Business closure / capital distribution question
Discussion
I am in the process of closing a Ltd company whose principal asset is a freehold property that we are selling. The plan was to dispose of the assets and then make a capital distribution and strike the company off. My accountant is now saying that because of new treasury rules and because the share capital of the company is over £4k (it's £200k) we will have to instead go through a costly and time consuming members voluntary liquidation. The company has no debt. Any accountants got any bright ideas because I'm confused. It's my money after all! 
Thanks
Paul
Thanks
Paul
I was not aware of any such restrictions on applying for a simple "Striking Off" of the company (as opposed to a formal "liquidation" ).
I've had a quick look at the Companies House website regarding striking off and they don't mention any limits.
I've also had a very quick look at the HMRC website regarding "company disollutions" and there is no obviouis references to such limits either. However, it might just mean I haven't looked hard enough
.
I would ask your accountant to quote to you the specific Revenue legislation that states this £4,000 Share Capital limit.
Obviously, before dissolution, the company needs to sell off its property which will then generate a Capital Gains Tax liabiity payable by the company. The remaining cash in the company bank account can then be distributed to the members as a repayment of the original share capital and as dividends. The members will, of course, be personally liable to Income Tax on their dividend income.
No striking off procedures can be commenced until all the above has been carried out.
I've had a quick look at the Companies House website regarding striking off and they don't mention any limits.
I've also had a very quick look at the HMRC website regarding "company disollutions" and there is no obviouis references to such limits either. However, it might just mean I haven't looked hard enough
. I would ask your accountant to quote to you the specific Revenue legislation that states this £4,000 Share Capital limit.
Obviously, before dissolution, the company needs to sell off its property which will then generate a Capital Gains Tax liabiity payable by the company. The remaining cash in the company bank account can then be distributed to the members as a repayment of the original share capital and as dividends. The members will, of course, be personally liable to Income Tax on their dividend income.
No striking off procedures can be commenced until all the above has been carried out.
Edited by Eric Mc on Friday 23 February 09:42
Thanks for that Eric. He said the £4k thing came from new guidelines they have received this month? I'm seeing him on Monday and all should become clear.
The plan is to dispose of all assets, leaving just cash, prior to the distribution. We're aware of the tax implications of the gain on the property (after indexation) and obviously I have to pay income tax on the dividend element. I would find it frustrating if we did have to jump through further costly hoops just to get our own money back!
The plan is to dispose of all assets, leaving just cash, prior to the distribution. We're aware of the tax implications of the gain on the property (after indexation) and obviously I have to pay income tax on the dividend element. I would find it frustrating if we did have to jump through further costly hoops just to get our own money back!
If it's a "guideline" it may not be enforceable in law.
I haven't received such notification from any of the professional bodies I'm a member of. Pbviously, I'll keep my eyes open as this could create a bit of an administrative burden on lots of small companies - undoing the huge cost advantages available through the simple "Striking Off" process.
If it really is the case, maybe the company should look at ways of reducing its share capital below the magic threshold.
I haven't received such notification from any of the professional bodies I'm a member of. Pbviously, I'll keep my eyes open as this could create a bit of an administrative burden on lots of small companies - undoing the huge cost advantages available through the simple "Striking Off" process.
If it really is the case, maybe the company should look at ways of reducing its share capital below the magic threshold.
Eric Mc said:
If it really is the case, maybe the company should look at ways of reducing its share capital below the magic threshold.
That was my suggestion, that we reduce the share capital by a share buy back. He's looking into that as a way round it. I'll get the reference for this notification and I'll post it.
Thanks
Paul
When winding up a company you have the option of distributing all the assets to the shareholders as a capital distribution.
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
Edited by JagLover on Friday 23 February 11:02
JagLover said:
When winding up a company you have the option of distributing all the assets to the shareholders as a capital distribution.
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
Edited by JagLover on Friday 23 February 11:02
Presuming the freehold property wasn't just an investment of the company?
All good stuff. TY both.
We've accounted for taper relief. The divident element is just the excess profit after taper relief, indexation etc..
I think what he (my accountant) is saying is that if your share capital is over £4k the revenue are now saying they wont give permission without a MVL.
We've accounted for taper relief. The divident element is just the excess profit after taper relief, indexation etc..
I think what he (my accountant) is saying is that if your share capital is over £4k the revenue are now saying they wont give permission without a MVL.
thewave said:
[quote=JagLover]When winding up a company you have the option of distributing all the assets to the shareholders as a capital distribution.
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
Presuming the freehold property wasn't just an investment of the company?
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
Presuming the freehold property wasn't just an investment of the company?
Good Point
Assuming this is a trading company not an investment company. If you would have non-business Taper relief then a dividend may be the best way to go.
thewave said:
JagLover said:
When winding up a company you have the option of distributing all the assets to the shareholders as a capital distribution.
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
You write to the IR, using form C16, and ask for their permission and if they grant it then it is treated exactly the same as if an outside party purchased your shares.
This is far more tax efficient than taking the money as a dividend. Since you will have taper relief as your shares should be considered a business asset.
Presuming the freehold property wasn't just an investment of the company?
No it was a commercial property and the business traded from it.
The £4k is a Crown issue, not a treasury issue even though they are one and the same. On a striking off all assets not previously distributed go to the Crown, however, there is an exemption for assets less than £4k.
Solutions - pre striking off dividend (may be expensive in tax terms)or Members Voluntary Liqudiation if you want to retain tax advantages.
See below:
www.geoffreymartin.co.uk/corporate_insolvency_bulletins6.htm
Solutions - pre striking off dividend (may be expensive in tax terms)or Members Voluntary Liqudiation if you want to retain tax advantages.
See below:
www.geoffreymartin.co.uk/corporate_insolvency_bulletins6.htm
Edited by wattsm666 on Friday 23 February 11:50
wattsm666 said:
The £4k is a Crown issue, not a treasury issue even though they are one and the same. On a striking off all assets not previously distributed go to the Crown, however, there is an exemption for assets less than £4k.
Solutions - pre striking off dividend (may be expensive in tax terms)or Members Voluntary Liqudiation if you want to retain tax advantages.
See below:
www.geoffreymartin.co.uk/corporate_insolvency_bulletins6.htm
Solutions - pre striking off dividend (may be expensive in tax terms)or Members Voluntary Liqudiation if you want to retain tax advantages.
See below:
www.geoffreymartin.co.uk/corporate_insolvency_bulletins6.htm
Hmm...
I guess thats what he's referring to.
Bollox.
Eric Mc said:
Thanks for posting that link up. That was all news to me - and yet another reason for NOT having land and property in the name of a limited company.
TBH when I set up that company I had capital gains issues and I saved £80k by rolling over £200k into it. We used £90k of it to buy this property, which the business has used, which is now worth £230k so it's worked well. I just object to giving the government a penny I don't have to. Bastards. If my accountant suggests a way around I'll let you know.
Looking at the link provided above...
"The liquidator then realises the assets, pays the creditors (if any) and distributes the balance to the shareholders".
What is the mechanism used to distribute the balance to the shareholders, and how is this sum taxed? CGT?
Assuming CGT - then is the following correct, assuming shares held for in excess of two years:
assets = £105k
cost of MVL = £5k
capital distribution = £100k
CGT due (higher rate tax payer, 40%) = £40k
Business taper relief = 75%
Actual CGT due = £40k x 25% = £10k
Correct?
"The liquidator then realises the assets, pays the creditors (if any) and distributes the balance to the shareholders".
What is the mechanism used to distribute the balance to the shareholders, and how is this sum taxed? CGT?
Assuming CGT - then is the following correct, assuming shares held for in excess of two years:
assets = £105k
cost of MVL = £5k
capital distribution = £100k
CGT due (higher rate tax payer, 40%) = £40k
Business taper relief = 75%
Actual CGT due = £40k x 25% = £10k
Correct?
Edited by UpTheIron on Sunday 25th February 17:32
Having had my meeting it looks like I am going to be forced to go for the MVL. To do this I have to use a licenced insolvency practitioner and the cost will be approx £5k of which £1k is disbursments. All that to repay myself the share capital that I put up originally, and despite the company having no debts, having never had any borrowings etc. and having liquid assets in the form of cash of over £350k when the property is sold, so far from "insolvent".
Blood close to boiling point.
And some t
t reversed into my TVR in Tesco's car park yesterday.
Blood close to boiling point.
And some t
t reversed into my TVR in Tesco's car park yesterday.Gassing Station | Business | Top of Page | What's New | My Stuff