That's a perfectly straightforward way of doing it (though I can't remember off the top of my head whether you have to turn the share premium into shares before you can reduce it - I suggest you check this point if you don't know the answer, rules depend on the various types of reserves you are getting rid of). You have created distributable reserves from your share capital/premium. Presumably you are au fait with the company law requirements for filings etc. Make sure that the documentation has been filed with Companies House BEFORE you contemplate a distribution. In the case of a limited company (some of) these filings only take effect after registration at Companies House. Any distribution made prior to that point will be an 'illegal' distribution.
There is no tax consequence for the company arising from the double entry you describe.
However, a shareholder, if an individual in receipt of a distribution from the distributable reserves you have now created, will pay income tax on the distribution received. So there's obviously a slight problem from their perspective in so far as they contributed a capital sum to the business, and instead of getting their capital back they are in receipt of taxable income. Worse, they likely don't even get a capital loss owing to the depreciatory transactions rules.
Depending on the sums involved (i.e. if there are several noughts on the end of the numbers in your illustration) you might be better off liquidating the company, so the shareholders obtain capital treatment on the return of their capital, and starting a new company. So as to avoid the anti-phoenixing rules you would need to distribute all distributable reserves first - though it appears there aren't any.