My Client, a sole director, has wound up his company and gone back to the rat race.
There is a balance of £7000 ish in reserves which I have been advised should be taken as a Capital Distribution rather than a Dividend as it is below the CGT level. The money was physically distributed before 5th April 2016.
How should this be shown in the final accounts? Should I file with a balance in the reserves? If not, where should the distribution show? Is there a Note that pertains to such events? What should the Company Minutes show?
Help!
Replies (14)
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What final accounts?
You say that the company has been wound up, so why are you bothering with accounts?
I think you need to confirm
Has the company actually been wound up (struck off)? If it has, exactly who are you preparing accounts and tax return for?
Your client is doing things back to front. He needs to sort out the company's tax affairs before filing the DS01, not after. The striking off by the way will take several months.
Timescale
He'd better hope that the striking off isn't done quickly - John is spot on, though, why would you want to even think about applying for striking off before the tax refund had been secured?
Quickly
There is an inbuilt delay in the striking off due to the application being posted in the Gazette and time being allowed for objections.
How about
Doing nothing?
Prepare the accounts and tax return up to cessation and that's it. No need to prepare accounts after that, no need to worry about accounting for distribution on winding up (assuming that it hadn't already been made by 31 March 2016).
I would include it in the accounts in exactly the same way, and in the same place, as a dividend, but label it as a capital distribution.
I agree with John, to a large extent. From a company law perspective it is a distribution like any other. It is only treated as being capital for tax purposes by CTA 2010, s 1030A.
If the only reason that accounts, including the distribution, are being prepared is for tax purposes, it may be helpful to label it as a capital distribution, to avoid confusing the intellectually challenged individuals at HMRC.