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New Rules and 25K threshold
It would appear that these provisions do not affect an entitlement to take capital treatment if the amount in question is lower than £25K, on the basis that for sums under £25K a formal winding up is not required?
Very relevant
@ Michael - is that for definite? It seems a rather significant omission from the article if so.
I don't know. I was more
I don't know. I was more asking rather than stating as a fact. But the legislation refers solely to 'winding up' and thus would appear to leave the door open to the £25K. I was/am hoping that someone could confirm that my reading of it is correct...
I would say
It refers to closing down companies and taking out capital instead of income.
Therefore, it almost certainly applies to the £25k.
On a different note, i don't like the word 'activity'.
Is this intended to catch, say, a person who closes their management consultancy company and takes up a full time employed role doing the same thing within 2 years? Surely not!
Don't think so
Is this intended to catch, say, a person who closes their management consultancy company and takes up a full time employed role doing the same thing within 2 years? Surely not!
Attended webinar this week where it was stated that the legislation is not intended to 'trap' those closing their companies because they were going into full time employment instead.
@Jcresswell... But the legislation states winding up
In both the title and in every condition of S396 the term used is 'winding up'. I cannot see any reference to 'dissolution' or to ''closing down companies''.
The term winding up does I think have statutory meaning and involves a formal liquidation process. The £25K is brought into effect by paying £10 to Co House and striking off/dissolution - an entirely different process both legal and tax position, from a winding up. Thus this legislation as written does nothing to prevent the £25K route?
Interesting, some thoughts/questions:
1.) Activity - will the legislation define this to not include employment?
2.) Husband & Wife both running similar companies. Does this mean, they will never be able to treat windup distributions as capital distributions? This seems unfair. Even more unfair if they are not H&W but otherwise connected individuals.
Not just H&W
Interesting, some thoughts/questions:
2.) Husband & Wife both running similar companies. Does this mean, they will never be able to treat windup distributions as capital distributions? This seems unfair. Even more unfair if they are not H&W but otherwise connected individuals.
I believe this is the case, not only with H&W, but also if, say, someone's brother was carrying on a similar trade.
I would say Michael is right...
'Winding up'/liquidation is an alternative/ different process from striking off and the £25K belongs to the striking off as striking off is only possible for a solvent company.
What the section refers to is winding up/liquidation only and as such does not affect the £25K allowed
For more info re the differences see Liquidation - Get the details right and Striking off a company - Get the details right
Response from the authors
Just to affirm Jennifer's clarification above, I brought Michael's query to the authors' attention and got back the following response. Thanks to all concerned for your efforts on this point. Here's their reply:
There are a number of ways to end the life of a company. Among these are: Members’ Voluntary Liquidations for solvent companies (the subject of the article); Creditors' Voluntary Liquidation for insolvent companies; and striking off, which normally applies to dormant or redundant companies, as any assets left in the company will be lost. The striking off provisions can be used to get rid of an unwanted company. In this case a £25,000 limit on distributions applies.
Striking off provisions
The £25,000 limit on distributions (s1030A Corporation Tax Act 2010) where a company is being struck off still applies. The company must collect debts, pay liabilities and be struck off within two years of the distribution.
Thank you all for clarifying my query and for the interesting discussion.
Especially in view of the increased income tax on dividend payments, the S1030A exemption will remain a useful procedure for solvent, small companies and contractors whose company/current project has concluded.
Ok
So if you satisfy all conditions A-D you are caught by the new rules?
If that's the case just make sure you don't meet one of the conditions. B would be the easiest to avoid, surely?
Property Development, Joint Venture, Project Specific Companies
Will this affect Joint Venture property development companies, set up for the sale of one specific development? Surely not?
Many investors in these companies, only invest capital then get a return on capital when the company is closed on the sale of the specific development. They quite often are not involved in the development themselves, but are just silent investors with a large capital introduction at risk - nothing to suggest otherwise that this should be taxed as income.
These silent investors aren't going to be clobbered with income tax instead of CGT are they?
Take over and participant in new company
I have a client who is considering a take over proposal by a competitor of his 100% owned company (value is substantially in excess of £25K), and as part of the deal, he will receive significant shareholding (greater than 10%)in the new company (again a close company) and become a director and employee of it. This will be in addition to the sale proceeds of his company.
Will he be caught by the new regulation and not be able to enjoy entrepreneurs relief on the company he is selling?
Any thoughts would be appreciated
keith
By the way; both companies are in the same line of business.