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.