The rate at which solvent companies were being entered into liquidation across the UK reached an unprecedented high during March 2016, according to the latest figures on the subject.
Changes to capital gains tax (CGT) laws and the rules relating to tax reliefs for entrepreneurs are being cited as the key driver behind a sharp increase in liquidation activity during the early months of the year.
The relevant rule changes came into force from April 2016 and had the effect of driving up the number of solvent liquidations very notably during March, as well as in January and February of this year and the latter months of 2015.
According to data from the insolvency trade body R3, there were some 2,663 solvent liquidations recorded during March, which represents a huge increase on normal monthly levels and that figure is more than twice as high as the previous monthly record of 992.
During the year leading up to April 2016, the average number of UK companies that were wound up each month while still being solvent was just 768.
“The scale of the spike in solvent liquidations is a surprise. We expected there to be an increase as the clock counted down, but not one as big as this,” said Andrew Tate from R3 in a statement.
The understanding among experts on insolvency is that a relatively large number of company directors decided to liquidate certain business assets they owned prior to April 2016 in advance of regulatory changes that would leave them unable either to claim entrepreneurs’ tax reliefs or to operate in their field within the next two years.
In short, the rules introduced in April prompted a rush to action among many British entrepreneurs who were intending to take advantage of reliefs relating to CGT in the context of solvent liquidations.
Such reliefs are now no longer available to entrepreneurs who intend to carry on operating in their field after having liquidated their businesses.
The government has said it changed the rules to prevent entrepreneurs from avoiding taxation unfairly but R3’s representatives have noted that the changes have also had some unintended consequences and brought an end to some perfectly fair and routine entrepreneurial practices.