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)
Please login or register to join the discussion.
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.
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?
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.
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.
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.
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.
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