One of the more frequent subjects asked under “Any Answers” is the procedure for striking off a company. Jennifer Adams revisits her article under this heading originally written in November 2011, detailing the procedure that needs to be followed and the tax implications thereon.
Please note: the comments attached to the bottom of this article refer to the original article written in 2011. This replacement article is current as at September 2015.
When to use
The “Striking off” regulations are to be found under Companies Act 2006 (CA 2006) Part 31:-
“Dissolution and restoration to the register” which permits the striking off of a company in two specific instances:
- CA 2006 s1003 - gives the directors the right to apply for the company to be ‘struck off’. There is a three-month grace period when the procedure cannot be used if, prior to application, the company changed its name, traded, disposed of property or rights or commenced insolvency proceedings. The majority of directors must agree to the closure.
- CA 2006 s1000 - gives the Company Registrar the legal right to strike off a company if he has reason to believe it is no longer in business. Proof will be in the form of failure to submit accounts and/or non response to letters sent to the company’s registered office.
Procedure – director’s strike off
- Convene a board meeting and/or arrange for the board to pass an (ordinary) resolution in writing to apply for the company to be ‘struck off’. Minute that the company has paid or will pay all of its outstanding debts or obligations
- If necessary, shareholders need to approve a special resolution recording any reduction in share capital (see ‘Bona Vacantia’ and ‘HMRC position’ section below); all directors to sign a solvency statement (dated no more than 15 days before the resolution is passed). Send a copy of the resolution within 15 days of being passed to Companies House plus solvency statement, statement of capital showing the changes and a director’s statement confirming the validity of the solvency statement; the resolution takes affect when registered
- Advise HMRC of strike off by submitting a final set of accounts, computations and CT600 with letters confirming the situation and undertakings of both shareholders and directors. If the directors are the main/only shareholders only one letter is necessary but the signatories should have both ‘director’ and ‘shareholder’ written under their names as appropriate. The company does not have to wait for a response from HMRC (although it may be advisable to do so) before paying all liabilities, distributing remaining assets to shareholders
- Deregister for VAT, if relevant
- Submitting completed form DS01 (plus £10 filing fee) to Companies House signed by all directors (or the majority if there are three or more). Paper form only
- Within seven days of submission send a copy of the DS01 form to all interested parties (e.g employees, creditors, manager of company pension fund etc)
- On receipt of form DS01 the Registrar will publish a notice in ‘The Gazette’ inviting objections as to why the company should not be ‘struck off’
- If no objections within three months of publication (two months as from 15 October 2015) a further notice is published confirming that the company has been dissolved. Per Small Business, Enterprise and Employment Act 2015 s 103
- The directors can halt the dissolution process by submitting form DS02 to Companies House. Detail from Companies House.
There is a company law problem in that if a company returns share capital to shareholders without going through going through the process of a formal winding up then the distribution is illegal under CA 2006 s 829(2) as a ‘distribution’ does not include ‘the repayment of paid-up share capital’, or ‘assets to shareholders on winding up’. Instead, any such assets automatically pass to the Crown under the doctrine of Bona Vacantia (property without a legal owner). Liabilities of a company do not pass on dissolution - they are normally cancelled.
However, the Treasury Solicitor has confirmed that the Treasury will not seek to confiscate any share capital paid out prior to dissolution whatever amount is distributed, whether in property or cash. The right to Bona Vacantia has not ceased - it is just that the Treasury Solicitor will not be collecting. Technically the special resolution to reduce the share capital prior to distribution is still necessary however, even where the legal formalities are not undertaken the Treasury will not seek to recover.
The reason for this stance is because CA 2006 s642 to 644 permits a private company to reduce its share capital and distribute lawfully simply by passing a special resolution supported by a solvency statement.
Govt publication re Bona Vacantia
In comparison with a company that has been liquidated, a company that has been ‘struck off’ can be restored to the Register at a later date e.g. if a claim for unpaid tax was later made against the company.
Whether HMRC will pursue any tax owing will obviously be dependent upon:
- the amount owing,
- the likelihood that they will be able to prove that the alleged debt is owing,
- whether they can establish that monies are owed to the company by other parties (especially directors, both current and former), and whether collection of those debts would result in HMRC being paid from those monies.
Shareholders tax position
Distributions of money or assets by a company to its shareholders are usually taxable as income, whereas payments to shareholders under a formal winding up are not distributions under CA 2006, s829 (2)(d) being taxed as a CGT disposal of an interest in shares (TCGA 1992 s122).
However CA 2006 s 1030A permits assets distributed on a ‘striking off’ to be deemed capital rather than income to a maximum amount of £25,000. Distributions less than this amount are charged to CGT (covered by Entrepreneur relief); any amount in excess of this amount is charged to income tax payable on the whole amount.
Most private companies have a nominal capital of £100 or less but as an example, where the company has share capital of £10,000 and distributable reserves of £30,000 then the share capital will be subject to the CGT regime but as the £30,000 exceeds the £25,000 limit then the whole £30,000 will be subject to income tax. Therefore, companies that have higher than the limit in assets but wish to have the distributions treated as capital, must go down the formal winding up route.
If a distribution is made under CA 2006 s1030A and after two years the company has still not been dissolved or has failed to collect its debts and pay off its creditors, then CA 2006 s1030B treats the distribution as if CA 2006 s1030A had never applied, i.e. it remains as a dividend taxable under the income tax rules.
Where a company does have in excess of £25,000 in assets it might be tempting to distribute profits by dividend before ‘strike off’ leaving less than £25,000 in the company and then claim CTA 2010 s1030A for the remainder as capital. However, the dividends could be considered by HMRC to fall within CTA 2010, s 1030A (2) (b) i.e. be a ‘distribution made in respect of share capital in a winding up’ and therefore not be a distribution at all. If this is the case, then CTA 2010 s1030 would not be available and all payments would be subject to income tax with the capital treatment for the remaining £25,000 being lost. Of course, a dividend paid in connection with the cessation of trade need not necessarily mean that the company is intending to be ‘stuck off’ – it may merely mean that the company has no need to retain so much as working capital.