A company with 100 shares (4 individuals hold the shares) and around £80,000 in cash wants to dissolve the company and apply for the distribution to apply under ESC C16; debtors/creditors are paid and trading ceased >5 months ago.
On the facts above I believe that it will be possible to apply under ESC C16 and treat the distributions (including the s/c element) as capital - is this correct?
Company dissolution
6 posts • Page 1 of 1
Company dissolution
by russ23 on Tue Nov 22, 2011 1:06 pm
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Re: Company dissolution
by section 44 on Tue Nov 22, 2011 4:21 pm
russ23 wrote:(including the s/c element)
what's this?
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Re: Company dissolution
by etf on Tue Nov 22, 2011 8:29 pm
Hi russ23
I attended a talk last night which included an update on ESC C16. Unfortunately, the speaker overran and I had a train to catch and so I did not hear that part of the talk. However the accompanying notes that were distributed include a section with a title "Company dissolutions and ESC C16-the final instalment" from which I have cribbed the information below which hopefully will be of interest.
ESC C16 was first introduced in 1985 and provided a simple and straightforward way for companies to be struck off, with the company assets-usually cash-being returned to the shareholders. Under this concession, CGT rather than income tax is payable and the costs of an expensive liquidation are avoided.
Unfortunately, there is a company law problem. If a company returns share capital without going through the process of a formal winding up, this is technically an unauthorised distribution and such assets can therefore be recovered by the Crown under the doctrine of bona vacantia (goods or property without an apparent owner). Mentally I have an image of Prince Charles running off with a company's share capital.
In order to avoid this daylight robbery, the Treasury Solicitor published guidelines under which Prince Charles was prevented from snaffling any unauthorised distribution provided that the amount returned to the shareholders by way of share capital was not more than £4,000.
With effect from 14 October 2011, the £4,000 limit has been withdrawn by the Treasury Solicitor. In other words, if any share capital is repaid to shareholders under a dissolution, it can now be recovered as bona vacantia. In future, therefore, in order to take advantage of ESC C16, it will be necessary to reduce the company's share capital to a nominal amount such as £1. It should be noted that the distribution of a company's reserves will still qualify for CGT treatment.
Kind regards
etf
http://theexpatriatetaxfactory.com
I attended a talk last night which included an update on ESC C16. Unfortunately, the speaker overran and I had a train to catch and so I did not hear that part of the talk. However the accompanying notes that were distributed include a section with a title "Company dissolutions and ESC C16-the final instalment" from which I have cribbed the information below which hopefully will be of interest.
ESC C16 was first introduced in 1985 and provided a simple and straightforward way for companies to be struck off, with the company assets-usually cash-being returned to the shareholders. Under this concession, CGT rather than income tax is payable and the costs of an expensive liquidation are avoided.
Unfortunately, there is a company law problem. If a company returns share capital without going through the process of a formal winding up, this is technically an unauthorised distribution and such assets can therefore be recovered by the Crown under the doctrine of bona vacantia (goods or property without an apparent owner). Mentally I have an image of Prince Charles running off with a company's share capital.
In order to avoid this daylight robbery, the Treasury Solicitor published guidelines under which Prince Charles was prevented from snaffling any unauthorised distribution provided that the amount returned to the shareholders by way of share capital was not more than £4,000.
With effect from 14 October 2011, the £4,000 limit has been withdrawn by the Treasury Solicitor. In other words, if any share capital is repaid to shareholders under a dissolution, it can now be recovered as bona vacantia. In future, therefore, in order to take advantage of ESC C16, it will be necessary to reduce the company's share capital to a nominal amount such as £1. It should be noted that the distribution of a company's reserves will still qualify for CGT treatment.
Kind regards
etf
http://theexpatriatetaxfactory.com
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Re: Company dissolution
by WHA on Thu Dec 08, 2011 12:36 pm
From 1 March 2012 ESC C16 is to be withdrawn and replaced with statute which only allows final distributions of upto £25k to be treated as capital. If the final distribution is over £25k it is now to be taxed as a dividend subject to income tax instead of capital gains tax and of course without entreprenneurs relief.
You can still get "capital" treatment only if you engage a liquidator to undertake a formal liquidation, and their fees will be a few thousand to do it.
http://www.hmrc.gov.uk/tiin/tiin-esc-c16.pdf
You can still get "capital" treatment only if you engage a liquidator to undertake a formal liquidation, and their fees will be a few thousand to do it.
http://www.hmrc.gov.uk/tiin/tiin-esc-c16.pdf
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6 posts • Page 1 of 1
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