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Striking off a Company and timing for capital dist

Striking off a Company and timing for treatment as capital distributions

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Hello,

A company was active to 31/07 when it ceased trading with just cash at bank of £15k and £1.5k fixed assets (open market value). The decision to cease trading at 31/07 and the intention to apply to have the company struck off once all liabilities have been settled and the company meets the requirements under s1004 CA06 (in this case not traded for 3 months from 31/07) has been minuted.

Is it distributions from the date of this minuted decision 31/07 that qualify for capital treatment or is it only after the DS01 has been filed?

 

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Psycho
By Wilson Philips
20th Sep 2019 21:12

Provided it is clear- in minutes - that the distribution is in anticipation of the striking off you should be fine. It goes without saying, though, that if the DS01 is filed first it more or less puts the matter beyond doubt.

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By whitevanman
22nd Sep 2019 00:43

Capital treatment applies to dividends (in respect of shares) in the course of winding up (which would include what is often referred to as an informal winding up).
So, if the decision to wind up the company has been taken and the actual winding up is in progress, a dividend paid, as part of that process will be taxable as a capital receipt.

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Replying to whitevanman:
Psycho
By Wilson Philips
22nd Sep 2019 09:35

But in the case of an informal dissolution, what do you mean by “in progress”?

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By whitevanman
23rd Sep 2019 00:04

I suppose that, absent any unusual facts, one would usually find that the company has ceased to trade and the directors take the decision to wind up the company (whether formally or otherwise). Again, assuming there are no other factors, once that decision has been taken, the company will commence to collect its debts, pay off its creditors and generally finalise all business affairs leading up to a request for striking off. Any dividend paid during the course of this process would be made "in the course of (the winding up) and so would be eligible for capital treatment.
If it helps, look at the other side. What would you say is not in the course of winding up once the decision has been taken and steps commenced (of the type I have referred to)? Is it likely HMRC will be able to argue against you? I should think not (and why should they wish to if the winding up process goes ahead to completion?).

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Replying to whitevanman:
Psycho
By Wilson Philips
23rd Sep 2019 07:38

The point that I was trying to reinforce is that there is no need to actually do anything. The legislation simply refers to a distribution in anticipation of an application to strike off (if the application hasn’t already been made) - there is no mention of a winding up ‘in progress’. As soon as the decision has been taken (and minuted) then all should be fine - although I do not disagree that taking the above steps would strengthen one’s hand should HMRC have any doubts.

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Replying to Wilson Philips:
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By whitevanman
23rd Sep 2019 11:09

The legislation at CTA 2010 S1030 only applies to amounts of £25k or less. It provides for capital treatment:
1) Where the procedure in s1000 CA 2006 has been commenced and a distribution is made in anticipation of dissolution. It also applies:
2) Where a company intends to make an application for dissolution under S1003 CA2006 and the distribution is made in anticipation of that dissolution.
So, Yes, where (2) applies there is no need for any particular action once the intention has been formed (though it might be useful to have something to evidence the intention at a particular time).
In either case there are conditions (A and B) to be satisfied but again intention is all that is necessary.
S1030A however, withdraws the treatment if the process is not completed within (generally) 2 years.
I suppose the simple fact is that, once the intention has been formed, the winding up is in process and a distribution paid from that time on can come within the section.

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Replying to whitevanman:
Psycho
By Wilson Philips
23rd Sep 2019 21:51

For s1030 and s1030A read s1030A and s1030B!

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Replying to Wilson Philips:
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By whitevanman
23rd Sep 2019 22:17

Sorry. Quite right. S1030 is the start of the rules. I cannot see too clearly on the small screen of my phone!

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