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Accounting and tax clearance for deferred company own share purchase

I have a client who has a historical holding / trading company arangement and now wishes for the holding company to purchase the shares of a departing shareholder but on a deferred payment basis.This is for cash flow reasons.

Holding company has 3 shareholders, one of which wishes to sell his 3 shares and the remaining shareholders are doing this via a Company purchase of own shares. The selling shareholder does qualify for this treatment.

The Holding company does not trade but receives Dividends from the 100% Subsidiary to pass on to the Shareholders.

The Agreement is that the 3 Shares are purchased now, beneficially, by the Holding Company for £50,000 per share but the Company will actually pay the departing shareholder £50,000 on the date of signing the sale agreement, £50,000 within the next 2 years and the remaining £50,000 within 3 years.

The subsidiary has sufficient distributable reserves to declare a Dividend for the full 3 shares but I am not sure of the Accounting treatment required here - I am not sure that the Subsidiary can vote a Dividend for £50,000 to the Hoding company now and in the next 2 years Accounts  declare further £50,000 Dividends or whether it must declare a Dividend for the full 3 shares and £150,000 now. If the latter, then the Subsidiary has not the funds to pay the full consideration so can it be shown as a Debtor in the Accounts for the remaining £100,000.

Finally, I am preparing a Clearance application to HMRC for this transaction. I am not sure whether this will be granted or whether this transaction will be  treated as a Distribution.

Any advice would be welcome. Thanks.



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02nd Jul 2012 21:54


The shares must be paid for in full on repurchase under company law.


To get around this, you will need to do a phased buy back, conditional on distributable reserves and cash being available. But the conditions for capital treatment will then need to be met at every tranche, not just at the outset. On the face of it, the substantial reduction test is met.

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