Capital distribution on winding up

Capital distribution on winding up

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We have a client who has ceased to trade but is overdrawn as a director by circa £15k, the only other balance sheet entries are a small bank balance and a minor bit of cash. Can I wind the company up and treat the overdrawn loan account as a sub £25k distribution and claim the capital gains treatment.

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By johngroganjga
09th Oct 2018 12:49

Unless there is something you haven't told us, and if your figures are accurate, it is beyond doubt that the net assets, and thus reserves, of this company are under £25,000. Why are you in any doubt that the tax treatment of the winding up will be what you say?

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By Portia Nina Levin
09th Oct 2018 13:13

Because HMRC might try and argue that it is the overdrawing of the loan account, with no intention of ever repaying it, that is the de facto distribution? If that occurred before the intention to strike off the company or allow the company to be struck off was formed, then it doesn't fall within the ambit of s 1030A, and so is taxable as an income distribution.

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By CW2012
09th Oct 2018 13:15

I just wondered as to whether there was an odd quirk in light of the fact that the director has already had the money by being overdrawn.

If not then it makes life a bit more straight forward.

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By CW2012
09th Oct 2018 13:31

I see there has been a reply before mine, this is the point I wondered about, in effect can you distribute something you've already had.

The funds have already been drawn and would or should be treated under section 455.

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By RFL H
09th Oct 2018 13:43

What is the balancing creditor?

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By Portia Nina Levin
09th Oct 2018 13:57

Why can't it be a balance on the P&L?

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By CW2012
09th Oct 2018 14:10

The opposing balance is reserves, the only P & L activity is bank charges.

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By Peter Windatt
10th Oct 2018 10:25

I don't know if I'm able to refer to an article elsewhere but, if I am, look at https://www.taxation.co.uk/Articles/2018/05/08/337961/unexpected-liabili... and you will see that HMRC might treat this DLA as income in the circumstances.
If you get tax clearance beforehand I guess estopel would apply but I'd be concerned at the potential loss of Entrepreneurs Relief, albeit in this case the majority of funds would be within the annual allowance figure any way....

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By emanresu
10th Oct 2018 11:32

What percentage of the shares are held by this director?

When were the payments totalling the £15k made?

Is the director unable to pay back the £15k?

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By johngroganjga
10th Oct 2018 11:45

This as all a bit silly, because if HMRC want to say that because the loan hasn’t been repaid it was always income, let the debtor repay it. If he lacks the cash to do so all at once let him beg on the street corner until someone gives him a penny. Then let him take the penny to the company and offer it to them as a part repayment of the loan. Then let the company say thank you very much, and since you are here we find ourselves in the happy position of having surplus funds to distribute to you as a shareholder by way of a small payment on account of your ultimate entitlement. Please accept this penny.

Repeat.

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By Portia Nina Levin
10th Oct 2018 13:44

Isn't that 1.5 million transactions each way that need to be made "in anticipation" of the company being struck off? Is the plan to repeat 50,000 times per day?

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