March 2016 saw a record number of UK companies file for voluntary liquidation. There were 2663 solvent companies wound up - over three times the usual monthly rate which has averaged at 768 for the twelve months prior. The last highest month recorded was April 2015 when 992 companies filed.
What could this be attributed to?
There are two possible reasons. One is that this tax year sees a higher rate, at the top end, of dividend taxation at 38.1 per cent. The other is a change in the small print of the Entrepreneurs Tax Relief announced in the recent Budget. This effectively prevents companies from using Entrepreneurs Relief as a way to extract money from their business at a lower tax rate. This could be done by simply putting one company with profit reserves into liquidation before setting up a phoenix company shortly thereafter and continuing with business as usual.
Directors winding up a solvent company cannot longer claim Entrepreneurs’ Relief on their gains if they carry on working in the same trade over the following two years.
As the change was known in advance (since the end of 2015), many company directors took the opportunity to ‘cash in’ before the reforms came into effect on April 6th.
There were also no doubt many genuine business sellers who also needed to move quickly with divestment plans. This is typically the case when some form of earn-out is in place, requiring business owners to stay involved following the sale, usually at the insistence of buyers who want continuity and key man assurances.
The scale of the surge was nevertheless a surprise to many. Andrew Tate, head of insolvency trade body R3 commented: “We expected there to be an increase as the clock counted down, but not one as big as this.”
Normally, solvent liquidations account for a third of all liquidations, however in March they accounted for two thirds. 
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