Capital redemption reservce

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How does this work?  Does it just sit there forever now?

My client has a capital redemption reserve created from a conversion of retained earnings into paid up ordinary shares. 

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By johngroganjga
26th Jul 2016 09:39

A capitalisation of reserves does not create a capital redemption reserve. The clue is in the name.

So in your case it sounds as if it should never have been there. In a case where it is correctly created and accounted for yes it stays there forever unless and until one of the few permitted uses is made of it - such as being capitalised as new share capital.

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By thomas
26th Jul 2016 10:25

How would you account for the issue of shares which are paid for by reserves? Sorry- this isn't something I've come across before....

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By User deleted
26th Jul 2016 11:30

To issue bonus shares for example. s.733(5) CA/06

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By thomas
26th Jul 2016 12:51

Thank you for the link taxguru. It sounds as though the capital redemption reserve is ok as it was an issue of shares. Does it just stay there forever now?

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By User deleted
26th Jul 2016 18:56

I don't know why it was created - may be there was a buy back some time back. However, bonus issue is one where it could be used for.

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By Portia Nina Levin
26th Jul 2016 12:58

A capital redemption reserve should not have arisen on the issue of shares.

If you issue, say, 100,000 new £1 shares, funded from reserves, you debit the P&L reserve with £100,000 and credit share capital with £100,000. A capital redemption reserve does not come into it.

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By jon_griffey
26th Jul 2016 15:43

The best way to get rid of this reserve may be the s642-644 CA2006 procedure.

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RLI
By lionofludesch
26th Jul 2016 16:05

Gleaning what little I can from the garbled query, this company seems to have purchased its own shares, creating a CRR to the value of the initial shares.

As stated above, it can be used, but there isn't a huge number of options.

Leave it alone, don't poke it with a stick and it won't bite you. I've a company which has had a CRR of £1000 for 35 years. It's no bother.

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