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Corporation tax refund on cessation

Can a corporation tax refund (final return before cessation) be paid to director's personal acct

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My client is due to receive a corporation tax refund (£6K approx) when we submit his final CT600.  Can this simply be paid to his personal account?  (The business will be closed before refund received).  My quandary is that this will be business income which he would effectively receive without paying any tax on it.....

 

Thoughts appreciated

Replies (25)

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RLI
By lionofludesch
04th Aug 2021 10:30

It's unwise to close the company down before you've collected all the debts.

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Replying to lionofludesch:
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By Paul Crowley
04th Aug 2021 11:19

Agree
We keep reading similar about people in a hurry to strike off
Do not strike off
The company is due the refund
If it does not exist then refund is bona vacantia

@OP
Your job should be to stop the strike off

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By cbp99
04th Aug 2021 10:58

Why would they pay tax on a tax refund?

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Replying to cbp99:
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By Paul Crowley
04th Aug 2021 11:20

My guess
It could be a distribution by compayer to the shareholder.
Business income does not make any sence

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By David Ex
04th Aug 2021 11:17

cbp99 wrote:

Why would they pay tax on a tax refund?

Presumably because the refund belongs to the company and it’s being taken by the shareholder/director (?).

Of course, the transaction may have been accounted for in the director’s loan account in which case the analysis may be different.

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By rmillaree
04th Aug 2021 11:44

I think you are at risk of mixing up two separate issued here.

It's 100% fine to get the refund paid to the director and there is even the facility on the ct600 to put the details on so that happens - makes perfect sense if business bank acount is closed. However this should alwasy be on teh basis that there is debit to directors loan acount as that has been or will be factored in in exactly the same manner that the director had drawn said funds.

"My quandary is that this will be business income which he would effectively receive without paying any tax on it....."
As per above your quandry here is not really whether the above transaction can be done (it can) but really its simply teh tax treatment of "said withdrawal" - ie i would treat exactly as if the client rang up and said "am i ok to draw the 6k final corporation tax refund the buisness has received.

"(The business will be closed before refund received). "
As others have mentioned be very careful about applying to dissolve company - i would default to saying that until refund is issued and cleared into the directors bank acount - then "credit" is likely to belong to the company and would thefore default to being owned by the crown if the company as dissolved before said refund is issued. Ie hmrc would not issue refund.

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RLI
By lionofludesch
04th Aug 2021 12:35

If the company is struck off, is a tax refund due to anyone ?

The company no longer exists. Its assets belong to the Crown. Which already has them.

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Replying to lionofludesch:
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By Mr_awol
11th Aug 2021 12:50

It's a different department though - depending on where in the UK (or even where in England) the company was registered.

Most of it goes to England and Wales (Head Office) but there are also a few smaller subsidiaries/counties like Cornwall, Lancaster, Scotland and Northern Ireland which are almost like little branches in their own right and they account separately for monies from companies within their territories

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By Leywood
04th Aug 2021 12:39

'' business WILL be closed before refund received'' Why? To save a few pence in bank charges. Just keep the account open.

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Replying to Leywood:
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By rmillaree
04th Aug 2021 13:57

"Why? To save a few pence in bank charges. Just keep the account open."

The thing is the ct600 provides the mechanism to release the refund to third parties - its a fairly standard option here. So presuming funds would be drawn by "said director" anyway i think its perfectly sensible to go with the direct to director option - especially factoring in how long it can take ct services to process a rebate. Seems pointless IMHO to keep a bank account hanging for several months when its not needed and not necessary.

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Replying to rmillaree:
RLI
By lionofludesch
04th Aug 2021 14:06

rmillaree wrote:

"Why? To save a few pence in bank charges. Just keep the account open."

The thing is the ct600 provides the mechanism to release the refund to third parties - its a fairly standard option here. So presuming funds would be drawn by "said director" anyway i think its perfectly sensible to go with the direct to director option - especially factoring in how long it can take ct services to process a rebate. Seems pointless IMHO to keep a bank account hanging for several months when its not needed and not necessary.

Closing the bank account is fine.

Striking off the company is not.

It depends what the OP means - which is still unclear.

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Replying to lionofludesch:
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By rmillaree
04th Aug 2021 14:23

lionofludesch
"Closing the bank account is fine.
Striking off the company is not."
100% agreed as outlined in my previous post -

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By Mary279
04th Aug 2021 23:02

Many thanks for your thoughts. The client does not have much credit in his loan account unfortunately so offsetting this refund is not possible. I assume the refund will effectively be reserves available for distribution (the company has ceased to trade now)?

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Replying to Mary279:
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By DKB-Sheffield
04th Aug 2021 23:26

Hi Mary

Please confirm whether

a) The company has "ceased to trade" but is still active at CH (and with HMRC)

b) The company has filed DS01 (or online equivalent) but has not yet been struck off

c) The company has been dissolved and is no longer active at CH

The company status will determine what can, or cannot be done - both in terms or remedial action, and in terms of distributions. As stated, if the company has already been struck off, the assets are BV meaning possible restoration would be required.

Please also confirm that the company is not subject to (or required to) go through a formal winding up process per CA2006. I assume this is not the case but, worth asking the question for the full picture.

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Replying to DKB-Sheffield:
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By Mary279
11th Aug 2021 10:37

Hi DKB,
the answer is (a)
My thinking is - when the refund comes back into the company account, it is / was effectively profit so then is paid to him as a final dividend?

Thanks for this

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Replying to Mary279:
RLI
By lionofludesch
11th Aug 2021 10:47

Mary279 wrote:

Hi DKB,
the answer is (a)
My thinking is - when the refund comes back into the company account, it is / was effectively profit so then is paid to him as a final dividend?

Thanks for this

It's not profit at that point, is it ? It was already profit.

You should have included this as a reduction in tax (and therefore after tax profit) in the last trading period. The refund is merely the collection of debts.

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Replying to lionofludesch:
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By DKB-Sheffield
11th Aug 2021 14:15

Based on the above, and based on the fact there is no additional "pre tax profit", it can be assumed the company is no longer trading for CT purposes.

Depending on the time required for refund to be issued, and assuming DS01 is filed once refund is received, and assuming HMRC are advised immediately on filing DS01, the company may not need to file a CT600 or accounts for final period.

However, as the distribution will be made after the previous accounting date, I personally, would file accounts for the period of distribution (I know others wouldn't, and I'm in ni way suggesting they are wrong!)

Clearly, this all assumes a solvent "liquidation" within the regs and guidelines for a solvent Strike Off.

Regarding the refund, HMRC will probably consider the repayment to your client (personally). They may ask for proof of the company's indebtedness to your client (i.e. loan accounts, dividend vouchers/ minutes and final closing accounts showing the debt).

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Replying to DKB-Sheffield:
RLI
By lionofludesch
11th Aug 2021 14:25

DKB-Sheffield wrote:

Based on the above, and based on the fact there is no additional "pre tax profit", it can be assumed the company is no longer trading for CT purposes.

Depending on the time required for refund to be issued, and assuming DS01 is filed once refund is received, and assuming HMRC are advised immediately on filing DS01, the company may not need to file a CT600 or accounts for final period.

However, as the distribution will be made after the previous accounting date, I personally, would file accounts for the period of distribution (I know others wouldn't, and I'm in ni way suggesting they are wrong!)

Clearly, this all assumes a solvent "liquidation" within the regs and guidelines for a solvent Strike Off.

Regarding the refund, HMRC will probably consider the repayment to your client (personally). They may ask for proof of the company's indebtedness to your client (i.e. loan accounts, dividend vouchers/ minutes and final closing accounts showing the debt).

Not sure what point you're making there, DKB. Or even if you're making one at all.

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Replying to lionofludesch:
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By DKB-Sheffield
11th Aug 2021 14:37

Sorry...

The response was primarily in relation to the OP's latest post regarding the fact the company us still active with no DS01 filed (above), not in relation to yours.

Sorry again!

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Replying to Mary279:
Stepurhan
By stepurhan
05th Aug 2021 09:28

Mary279 wrote:
The client does not have much credit in his loan account unfortunately so offsetting this refund is not possible.

It is irrelevant whether he has credit in his loan account or not. If you pay company money (and a CT refund is company money) into a personal account then that has to be accounted for.

Whether that creates issues large enough for anyone to worry about only you can know.

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By Mr_awol
11th Aug 2021 13:51

£6k might be pushing it, and you wouldn't want to tempt fate, but:

Contrary to other posters responses (and, i suspect, contrary to the letter of the law) i know of a small number of cases where a modest tax refund came in after the company was dissolved and the cheques were returned to HMRC with a request that they were re-issued to the directors personally - and where cheques were in fact subsequently re-issued as requested.

We are talking a few hundred pounds, and quite some time ago, but it WAS possible and so I'd suggest if anyone finds themselves in this position they give it a go.

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Replying to Mr_awol:
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By DKB-Sheffield
11th Aug 2021 14:04

To clarify...

Since the initial question, the OP has confirm the company is active and no DS01 has been filed.

BV and post dissolution payments are not now relevant.

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Replying to Mr_awol:
Stepurhan
By stepurhan
12th Aug 2021 08:43

I would think the deciding factor would be whether the costs of keeping the company going exceeded the refund.

I'm sure your experience is true, but it definitely goes against the letter of the law. Anyone taking a punt on it working out your way would have to accept the risk of losing the refund.

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Replying to Mr_awol:
RLI
By lionofludesch
12th Aug 2021 08:58

They aren't in that position and I wouldn't recommend that they place themselves in it.

The cost of running a company with no trade left is nugatory. Maybe £13 for an extra CS to stop CH striking the company off.

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By petersaxton
11th Aug 2021 23:35

It make sense to keep company open and bank account open until the tax refund is received.
Anything else will lead to hassle.

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