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Reserves at cessation brought below £25k

Dividends declared at cessation date

Can someone point me in the direction of any anti-avoidance legislation dictating that dividends delcared at cessation date [with the primary aim of bringing reserves below £25k to benefit from capital rates on the final distribution] is not allowed. There's the additional issue of backdating dividends I know but just wanted to know where the specific legislation is so I can discuss with the client.

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25th Feb 2019 08:13

It’s not a case of the dividend not being allowed. All dividends paid out of distributable profits are allowed.

It’s a case of whether the payment has the intended effect of making the distribution of the remaining profits subject to CGT without having to appoint a liquidator. It doesn’t, because the £25,000 test is applied before deducting dividends paid in contemplation of the liquidation.

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to johngroganjga
24th Feb 2019 09:45

John- can you clarify your last sentence - are you saying even though reserves at the cessation date are below £25000 becuase of the final dividnd the OP will still need to appoint a liquidator because the final dividend wasnt declared prior to the cessation date [even though it might be on the same date] therefore it cant be seen to bring reserves below £25000?

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to ACCAmember
24th Feb 2019 13:37

No, he’s saying that because dividends we declared after the cessation/dissolution had been considered, they are legal distributions, but can’t be deducted from the reserves to meet the £25k test:
1. Reserves £35k
2. Dissolution considered
3. Dividend £15k
4. Reserves £35k NOT £20k.

So Income distribution not capital.

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24th Feb 2019 10:48

You need to read section 1030A of CTA 2010 and consider whether or not it should apply.

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25th Feb 2019 09:19

What John is talking about is a tax on thoughts. Anyone daft enough to admit to it when asked deserves the tax charge in all honesty.

Have similar dividends been declared in the past? If so then I wouldn't be too concerned with the distribution being regarded as in anticipation of the liquidation.

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By Maslins
25th Feb 2019 11:29

I'd suggest it's the backdating that's the problem.

If shortly prior to ceasing the dividend was declared/paid, leading to net assets <£25k, happy days.

If on the other hand the company ceased, time passes, you then realise net assets are (say) £26k, you have an issue. If you're going to try to argue that the £2k dividend done today is a dividend, cessation of trade is actually tomorrow, and hence the £24k taken in 2 days time is as part of closure, you could be in trouble.

You can get simple solvent liquidations for ~£1.5k all in these days (eg our sister company MVL Online), they're not as expensive as they were 5+ years ago, so weigh up your options.

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