Outgoing directors sale of shares

Outgoing directors sale of shares

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A company we act for has had a director leave a business. It was amicable and the directors remain on good terms. This was nine months ago and the remaining director has now informed me that part of the deal was to pay the outgoing director £10,000. THe accounts have gone in showing the change of shareholdings so I can not pay this as a distribution of profit. How do I account for the £10,000 and what are the tax implications for both the company and the outgoing director?

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Anon

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Euan's picture
By Euan MacLennan
13th Mar 2008 10:36

Sale of shares
You head up the question as a sale of shares and then say that the agreement was to pay the outgoing director £10,000. This would be a private purchase by the remaining director of the outgoing director's shares. The transfer would have to be stamped (£50 at 0.5%) before the company registrar/secretary/you could accept the transfer as valid.

If the company actually paid out the £10,000, it would be a loan to the remaining director which would normally require approval by the members under s.197 CA 2006 (but in this case, just entitled to the exception under s.207 for loans that do not exceed £10,000). The company would be liable for the refundable 25% tax under s.419 ICTA 1988. If the remaining director pays the company less than the official rate of interest, he would be liable to income tax on the benefit of a cheap loan under s.175 ITEPA 2003 and the company would be liable to Class 1A NICs on the benefit.

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