s.1003 and £25k cap

s.1003 and £25k cap

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We have a client who might no longer need the company. It has £33,000 in the bank after paying all liabilities. There are 3 shareholders. We are looking at the most efficient way to extract the cash.

Is it possible to declare dividends of £8,000 leaving £25,000 that could then be treated as capital? The striking off process has not started yet. Would the dividend be accepted as a dividend or as part of the final distribution? If part of final distribution then would be over £25,000 so would the full amount be treated as dividend income and taxed accordingly? The year end was 30 November but is being extended to 31 May to cessation. Would this matter?

I have read that the first £25,000 will be treated as capital with only the excess being treated as dividend income but this is at odds with other comments. What is the position?

Bonuses could be put through but tax and NIC would be payable and the director is a higher rate taxpayer as has income from other sources.

A liquidator could be appointed but may not be cost effective.

Any help would be greatfully appreciated!

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By girlofwight
03rd Jul 2012 21:33

Problematic
I picked up on a update course recently that HMRC had indicated that they would aggregate dividends post cessation with the £25k cap, suggesting that you need to plan ahead and manage the reserves down to £25k before cessation.

So, you could have a problem?

Could you show trading is still ongoing? Alternatively, can you do a dividend now and wait for strike off? A decent interval when the company was "looking for other opportunities" may assist?

Thanks (1)
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By Southbankdelboy
05th Jul 2012 18:19

Most useful girlofwight,

Thank you girlofwight

The directors have not taken any steps to strike off the company and they may decide just to continue trading.

 

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By User deleted
05th Jul 2012 16:37

Contradiction

HMRC's stance will, I am reliably informed, depend on all of the circumstances - board minutes, previous dividend history etc etc etc. You say in the post above that the company is still actively looking for work, yet in the opening question you say that the company is no longer needed? Which is it? It is exactly that sort of imprecision that can cause you difficulty - if the company were to pay a dividend next week, and then wind up the company 6 months later you could - based on the immediately previous post - reasonably argue that there was no intention of dissolving the company. But an eagle-eyed Inspector who happens to come across this thread may take the view that, based on your opening remarks, the intent to get rid of the company was already there. I'm not saying they'd win the argument - just try and avoid having the argument in the first place by getting your ducks in a row!

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