is sometimes - wholly inaccurately - referred to as the "informal liquidation" route.
ESC C16 will be applied only if certain undertakings are given to HMRC in advance. These are set out in the concession itself. However we are finding that before sanctioning ESC C16, HMRC are now routinely seeking two additional undertakings not set out in the concession. These are to the effect that:
- the company will not transfer or sell its assets or business to another company having some or all of the same shareholders; and
- the arrangement is not a reconstruction in which some or all of the shareholders in the original company retain an interest in the second company
These additional requirements seem to be directed to ensure that ESC C16 is not applied in the case of "phoenix" companies where a counter-action notice under ITA 2007 s698 might otherwise be considered; nor to reconstructions where no gain would normally be recognised. But, whatever the reason for these additional undertakings, the point of this note is to suggest to readers that it will now be sensible to include these additional undertakings in the initial application for ESC C16 treatment.
