Tax relief on disincorporation may ‘fall by the wayside’

A tax relief intended to help owners of smaller companies revert to self-employment will not be available for transfers after March 2018 unless action is taken, the Office of Tax Simplification has pointed out. Take-up of the relief has been lower than expected.

Disincorporation relief, introduced in Finance Act 2013, provides relief from corporation tax when a company transfers qualifying business assets to its shareholders. No claim can be made if the value of the assets exceeds £100,000, however, and the OTS believes that this limit is one of a number of possible reasons for the low take-up.

The OTS is seeking to establish whether there is an “untapped appetite” among businesses to disincorporate in order to reduce the burden of administration. A focus paper invites readers to suggest, by September 15, what improvements are needed for the relief to be more effective.

Facilitating disincorporation would “appear to fit well with any moves to reduce the extent of tax motivated incorporations,” the OTS said. HM Treasury indicated that about 610,000 companies would be eligible for the relief, but fewer than 50 claims had been made by March 2016.