What is ‘phoenixism’ and how does it relate to Members’ Voluntary Liquidations (MVL)?

Phoenixism is generally associated with pre pack administration, where the underlying assets of a failed business are sold, sometimes to the existing directors.  These directors then go on to form a new company, often operating in a similar vein.

The term can also relate to the solvent liquidation process (MVL), however, depending on the reasons for company closure. Members’ Voluntary Liquidation is a good solution for directors who wish to retire, for example, but who do not intend to engage in another similar trade.

HM Revenue and Customs believe the MVL process has been used as a form of tax planning in some instances, and are targeting anyone who closes down a company solely to reduce their tax liability.

Capital distributions generally attract significantly less tax than income, so HMRC have introduced a rule whereby individual shareholders in receipt of capital distributions will pay income tax on those amounts if they set up a similar company within two years.

This is part of several new measures introduced by the government in the Finance Bill, 2016, in an effort to combat tax avoidance.