Company closure

[tom 7000]

The company started on 01/05/04 and ceased trading 31/07/05. It made £18,000 profits and the CT before paying any dividends is about £1600. The director emptied the company bank account and so will pay the CT personally.

If I treat the cash he took from the bank account as a dividend he will be caught for NCD and the CT will jump to about £2800.

If I write to HMRC and send in an ESC C16 to have it struck off I can treat the renaining (18,000- 1,600) = 16,400 as CGT. With one years taper relief that halves it to £8,200 and with the PA theres no CGT.

In effect I have skipped the NCD surcharge. The directors gone off and got PAYE on a new job so its unlikely he will use a ltd vehicle again.

This all seems good to me in theory but I thought of 2 things HMRC might not like and perhaps you know the answer:

1)With the bank account being empty, then the overdrawn Directors loan account (DLA) will attract S419 Interest.We know this has to be repaid within 9 months ie by march 06 so no time pressures yet. (normally cleared by dividends)

If the debit balance DLA is paid out as capital, can that be treated as part of the ESC C16 distribution.

Will this nullify the S419 charge Or do I have to get this chap to pay all the 18k back and the take it all out a month or so later after ESC C16 approval comes through.

I think basically the question is does he have to repay the 18k to the company bank account and then take it out again or can this be achieved without the physical movement of cash...as he is going to struggle to find £18k.

2)The company ceased in July 05 its January 06 now does the delay in sending in the ESC application effect the BATR 50% reduction I am trying to get on the CGT -otherwise he will be caught for CGT at 40% this year which is worse than the NCD rate.

Thank you for answering this and being just that little bit (or probably a lot) cleverer than me at tax

Tom ACA

[Lambs]

T,

I suggest you have a good look at:

http://www.hmrc.gov.uk/manuals/ctmanual/CTM36210.htm

et seq.

and consider it in light of your circumstances.

You might find it quite suitable.

Regards

Lambs

[tom 7000]

IOU a pint

tom

[Lambs]

Make it a double: (it's Self Assessment season):

Note that C16 treatment may be applied 'retrospectively;'

whilst also bearing in mind that yes, cessation of trade can 'taint' eligibility for BATR: one ends up with a split transaction where one is deemed to have disposed of two assets for TR purposes. It follows that the longer the non-trading period, the greater the 'taint.'

You should have found reference to the above, in the paras. following the previous link.

Full Steam Ahead!

Regards,

Lambs