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'New' ESC C16

'New' ESC C16

Reading Rebecca's article in Tax Adviser on the new legislation on dissolution distributions, I picked up one point that I was not aware of. Apparently, it makes no difference if any part of the distribution represents repayment of capital - if the amount(s) paid out exceed £25k the whole lot will be treated as income. This does sound nonsensical - if a company has, say, £50k capital and £50k in the bank (and no P&L reserve) it makes no sense, and is manifestly unfair, to treat what can be nothing other than repayment of capital as income.

I would have thought that in applying the £25k test to distributions, you first of all had to decide what the distribution is. s1000 of CTA 2010 excludes any part of the distriubtion which represents repayment of capital. I can't find anything in the new legislation that trumps that definition.


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06th Mar 2012 09:26

Think so

There's been huge confusion around this.  Reading the legislation it refers to distributions in respect of share capital but I understood that in terms of the fact the person is getting the money as a return on their shares, regardless of what the balance sheet looked like.

This is similar to the rules on purchase of own shares by a company in that it will be treated as a revenue distribution unless you go through a clearance procedure to show that it can be capital.  To be honest I wish they had stuck with the 5 year rule on the new legislation as well.

Remember, under company law a company is only properly dissolved if formally wound up so this is all still a concession.

May be wrong but we're way passed the point in complaining about fairness or sense, we just need clarity.

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06th Mar 2012 09:41

Thanks, Paul

But with an own purchase, it is only the part that does not represent repayment of capital that is treated, by default, as an income distribution.

I do agree that what is required is clarity - and certainty (which is where, in my opinion, s1030A falls way short)

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06th Mar 2012 10:20


The repayment of share capital (up to the amount subscribed for the shares) cannot be an income distribution. (See S.1000(1)B CTA 2010).

BUT, if you have £25K (or more) share capital to distribute, then you cannot take out any other amounts as capital, as the £25K will count towards the distribution limit.  That's the point.

I've not received my Tax Adviser yet, but if Rebecca's really suggesting that the capital element is income too in those circumstances, then she's just plain wrong.  It's happened before.

If you want capital treatment on everything, get it inside S.1030.  Otherwise you need to stop mourning the loss of an ultra juris concession.

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06th Mar 2012 10:30

ICPA - End of the line for ESC C16?


The ICPA recently published an analysis piece on ESC C16 called 'End of the line for ESC C16?' where Debbie Cockerton explains the ins and outs of winding up a solvent company.


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06th Mar 2012 10:31

Thanks, George

But to play Devil's Advocate, s1030A refers to "distributions". In the absence of a definition of "distribution" for the purposes of that section, one must surely turn to the s1000 definition of distribution for the purposes of the Corporation Tax Acts. Since that definition excludes any amount that represents repayment of share capital it follows - in my opinion - that distributions as referred to in s1030A can only be those that do not reperesent such capital repayment.

I'm not mourning the loss of the Concession - I just want to be comfortable that I am giving correct advice to my clients.

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By Ruddles
06th Mar 2012 10:45

HMRC's view

I had emailed HMRC on this very point, and received the following response:

"There has been no change to the simple repayment of share capital on a company dissolution, or to what constitutes a distribution, for the purposes of the new legislation. In your example the £25,000 ceiling applies to “the distributable reserves”. The £10,000 would be chargeable as capital receipts".

My example was a cash distribution (sic) of £40k, of which £30k represents share capital and £10k distributable reserves.

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06th Mar 2012 10:54


I'd missed your point.  I now take your point and think I agree with you.

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