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Targeted Anti Avoidance Rule (TAAR)

When can I start a new company after doing an MVL?

One reason people opt to put their company through a Members Voluntary Liquidation (MVL) is the personal tax treatment of final funds.

Where there’s >£25k final net assets, if the company is struck off, these will be taxable on shareholders as dividends. Whereas if the company goes through an MVL, they’ll be taxable on shareholders as capital gains. Often capital gains lead to lower tax bills.

However, there’s Targeted Anti Avoidance Legislation (“TAAR”) re liquidations to be wary of. It’s there to prevent people repeatedly:
– setting up companies,
– making profits but taking minimal income from it,
– stockpiling cash in the company,
– doing an MVL,
– rinse and repeat.

But sometimes you do an MVL to close a company, then a great new opportunity arises. How can you be safe from challenge under this TAAR?

There is nothing to stop you becoming director/shareholder of a new company the day after liquidating your old one. There is however a risk that if you do, the personal tax treatment on funds distributed from the earlier liquidation will be challenged.



MVL Online are not tax advisers, and do not claim to be. It is our role to liquidate your company where suitable. We cannot guarantee any particular tax treatment, nor can we give bespoke advice to clients on what their tax liabilities will be. The below is written in good faith, as it’s a question a lot of our clients have.


What are the conditions to be caught?

For HMRC to successfully challenge the capital gains tax treatment of funds received from an MVL, to instead make them taxable as dividends, the following need to apply:

Condition A – The individual has at least a 5% stake in the company liquidated
Condition B – The company being liquidated is/was a “close” company
Condition C – The individual carries on a similar trade or activity within two years
Condition D – One of the main purposes of the liquidation was avoidance/reduction of tax

Condition A is clear cut, and will apply to shareholders in virtually every MVL Online case.

Condition B is also fairly clear cut. Put simply a close company is one controlled by 5 or fewer shareholders. Hence again, every MVL Online client will be a close company.

Jumping to condition D, this perhaps has scope for argument. However, given the wording stresses not just “the main”, but “one of the main”, we struggle to see a typical MVL Online client wriggling out of a challenge on condition D.

It therefore all boils down to condition C, which in itself has two parts.


“Similar trade or activity”

This is open to interpretation. However we feel it’s dangerous to rely on this part.

Eg anyone trying to claim their previous business was “management consultancy”, and their new business is “business coaching”, will likely find their argument torn apart.

Having said that, if the old business was selling widgets online, and the new business is as a restaurant, we’d hope you’d be safe against challenge here.


“Within two years”

Realistically this is the key bit. The part of the rules that’s relatively unambiguous. So if you comply with it you can sleep soundly at night.

However, to know when the 2 years ends (hence you’re safe to start a similar business without risk of challenge via the TAAR), critically you need to know when it starts!

Liquidations themselves can be quite long-winded processes. Typically:
– you’ll have ceased trading some time prior to liquidation,
– you’ll make the decision to liquidate, and speak to liquidators,
– potentially they’ll get you to extract the company’s cash pre liquidation,
– you’ll formally appoint the liquidator,
– they’ll distribute some funds to you early on,
– often there’ll then be a prolonged period whilst they wait for HMRC to grant clearance,
– they’ll finalise the liquidation, declaring a further distribution to you,
– the liquidation final meeting date, often ~2 months after the final distribution,
– the company finally becoming dissolved, often ~3 months after final meeting date.

There can often be a year between the first and last bullet point above. Potentially if business owners take a while to make a decision, and/or HMRC prove particularly problematic for the liquidator, it can be multiple years for all the above to be done.


When does the 2 year period start from?

Our understanding is that as the TAAR is purely a personal tax related matter, it revolves around the trigger point for the personal tax liability. Hence for MVLs, that’s the distribution dates.

It’s normal in an MVL to have funds distributed to you in chunks. Possibly this could just be one big distribution of all funds. Most commonly it’s two distributions, the first for the bulk of the company’s assets as soon as the liquidator is able, the second when the liquidator has all they need to finalise the liquidation. In some liquidations there may be more than two distributions.

It’s the dates those distributions are formally declared which triggers the shareholder to have formally received the benefit of those funds. Hence that’s the date that’s relevant for capital gains tax purposes.


An example

Joe Bloggs liquidated his solvent company ABC Ltd. It had £150,000 in the bank after all other assets had been sold off/collected in, and liabilities paid.

Joe talks to the liquidator, who recommends he withdraw all funds prior to liquidator appointment. Joe withdraws company funds staggered across a few days (due to daily limits imposed by the bank) at the tail end of January 2023.

The liquidator is formally appointed on 1 February 2023.

They declare a first distribution of £120,000 imminently after, on 2 February 2023.

They do various bits and pieces in the background, including writing to HMRC requesting clearance.

They receive this all in order a few months after request. After checking a few other bits and pieces, they draft documents for final distribution of £30,000 on 16 May 2023.

The official final meeting date is deemed to happen 9 weeks after that, on 18 July 2023. Documents are then submitted to Companies House. The company is eventually officially dissolved on 25 October 2023.

The key bits of information from the above for TAAR purposes are:
– distribution of £120,000 on 2 February 2023
– distribution of £30,000 on 16 May 2023

Based on the above, the shareholder could:
– set up a new business before 2 February 2025, but would need to accept that both distributions would be at risk of challenge.
– set up a new business between 3 February 2025 and 16 May 2025, in which case the £120,000 should be safe from challenge, but the £30,000 is still at risk.
– set up a new business after 17 May 2025, which should mean the tax treatment of all distributions from ABC Ltd are entirely safe.



– HMRC don’t want people repeatedly converting income into capital for tax advantages

– there’s a ”TAAR” which if met mean MVL distributions suffer tax as dividends instead of CGT

– conditions A, B & D will apply to virtually every MVL

– hence it’s condition C which needs to be carefully considered to stay safe

– leave a gap of at least 2 years between MVL distribution dates and starting a new similar business