Paul Soper
Paul Soper
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Do you want to take action over the latest threat to ESC C16?

Do you want to take action over the latest...

My question is simple - will you help defeat this pernicious proposal the second time round?  You will remember that previously HMRC suggested that in legislating ESC C16, which allows distributable reserves of companies being struck off to be extracted in capital form with HMRC permission, a limit of £4,000 would be imposed and an amount extracted above this level would count as a distribution and thus incur an income tax liability for any higher rate taxpayer.  I have shown below the text of the objection I have sent to HMRC today and which will form the substance of protest to MPs, if only they will listen.  We defeated the income sharing proposals by mass protest previously

Today's proposal is to increase the limit to £25,000 and to apply it to all distributions after 1 March 2012.  Now read on...

ESC C16 Proposals

Although the proposed increase in the C16 limit seems a more reasonable figure to counter 'tax avoidance' it still means that for many small businesses with only modest sums available significant additional costs will be incurred by treating the excess above £25,000 as a mandatory distribution unless the taxpayer incurs the additional expense of a liquidation which is estimated to cost £7,500 in a typical straightforward case.

A Taxpayer who has built up a small company on retirement, where £1,000 was injected as original share capital will now face additional tax costs as a result of this proposal and at a business value of £76,000 will have an additional tax bill of £7,500 and so will begin at this level to be better off by enforced liquidation - always assuming that one can be arranged at the quoted figure.

The justification for this is prevention of avoidance but it does nothing of the kind.  Businesses with distributable reserves in excess of £75,000 will simply appoint a liquidator and will suffer the additional cost but still pay CGT on the whole of the distribution.  How can this then be regarded as "avoidance" or the proposal act to limit avoidance?  It simply adds extra costs to the smallest of businesses and increases the cost for slightly larger businesses who will now benefit from the CGT treatment to a lesser extent because of the liquidation costs.

It is clearly not limiting avoidance as the impact assessment admits that over the next five years: "This measure is expected to have a negligible impact on receipts"!

The only beneficiaries of this misguided proposal are liquidators who must be rubbing their hands with glee over the additional fees that will now flow their way.

If HMRC seriously believe that there may be situations where ESC C16 is being used for avoidance purposes then surely the answer is NOT to burden these small businesses with needless additional costs but to include a Targeted Anti Avoidance Rule so that where a taxpayer uses this method of extraction and the object, or one of the objects is the avoidance of liability to income tax, for example by transferring the business to a new entity, whilst having the old entity struck off so that distributable profits may be extracted in capital rather than income form, then HMRC will have the ability to raise discovery assessments to recoup the tax lost.

Incidentally even in the above example, where C16 is clearly used for avoidance purposes, there is an existing anti-avoidance measure which could be brought to bear - the Transactions in Securities Rules, which were themselves amended in 2010 to focus upon Close Companies and avoidance of this type.

If it is still felt that some reasonable limit be applied to the operation of the proposals this should be set at a much higher figure than £25,000 so that the smallest of businesses do not have to suffer this additional cost burden needlessly.  If the additional tax cost in a striking off is added to the CGT rate of entrepreneurs' relief it indicates that a taxpayer rapidly loses the advantage of entrepreneurs' relief and at a gain of only £51,000 will be paying an effective rate of 18%, and at a gain of £75,000 where the additional tax cost equates with the cost of liquidation will be suffering an effective rate of 20%.

Given that the benefit of entrepreneurs' relief is suppose to extend to gains of up to £10,000,000 this action, in depriving the very smallest of these businesses from the benefit of this relief is surely contrary to government policy if it is assumed that the gains are not avoidance motivated.  If the gains are avoidance motivated surely the sums involved would be expected to be much, much larger than the trifling sums which will be collected from these smallest of businesses and new or existing anti-avoidance measures would be a more appropriate use of revenue resources, given that under these proposals larger transactions where significant avoidance may well be occurring would simply follow the liquidation route and so avoid tax at a fixed cost of £7,500!

I am starting up a government e-petition as well and will notify everyone when it goes live.

Paul Soper FCCA


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07th Dec 2011 00:06

Will read again tomorrow

Hi Paul, thanks for bringing this up.  

Probably a bit too late as I started to glaze over (probably a few too many adjectives as well?).  Might be easier to start with the bland version which can be downloaded from:

Will return, refreshed after a night's rest, but, to start off the number crunching, would be a help to know how you calculated the £7,500 additional tax payable on a £76K distribution?  Hoping the other figures you quote will then follow more easily.

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07th Dec 2011 08:21

count me in

good luck

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07th Dec 2011 08:59

Thanks for monitoring the situation

We’re still wading through the mountain of Finance Bill clauses and related documents and it was only around the time you posted this comment yesterday that I spotted tax information notice on the HMRC site announcing that the amount that can be distributed under the concession will be increased from £4,000 to £25,000 at the beginning of March.

This wasn’t what we were expecting, as the perception had taken root that HMRC was looking to repeal the measure as part of its wider review of Extra Statutory Concessions. But the latest information note view that came through the consultation process was that the £4,000 limit below which HMRC would not seek to recover tax on distributions under ESC C16 “was too low to be of value to business”.

The other thing about the C16 measure is that it will no longer be extra statutory. Chapter 3 of Part 23 of the Corporation Taxes Act 2010 will be amended to ignore payouts prior to a company’s dissolution as distributions subject to Corporation Tax, provided they stay below the £25,000 limit. Section 122(5) of TCGA 1992 will also change make this type of distribution a capital distribution - which will qualify for CGT on the gains realised rather than income tax.

So HMRC is making it easier (and cheaper) for entrepreneurs and investors to get money out of their companies. But Paul was already warning us last week that raising the amount people take out of a company under lower tax rates could open the door to avoidance scams and abuses.

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07th Dec 2011 09:10


Just read the proposal and its slightly better than before but quite frankly it reads as "we cant be bothered to catch people on the fiddle, therefore we will put this rule in to stop it, and hope the liquidators do our job for them"

NB the £7,500 is the gov estimation of a liquidation. I have had one done for £4k which invovled minimal debtors/creditors although it was a genuine liquidation.

Quite frankly in the instance of a liquidation with just cash in the company and no creditors or debtors there ought not be much cost, but given the very limited number of liquidators I imagine they will be able to charge what they like.

NB if you are going to make a representation to MPs you need to:

1. Keep it brief

2. Take out ALL the emotion

3. Show all your workings carefully.

I think the key here is to show that small business lose out, but big business dont care, ie its the little guy getting hammered.  A simple table showing reserves and tax cost would be easy to run up at £25k intervals from nil to £100k and then say £250k, £500k £1m etc.

The basic argument is unfairness - one rule for the rich, one for the poor which MP's might understand.

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07th Dec 2011 09:18


Additional point - one additional option other than a much higher limit at which point there the cost of a formal liquidation is the same as the tax saved is to allow accountants to handle liquidations in instances where there are no known creditors or debtors other than the directors. This would being the cost down from £7,500 to a few hundred pounds.  Its really not hard to call a meeting that no-one shows up to, minute it and file a few documents with companies house.

That is to say you need to have concrete alternative proposals other than "this is bad", you need to say "do this instead".

NB if you note HMRC seem to think this wont raise any revenue, if this is the case then you can propose than adjusting the thresholds up wont make any difference either....

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07th Dec 2011 10:23

John, how is this better?

John, the £4k limit you refer to was never invoked - it was only a suggestion at the consultation stage.  

At the moment, the capital treatment is unlimited, so this new law is a dramatic reduction and detrimental compare with what we have today. 

So HMRC aren't making it cheaper and easier - it's going to be more expensive for anyone with a balance of over £25,000 than it is today.  

The only good thing is that it's only better than their initial suggestion in the original consultation document.

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07th Dec 2011 10:26

e-petition live

I have put an e-petition on the government website which people can e-sign at

Concerning the calculations - at £75,000 of distributable reserve (assuming say £1,000 of initial capital, the whole £75,000 would be gain.  The annual exemption is £10,600, leaving £64,400 in charge to CGT and with Entrepreneurs' relief a tax liability of £6,440.

Under the new proposal the first £25,000 could emerge as a gain - after annual exemption leaving £14,400 chargeable to give a CGT liability of £1,440.  The excess would be a distribution.  If the taxpayer was liable at the basic rate there would be no further liability, but this is being eroded as personal allowances increase anyway.  If the taxpayer is a 40% taxpayer there would be an excess liability on the distribution of 25% of £50,000 - £12,500, giving a total liability of £13,940 - against the former liability of £6,440 and additional tax bill of £7,500.

HMRC give the game away by claiming that it prevents "avoidance/evasion" - evasion seems an overly emotive term for HMRC to use given that ESC C16 requires their approval, which can be with-helf in the first place and "avoidance", they admit that this will have a negligible effect on taxation revenue - ie they admit there is no effect on the tax gap and so there cannot be tax to avoid.

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07th Dec 2011 10:31

Ken's point

This is, as Ken rightly points out a massive reduction in the ability to use the existing measure, I speak to many accountants as I am a lecturer on the CPD scene, as readers may be aware, and I have been asking delegates, mainly from small firms, whether they have used ESC C16 recently, and if so how much have they extracted - typical recent amounts mentioned were £120,000 (additional tax £14,100) and £260,000 where the additional tax will be £35,100.

This deserves to be exposed as one of the most unfriendly measures towards small business imaginable.

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07th Dec 2011 10:47

@ken & @paulsoper

My understanding was that the £4,000 limit was an unofficial threshold below which the Treasury Solicitor felt it wasn't worth pursuing "illegal" distributions by struck off companies, but that they retained the right to seek income tax on larger amounts.

I've been following the lead of more informed members and have only been reading up about this since it flared up on Aweb in the past month or so. If I have misconstrued the existing ESC, please forgive me. Unfortunately we're having to move very quickly to summarise a Budget's worth of new legislation.

Your advice (and protests) are a very welcome way to balance the debate, and we'll be following up shortly with a more definitive technical summary. 

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to simonalder
09th Dec 2011 12:47

@John Stokdyk

The £4000 Treasury Solicitor limit is a different thing.  It relates to Bona Vacanta rules where the Crown (or the Duke of Cornwall / Lancaster if you live in those areas) takes the entire reserves of the company.

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07th Dec 2011 11:17

Hold on a mo

John - Unfortunately many got the Bona Vacantia & ESC C16 issues confused or conflated.  They are effectively two different things but are both seeking to make life easier (or more difficult depending on your side of the fence) for small Ltd companies wishing to be struck off.

Paul S (and maybe others) under the new rules, if you exceed £25K, it's the entire distribution that is treated as a dividend not just the excess over £25K so you might need to re-do your sums?

By the way the responses to the consultation on this are below.  42 responses, including the reg bodies, difficult to see how an e-petition will be taken seriously if only 42 organisations could be bothered to respond when asked? missed & boat come to mind.

codoc responses


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07th Dec 2011 11:59

still a little conflation/confusion

Paul Scholes wrote:

Paul S (and maybe others) under the new rules, if you exceed £25K, it's the entire distribution that is treated as a dividend not just the excess over £25K so you might need to re-do your sums?

I am not sure this is the case. Under the new proposals you can still use ESC C16 to treat the first £25,000 as a capital distribution.

For example if you had £100K to dstribute, you could make an initial distribution of £25K which would be treated as capital, and the remaining £75K would be treated as income.

Obviously, if you go down the winding-up route with a liquidator, the entire distribution (£100K) would be treated as capital.


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07th Dec 2011 15:04

Bona Vacantia & ESC C16 confusion

"Unfortunately many got the Bona Vacantia & ESC C16 issues confused or conflated. "  Indeed!  Look at the article about ESC C16 on page 32 of this month's Accountancy, which starts with the sentence - "In a surprise move, the Treasury Solicitor has withdrawn ESC C16".  Unbelievable!!

Am I right in the following scenario - Company with Share Capital £100k and P&L 20k.  After 1.3.12 (when the enactment of ESC C16 has come in), the Company can wind itself up using DS01 and simply pay £120k to the shareholders as capital.  The Treasury Solicitor won't chase the Share Capital (following their recent announcement on Bona Vacantia) and HMRC won't seek to say that the £20k reserves are income, as they are below £25k?

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07th Dec 2011 11:18

I am shocked by these proposals but not surprised

I will of course be supporting any petitions against this proposal.

Initially, your liquidator is going to have a field day, but I can see the growth of lower cost operations to take advantage of these rules.

However, I am hoping that HM Goverment will see sense on this ocassion.

This measure is targeting genuine hard-working businesses who have paid all their taxes down the years and have built up reserves towards their retirement etc.

But of course, these people are an easy target.

I don't see any proposals to tackle your serial fraudster, who sets up businesses and evades tax as a career.


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07th Dec 2011 12:08

Liquidation and stuff

I've been puzzling over how the previous estimate a couple of years ago of up to £4K could become £7.5K?  The upshot of this of course is that such a figure starts a bandwagon of complaint over unfairness.

The problem with trying to estimate this cost is that, at the moment, a typical job for an IP involved in liquidating a small business, with a bank account, a few debtors/creditors, maybe a lease and a small tax bill could well average £7.5K and so this would be the figure they'd quote if called up by HMRC for an estimate.

My typical strike off however is nothing like this, they will have stopped trading a few months back, all the creditors & debtors cleared and HMRC happy leaving a bank account or, more often, a director's loan where all the funds had already been drawn in anticipation. 

This sort of case has not been handed to an IP for decades however if they now start getting them their fees will be less, plus, with so many new cases about, the laws of economics and competition will dictate that the costs will come down.  I've just got of the phone to an IP who said £2.5K to £3K.

We should not forget that the current unofficial regime has been a bonus.  Clients have been lucky that it's been around for so long and so I really can't get heated up by the government's need to tidy it up.  As I pointed out, on another thread, there has been huge tax avoidance by companies building up mega funds that might well have been regarded as investment operations rather than trading concerns and so this provision brings some reality to their situation and the cost of an IP is just the medicine thay have to take.

My main complaint is that companies will still be struck off with no submissions and no policing by HMRC or Companies House, this provision is for the honest (or semi-honest) ones only and so a far more joined up approach is needed.

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07th Dec 2011 12:14


Interesting point over the first £25K.  My reading of the document (top of 2nd page) was that the total distribution (if >£25K) would be treated as a dividend.  I also confirmed this direct with HMRC.

Likely I've missed something here, how would I engineer one cheque for £25K today as capital and another tomorrow for £50K as a dividend?

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07th Dec 2011 12:35

Pay a dividend first

My take is that you vote a dividend first, to pay out all reserves except the remaining £25,000 then pay out the remainder of £25,000 as the capital payment.

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07th Dec 2011 12:43

Further comments

Tony - the order of distribution is reversed, on day one your distribute the reserves in excess of £25,000 as a dividend and on the following day use the new provision.

Whether the cost of a liquidation is £7,500 (this is HMRC's own estimate so surely fair to use in commenting on the HMRC proposal) or the previously quoted figure of £4,000 which originated from the Bona Vacantia department originally, it still means that businesses with distributable reserves in excess of £25,000 will suffer a 15% tax surcharge if they are 40% taxpayers, thus denying them the benefit of entrepreneurs' relief which larger businesses who can afford to liquidate can obtain on gains of up to £10,000,000.

John Stokdyk - You have fallen into the trap of confusing the Bona Vacantia measure with the ESC C16 measure.  BVC17 has nothing to do with tax, it is solely concerned with the non-distributable reserves of a company and the departments acknowledgement that Companies Act 2006 avoids the problems caused by non-distributable reserves.  Their will be continuing action by BV is sums are abandoned inside a struck-off company which is not resurrected, BV has no power to seek income tax on the excess over the former £4,000 limit as you suggest.

I am, at the moment in an interesting dialogue with revenue officer Andrea Pierce and will share this in the forum in due course.

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By cfield
07th Dec 2011 13:55

IP costs - opportunity for accountants?

I've just signed the e-petition so I've done my bit. The last one I signed was Joanna Lumley's for the gurkhas so hopefully this will succeed also. Sadly, I don't think this one will capture the public mood quite as much though.

I had an IP visit my office a few weeks ago to discuss possible referrals and we discussed the C16 affair. I told him we could probably put some business his way IF their fees were reasonable. He sort of said they would be, although figures were not discussed.

No doubt fees will come down eventually, but only if the market opens up to new entrants. Accountants are ideally placed to take advantage of this, but it depends on the barriers. For example, would you need to pass special exams or take out expensive insurance to do this sort of work?

Maybe the institutes should work with the PI insurers to create an opportunity for us to service what is bound to be a lucrative new market. For example, they could create a separate class of IP work (call it IP-lite or ex DS01 work) which would only be available to non-IPs if a) they are qualified accountants or tax advisors, and b) the company to be liquidated has no external creditors other than pending tax bills, no assets to value, no meetings to be presided over and maybe one or two other things.

As for HMRC trying to plug a tax loophole, they should use the powers already available to them first before making life difficult for the small business community yet again. Previous posters have already said how this could be done so I won't repeat it all again.

However, an easy solution in this age of instant information would be for them to check directors of newly formed companies  against their own database for companies granted ESC C16. That would instantly identify the cheats breaking their assurances by setting up phoenix companies. Or is that too simple? Perhaps any HMRC bods reading this could put it through their staff suggestion scheme and see what happens!


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07th Dec 2011 14:13

Has Chris "done his bit"?

Many thanks Chris for the post but just signing the petition is not yet doing your bit I'm afraid.  What we need, and what we got with the income sharing nonsense a couple of years ago was an avalanche of protest - as observed above only 40 odd firms and individuals took part in the consultation.  Ideally send your suggestions to the revenue directly so that large numbers of people register their complaints and get your clients to do so as well.

You can send comments etc to: [email protected]

Get your clients to sign the petition as well - you're right it's not as sexy as Joanna Lumley, nor am I, and get them to write to HMRC if they are likely to be affected now, or in the future.  If we all pull together I am sure we can persuade them to modify these proposals further.

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07th Dec 2011 15:00

Still confusion

Thanks for clarification of the split of div (1st) & capital distributions (2nd) which is, of course, is how it should work. 

From people I've spoken to however there is enough confusion around to produce a trap.  Say for example the company has £30K to pay out, nobody would consider approaching an IP and there are those who think that £25K will be treated automatically as Capital and so they pay out £30K declaring £25K as Capital and £5K as dividend, whereas of course, without the paperwork in place and maybe two cheques, the whole £30K is dividend.


Chris  "IP-lite"- I think you raised this point on a previous thread.  I can certainly see the sense of allowing me to do a liquidation-lite on my own clients as I know their history but there is still  a risk that the client did something in the past that could come back and bite the liquidator (lite or not) on the bum[***].  I could take out insurance or similar to protect myself but then I'm becoming heavy and costs rise.  The alternative is to insist on an indemnity from my client but I'd have to be able to keep track of them for years.  Obviously all this risk is multiplied greatly if the company was not my client.

I have discussed this with IPs and they rightly say, you can have the neatest members' vol presented to you with little leg work to do but unless you spend the time investigating and triple checking the history and documenting it (which is what takes the time) it's only a matter of time until you catch a cold.  Which is why the 86 Act came into being.

I used to carry out liquidations pre 86 and still remember crossing my fingers, so was only too happy when the law put it out of my reach.  Horse for courses.


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07th Dec 2011 16:57

HMRC correspondance

This is the reply I got to an email to HMRC on this subject:

Dear Mr Soper

Thank you for your email message.

As an accountant I am sure that you are aware that access to an ESC is denied in cases of avoidance. In fact HMRC have seen many cases where attempts have been made to exploit ESC C16 for the purposes of avoidance, or even evasion. At the same time we have observed a worrying trend for the concession to be used where very large distributions are to be made.

At the moment, there is a measure of built-in protection against abuse. Application to use the concession has to be made to the local Inspector who in turn has to be satisfied that the conditions attaching to the concession are met. In the future eligibility to use the legislated concession will be self-assessed - this presents a considerable potential risk to the revenue. The application of a monetary ceiling is intended to mitigate this risk by limiting the opportunity for abuse, while at the same time preserving access to the favourable tax treatment for large numbers of shareholders in small and micro businesses. The measure is expected to have a negligible impact on receipts as it is intended in tax terms to largely replicate the status quo, once behavioural change is taken into account.

You suggest that a more attractive alternative would be include a TAAR as part of the legislation, or extend the TIS rules to cover ESC C16 transactions. Quite apart from the added legislative complexity, this would not I am afraid be a practical option. Monitoring a TAAR or applying the TIS rules would require significant additional expert resource within HMRC and this at a time when staff numbers are subject to significant downward pressure.

I hope this is helpful.

Yours sincerely,

Andrea Pierce

So the very large business gets the gold mine and the very small business gets the shaft...

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07th Dec 2011 17:12

Capitalising profits?

Now I am not an accounts expert by any means but colinwain above raises an interesting suggesting - with share capital of £100K and distributable reserves of £20K neither HMRC nor Bona Vacantia will pursue you.  It would seem not.

So - is it practicable to issue further shares equal to distributable reserves minus £25,000, thus converting distributable to non-distributable and then using the shiny new statutory ESC C16?  Superficially this may seem so but it would then be caught by the Transactions in Securities rules in FA2010 and the issue of the further shares would not be a fundamental change of ownership although the subsequent striking off would be.

Does this sound right?  Any suggestions gratefully received.


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07th Dec 2011 17:31

Paul that's still a distribution

Any amount paid in excess of the amount originally subscribed for shares is still an income distribution.  Capitalising reserves doesn't alter the amount "subscribed" for the shares.

EDIT: That's not actually quite the way the legislation is worded (S.1000 CTA 2010), but it has that effect.  You need to liquidate to get it all as capital.

The bill has yet to be debated in Parliament, so small business clients might also be encouraged to write to their MPs on the matter.

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07th Dec 2011 20:48

The plot thickens

Interesting exchange above about the merits or otherwise of recognising share capital & P&L.

Again, I may have got this wrong but, nowhere in new ESC C16 have I seen reference to determining share capital & reserves when talking about distributions, ie if we are trying to avoid a formal winding up then a distribution is a distribution, and the only capital element would be if you could engineer it that the last cheque you write is less than £25K.  That's the capital bit regardless of whether the share capital was £100 or £100K.

So in Colin's unusual example (share cap £100K & share cap £20K) I feel you have a problem to use any of the £25K.  The maximum cheque you can write as a dividend is £20K then you have £100K to distribute, I hardly think you can write one for £25K and another for £75K, the whole £100K is a distribution on strike off and so is all taxable as a dividend.

So, I suppose what you do is reduce the company's share capital to £1 returning a £99,999 capital sum, under normal company law, to the shareholder then pay £20,001 on strike off as a capital sum?

Any views?

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07th Dec 2011 20:54

I wonder if it would be possible to make a freedom of information request to find out how many companies have used ESC C16 and the value of distributions.  It would be good to find out how many companies have used the concession at varying amounts.  I'd guess it is used mostly in the £25k to £100k range, simply because larger amounts would tend to be done by a liquidator anyway given the likelihood of greater complexity, and at the lower end, small distributions would be done as dividends for smaller businesses as there'd be no need to go down the capital ESC route if the recipient wasn't liable to HR tax on the income distribution.  I wonder if they've used an arbitrary level of £25k in full knowledge that not many people would use it - to me it's not much better than their first idea of £4k.

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07th Dec 2011 22:53


Your FOI request might gather the number of ESC C16 applications but, as there is no direct disclosure of the value of distributions connected with each ESC C16 application, I don't think you'd get the info you want.

I'd also make the point that many ESC C16 applications are made, even if distributions are negligible or even £0, in order to protect the company from an objection from HMRC as and when the strike off application is made public.  

As discovered last year, I think, with thousands of strike off applications a month HMRC appear to be unable to monitor this and so the real loss of revenue to my mind is in companies taking advantage of this by making distributions, not employing ESC C16 and striking off.

Again therefore kicking up a fuss about a change in regs that merely lessen the effect of a tax "get out" and that may only apply to the minority of strike offs seems a waste of time.  Surely, if there is a petition, it should be to tighten up the law on the unregulated strike offs, enabling the correct tax collection.  You never know, if this happened you might even get a relaxation from £25K to £26K?


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07th Dec 2011 23:28

What is a distribution?

A distribution occurs where a sum is returned to a shareholder which exceeds the original capital contributed (a factor considered and explored in tax cases concerning alleged purchase of own shares).

There is nothing to stop you having a distribution prior to applying the new rules and a second distribution to which the new rules apply.  In the unusual case there is nothing to prevent the directors making a declaration of solvency and reducing the £100,000 share capital to any figure of their choice thanks to CA2006, reduce it to £1 or even 1p and then pay the requisite distributions plural to achieve the desired result.  This is one of the reasons why Bona Vacantia abandoned BVC17 and no longer press the issue of non-distributable reserves.

As to values commonly encountered, as a lecturer involved with a lot of ACCA seminars with many small practitioners I regularly ask who has used ESC C16 recently and what sort of values are involved - the maximum in the last month was a quoted figure from a delegate of £268,000!  Most figures are in the region of £100,000 to £150,000.


Surely the significant point here is not whether this applies to a majority or a minority it is that the major affect of the change hits small businesses with amounts distributable between £25,000 and £75,000, but has a negligible effect on taxpayers with gains ranging up to £10,000,000 - and the change is to make life easier for HMRC who can pass the buck to taxpayers under self assessment.

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to liax92
08th Dec 2011 10:36


Paulsoper wrote:

"the change is to make life easier for HMRC who can pass the buck to taxpayers under self assessment."

Like many other ESCs, the granting of C16 is beyond HMRC's powers, following the House of Lord's decision in Wilkinson (in 2005?).  As a lecturer involved with a lot of ACCA seminars, you'd know that.  The easy thing for HMRC to do, following the Wilkinson decision, would be to stop granting ESC C16 ultra juris.

It's better to have the relief on a statutory footing, than to not have it at all.  That way at least there's scope for getting the limit increased.

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to SBlackford-RP
08th Dec 2011 11:27

certainly true

George Attazder wrote:

It's better to have the relief on a statutory footing, than to not have it at all.  That way at least there's scope for getting the limit increased.

However, a more sensible amount eligible for capital treatment would be £100,000 rather than the £25,000 proposed.

Additionally, companies with all their affairs in order, paid all their debts etc, will be in a position where they will need to appoint a liquidator (to take advantage of entrepreneurs relief etc).

Good news for your liquidation consultant.

Another point: my understanding was that HM Government was consulting on ways to make it easier to disincorporate. Surely this is a backwards step.


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to SBlackford-RP
08th Dec 2011 14:17

NOT Balderdash - Wilkinson and Gaines Cooper

Perhaps one ought to consider the side effect of the Supreme Court ruling on Robert Gaines Cooper's application for a judicial review of IR20 where the Supreme Court clarified the Wilkinson proposition so that HMRC COULD make concessions where it increased the amount of tax that would pass to the treasury generally, for example by encouraging tax payers to comply, where as Wilkinson suggested it was only possible in the narrower field of 'care and management' of the tax system

The fact that C16 exists at the moment creates a legitimate expectation (in judicial review terms) so that until it is suspended taxpayers who satisfy it's conditions can rely upon it.

I have no objection to HMRC transferring a concession into statute, in fact HMRC starting to do this as a policy matter with ITEPA long before the Wilkinson decision.

My objection is that to avoid having to police an anti-avoidance measure HMRC has chosen to set an arbitrary ludicrous low limit, so they don't have to bother, but force small businesses into the arms of the liquidator.

A suggestion was made that the CCAB should make representations - how do we engineer this?  I'm all for it.

In addition, someone above said that it had not yet been debated before parliament?  It will not be debated before Parliament because the new legislation is not included in Finance Bill 2012 but by statutory instrument, a process parliament approved for this purpose (legislating ESCs) some years ago.  You need to persuade an MP to object to the SI laid before parliament which is difficult to achieve.  Worth a try, certainly.

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08th Dec 2011 08:59

Repayment of share capital

To Paul Scholes - I agree with Paul Soper on the distribution point. A repayment of share capital, even under ESC C16, is not a distribution. How can the repayment of a non-distributable reserve be a distribution?!

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By hfc1875
08th Dec 2011 11:59


Am I missing something but surely this is a matter for urgent joint representation by the CCAB bodies to Govt/HMRC on the basis that this proposal is clearly at odds with "rewarding" small business owners who have a "can do" approach and who then contribute significant funds to the economy over many years via all the other taxes that are paid by them and then will most likely reinvest their hard-earned pay-offs into other tax-generating areas by providing income streams to businesses who then pay taxes etc.  The limit should be at least £100k - £25k is a nonsense.  Do the CCAB have a "can do" mentality?

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By DMGbus
08th Dec 2011 13:24

Economy with the truth or a waste of time ...OR ...

HMRC's Press Release claims that the effect of the measure will have a "negligible impact on [tax] receipts".


If this is the case then why does ESC16 need changing along the proposed lines?   What a waste of Parliamentary time!


OR just maybe there's a hidden agenda - to drum up business for professional liquidation firms - as distributions via this costly route will not be subject to the proposed £25,000 limit. 


OR maybe there's an undercurrent of evil within the Civil Service that likes to impose more costs or burdens on small businssses?  This undercurrent is presumably out of control, otherwise nonesense like this would have been nipped in the bud months ago.

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to mike_uk_1983
08th Dec 2011 13:39

review of ESCs

DMGbus wrote:

If this is the case then why does ESC16 need changing along the proposed lines?   What a waste of Parliamentary time!

As pointed out by George above, HMRC are reviewing all ESCs - refer to Wilkinson case 2005.


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08th Dec 2011 13:59

ESC 16

The real point being the rip off fees liquidators charge for straight forward work !

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09th Dec 2011 09:37

Only 28?

So far, only 28 signatures and precious little sign of any "movement" on this or other fora to challenge the proposal.  I really can't believe how little interest there has been.  This will affect thousands of the smallest businesses and yet the accountancy profession doesn't seem to care.  Perhaps those occasional posters who come on these fora and acuse the accountancy profession of lack of action were right after all!  Don't we care about our clients at all, or are we just wanting to use them as cash cows?

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09th Dec 2011 10:12

Still not convinced

Firstly, Paul S some interesting points above, I did not know of the Gaines Cooper case.

Secondly, Paul (and Colin), in your posting "What is a distribution" above you set out the case for a reduction in share capital but I think you missed the fact that I had already suggested that in my posting 3 hours earlier (last para).  I agree, the answer to Colin's unusual situation would be a reduction in share capital under normal company law rules to put the company into a better state for a strike off under ESC C16.

Once such dust has settled however and all activity in the company has ceased you have a bank account with £X in it and I still say that, for the purposes of ESC C16, when a cheque goes to a shareholder it is a "distribution", ESC C16 is blind to capital & revenue, it has to be because it ignores the strict letter of the law that does not permit the return of share capital on a winding up without a formal liquidation.

This is an academic issue because, in reality the majority of strike offs take place with minimal share capital to worry about and an accumulated pot of retained reserves that the owners want out.  We can also discuss till we are blue in the face our own "average" pots and whether £25K is fair to small businesses (whatever they might be).  By the way, it's not the business that's advantaged or disadvantaged it's the person(s) and their private wealth, the business no longer exists (or shouldn't do)

In my experience of strike offs (£300K to £1K) (and with confidence that liquidations will cost nothing like the £7.5K quoted), I can only see a narrow band of people who this change will disadvantage and only then if they are already into higher rate tax, so hardly the poorest of the world.  We should also not forget that a significant number of small businesses will not have had the luxury of being able to build up £25K let alone £75K.

(Paul, Ken and others), as I said before, if you are so heated up by this issue why leave it till now (a year after the 4th consultation) to let off steam? There are far more pressing inequalities in our society that I would rather spend my time on, so count me out of this one.


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to johngroganjga
09th Dec 2011 12:28

A benefit of the enactment of ESC C16

While on the subject, I can see a benefit of the enactment of ESC C16. Under the concession as is, the directors/shareholders have to send a letter to HMRC, which, among other things, gives assurances that they will "supply such information as is necessary to determine, and will pay, any Corporation Tax liability on income or capital gains ". After the enactment, I assume that the directors/shareholders will not have to send to HMRC such a letter, as they will not have to get clearance from HMRC. I had a case in the last year where, long after the ESC C16 application and subsequent striking off of a company, HMRC asked for info relating to the deceased company. I told them to "go away" as the company no longer existed. They then withdrew the ESC C16 approval, on the basis that the director had not fulfilled his part of the ESC C16 bargain by "supplying such information ......", and raised a rather large assessment on the client, with the capital receipt changed to an income receipt. They said that they would reverse this assessment if the information that they wanted on the deceased company was given to them. Hopefully after 1 March 2012 such "blackmail" tactics by HMRC will no longer be possible, if there is no 2 way ESC C16 "bargain".

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to johngroganjga
09th Dec 2011 16:16

Mr Scholes

Leave you out, be delighted.  I was one of the few people who has bothered to make representations, taking part in the consultation last year and in my role as a lecturer I have mentioned the threat in every relevant session since then including two this week alone.

ESC C16 does not make a payment a distribution, it permits a distribution to be treated as a liquidator's distribution, hence the CGT liability; you say "the majority of strike offs take place with minimal share capital to worry about" - sorry that is a relevant point in discussing the late lamented BVC17 but not ESC C16.  In fact many businesses will have more capital in place, particularly if the new SEIS scheme is successful.

The point, surely, is regardless of 'pot-size' this means that many people will now, in effect, be forced to liquidate, where previously they will have avoided that unnecessary expense, but now if they choose not to use a liquidator HMRC will charge a surcharge of 15% so that instead of paying CGT at the entrepreneurs' rate of 10% they will face an effective bill of 25%.  The only people significantly affected are smaller businesses because the cost of a straightforward liquidation will vary little if there are no assets to realise and so is a much smaller proportion of liquidation distributions.

It is true that basic rate taxpayer will not be directly affected if they distribute without ESC C16, but then a basic rate taxpayer would not use ESC C16 in the first place.




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09th Dec 2011 16:31

Ken & Ors

It is early days for the petition and to be frank I started that as a protest, I rather doubt we could get the 100,000 signatures necessary to force a parliamentary debate and even if we did the petition period ends after the implementation of the new rules on 1 March 2012.  But it is a way of indicating public concern over this measure. It is, of course, being introduced by statutory instrument and is not part of the FBill 2012 measures.

As I have indicated above there is clearly a benefit in making it statutory but I must confess I have little sympathy for Colin's client as the revenue seem perfectly entitled to withdraw approval if you don't comply with the assurances given.  It should be borne in mind that it is possible to obtain clearance from HMRC for self assessment purposes before making a final distribution, normal practice for liquidators, so the problem described wouldn't arise, and an informal return made if necessary to expedite the final distribution.


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to NeilFraserC
09th Dec 2011 16:48

Withdrawal of ESC C16

I had sympathy for my client! I and everyone else I have spoken to about this, other than HMRC, was always under the assumption that the assurances covered the giving of information relating to the known tax liabilities at the date of striking off, and, if HMRC missed the boat by not objecting to the striking off, then they were too late and they couldn't later try and ask for information in order that they could try and make a posthumous discovery. If they, through other sources, made a discovery then fair enough, but they hadn't, they were only fishing.

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09th Dec 2011 17:14


I can see that if it was simply a fishing expedition then it does indded look a little out of order,  but it is still within their powers even if striking off has occured - but I still think seeking clearance (which can also be done with IHT returns where similar problems can arise if queries are raised after distribution) is probably the safest course of action.  The problem is not so much the known liability, but the unknown liability, or the known unknown liability etc...

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