I have a client where the previous accountants issued the director's shares at a premium of £1.6m. The company used the money to purchase property, some of it has been let by the company other parts have been renovated/converted, and sold.
The previous accounts also converted the share premium into distributable reserves before we took the client on.
The company now has £700k in the bank and the director was considering selling some of his shareholding back to the company using the distribution treatment.
The problem I have is determining if the full amount the director paid for the shares, including the £16k per share premium, count as the original cost of the shares when calculating the amount of the distribution for Tax, or is it just the £1 per share nominal value. This obviously makes a big difference to the outcome.
Personally, I cant see why it was not originally brought in as a loan to the company, particularly as we inherited the client with a large overdrawn DLA as well!