The Government is proposing tax relief for micro-businesses who incorporated for tax reasons a decade ago and are now unable to disincorporate without triggering large capital gains tax bills.
The Office for Tax Simplification (OTS) proposals will only apply to trading companies with less than £30,000 annual turnover, many of whom incorporated to take advantage of a low corporation tax incentive in 2002 that no longer exists. They are now stuck as switching back to sole trader status would trigger capital gains tax.
The OTS proposes a disincorporation tax relief, which will allow the business of a company, including its goodwill, to pass to an unincorporated business with no tax charge arising on the “disposal”. It would also relieve the business of the additional administrative burdens that face a limited company.
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