New rules relating to the winding up of a company and treatment of resulting distributions will apply to tax returns for the year ending 5 April 2017, leading the Association of Taxation Technicians (ATT) to warn taxpayers and their agents to “consider the impact” of the rules on their tax liability.

Taxpayers could be affected if they received a distribution on winding up their company on or after 6 April 2016 and continue to be involved in similar activities, said the professional body. Such individuals would not be able to reduce their tax liability by converting the dividend into a capital payment by winding up their company.

The new rules aim to prevent individuals from gaining a tax advantage by liquidating a company and carrying on the same activities by establishing a new company, but the ATT said that the legislation has a much wider application.

“As these new rules are self-assessed, taxpayers have to decide whether they apply. They must therefore be considered in any situation where a taxpayer has wound up their company since 6 April 2016 and continues to be involved in similar activities,” said Yvette Nunn, co-chair of the ATT’s technical steering group.

The organisation has encouraged taxpayers and agents to “consider providing additional detail in the white space of the self-assessment return”, as extra information “may provide some protection for errors in returns”.

Nunn added: “Deciding whether the rules apply is complicated by the subjective nature of the conditions, the lack of any clearance facility and the limited practical examples in HMRC’s guidance.

“It is unclear whether if a taxpayer genuinely believes that they do not apply, but HMRC concludes they do, penalties will be imposed.

“We have written to HMRC asking for further guidance on the application of the rules, including how HMRC will apply penalties if they consider an error has been made in a tax return. If there is any doubt as to whether these rules may apply, taxpayers and their agents should consider providing additional detail in the white space of the self-assessment return as this may provide some protection from penalties.”

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