Tax Treatment of Closing Ltd Company

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Hi,

Company is solvent and has cash assets of approx 50,000, looking to close down 3x shareholders/Directors have moved on to other ventures, (in different field of work, no phoneixing happening here.)

From what i can see the best option in a short term world is to Distribute 25K Via Dividends (8333 Each) and pay relevant Taxs, and take remaining 25K as a capital distribution and Claim Enterprenues relief if applicable. no tax to pay on CGT as below allowance?

or longer term, leave the cash and take dividends each year untill left with 25K as a capital distribtuion an take as above, running the risk that the finace act changes and the above doesn't stay as is?

Thanks

Replies (14)

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paddle steamer
By DJKL
21st Nov 2018 15:56

I suspect depends if they are all equal shareholders and basic or higher rate payers and whether they have other dividends.

Given to hold it open they likely need to pay accountancy fees I think I would likely kill it, but if HR then might not.

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By Accountant A
21st Nov 2018 15:58

Martymcfly wrote:

From what i can see the best option in a short term world is to Distribute 25K Via Dividends (8333 Each) and pay relevant Taxs, and take remaining 25K as a capital distribution and Claim Enterprenues relief if applicable. no tax to pay on CGT as below allowance?

Why is that the best option? Does it take account of the shareholders' tax position and preferences?

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By Duggimon
21st Nov 2018 16:21

I vote for £4966.67 dividends each and the rest capital but we're all just guessing really since it depends what other income and capital gains they have.

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By Martymcfly
21st Nov 2018 16:51

two of the shareholders are higher rate tax payers and already used divdended allowance for 18-19 and third has used dividend allowance for 18-19 but is lower rate no other CGT income for 18-19 or planned for 19-20

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By johngroganjga
21st Nov 2018 16:52

Your problem with what you propose is that the dividends will almost certainly look to have been in anticipation of the liquidation and therefore fall to be added back to see if the £25k threshold is breached - which of course it will be.

So it's all or nothing. Either all as dividends, or all as capital, but with the cost of a liquidator to weigh up.

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Replying to johngroganjga:
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By Martymcfly
21st Nov 2018 18:28

Why would it require a liquidator surely ds01 would suffice ?

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Replying to Martymcfly:
RLI
By lionofludesch
21st Nov 2018 18:51

John correctly mentions a £25k limit.

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Replying to lionofludesch:
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By Martymcfly
21st Nov 2018 19:31

I have re read MVL understand the need for liquidator now.

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By Martymcfly
21st Nov 2018 19:41

So hypothetically if dividend declared today 25k (year end is nov 30) and the company continues to trade into next Finacial year all be it at a reduced volume, could potentially mitigate any claim of planned distribution and claim the 25k capital returned during next finacial year?

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Replying to Martymcfly:
By johngroganjga
21st Nov 2018 19:59

Yes if you can distance the dividends from the winding up in that way it might work.

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Replying to johngroganjga:
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By tonycourt
23rd Nov 2018 13:47

In practice I agree with you entirely. The trouble is that once the decision is made to wind up the company the £25,000 limit kicks in. That means it doesn't matter how much distance is put between the distributions and winding up and dissolution, they will be taxable as income. Plus, if more than two years elapse before a distribution and the winding up it will be treated as income of the shareholder anyway (s.1030B)

Of course, as with all law, it's only as good as it is practical to police - if a company's records show that shareholder's made a resolution on a certain date to wind up a company it will be difficult for HMRC to argue that distributions prior to that were in anticipation of it.

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Replying to tonycourt:
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By Martymcfly
23rd Nov 2018 13:58

At present there has been no formal decision to wind the company up, purely speculative as have now been advised there is still some potential WIP and new client work is still being quoted.

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Replying to Martymcfly:
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By tonycourt
23rd Nov 2018 14:07

In which case you're fine. As long as CH haven't started the dissolution process, either on its own accord (s.1000 CA 2006) or on application by the company (s.1003). Then distributions can be paid that reduce the value of the company's distributable reserves to a point where the final £25,000 (after the dissolution process has started) can be distributed and taxed as capital.

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By pauljohnston
26th Nov 2018 10:30

Dont forget that the use of an insolvency practioner protects the directors and the company from future claims.

And all distribtions are subject to CGT and maybe entrepreneurs relief could apply if all shareholders meet the requirements otherwise a maximum of 20% applies

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