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Dividend before dissolution

Dividend before dissolution

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Hi all,

Just wanted to run something by you.

Is there any issue in declaring dividends (of course, assuming there are sufficient distributable reserves) just before starting a dissolution, in order to get the reserves down to below £25k? Obviously then the dividend is taxed as income and the £25k would be taxed as capital. I had in my head that HMRC may not allow a dividend that is 'out of the ordinary pattern' of dividends in the company, but I can't find anything about this.

I realise that an MVL is possible where reserves are above £25k, but in the case of a lower rate taxpayer and/or where the reserves are only a small amount more than the £25k, in order to avoid the MVL fees, I believe it would be better to go the dissolution route.

Thanks

Oliver

 

Replies (5)

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Stepurhan
By stepurhan
08th May 2019 08:42

If dividends are taken solely for the purpose of bringing reserves below the £25k limit, then capital treatment of the balance will not be allowed. This is an anti-avoidance rule that has been in place for some time.

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Replying to stepurhan:
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By ocooper
09th May 2019 10:55

Thanks stepurhan, do you know of where I can find the guidance / legislation on this?

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Replying to ocooper:
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By Rweaver
09th May 2019 11:23

S.1030A

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Lisa Thomas
By Insolvency Practitioner
08th May 2019 09:36

MVL fees are likely to be quite low for that level, maybe £1.5k so might be outweighed by savings with the entrepreneurs relief.

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By johngroganjga
08th May 2019 10:35

The payment of dividends does not need HMRC’s permission. It is not about whether HMRC “allow” dividends, it’s about how they are taxed. Stepurhan has explained that.

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