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What is the disposal date for a company strike-off?

What is the disposal date for a company strike...

One of my clients emigrated to Australia last year and dissolved his company under Section 1003 of the Companies Act. We obtained ESC C16 and delayed the DS01 until February so the company would not be dissolved until after 5th April. As he is now non-resident, that should avoid capital gains tax (not sure whether it does in Australia though - originally it was meant to be Singapore which has no CGT). I am aware of the 5 year rule and the need to file a protective claim for ER.

But when is the disposal date? Is it a) when the company is dissolved as confirmed by Companies House, b) when ESC C16 was granted, or c) when he took all the money out of the company? I'd have thought a) as that was when the underlying asset (the shares) ceased to exist. ESC C16 turned it into a capital gain but presumably does not trigger the gain immediately.

However, I guess the extraction of the funds could be seen as a final distribution, and that was last year. We treated it as a loan until ESC C16 was granted but not thereafter. In that case it would depend on the book entries, and as there were no statutory accounts for the final period, there is nothing to reflect this apart from a board minute which merely grants authority for the funds to be distributed at some point.

I'm just about to do his tax return so I suppose I'd better check this out first.

Any ideas?


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19th Jun 2012 08:03

Company distributions

Funds become taxable for the shareholder as and when they are distributed from the company either as a normal income distribution or as a capital distribution under the old ESC16 procedure.

In this case it is not clear that the funds have actually been distributed at all since the questioner says they were merely lent to the shareholder.

If there was not a formal, actual distribution of the loan before the company was struck off it must have still been owed to the company at that time.So, presumably, the loan became bona vacantia  then.

The loan cannot be distributed after the striking off because the company ceased to exist at that time. It may be possible to apply to the Treasury Solicitor to transfer the loan now by concession. If that succeeds the tax point for CGT would presumably be when the loan is transferred to  the shareholder by the TS (although that conclusion could probably do with further research).   

Thanks (1)
19th Jun 2012 11:05

On distribution

I agree with v k ratliff, there is a disposal (or part disposal) whenever a distribution is made in a liquidation (formal or informal).

I'm slightly troubled by the phrase "we treated it as a loan", Either there was a loan that was cleared by distribution, or that was distributed (or that went bona vacantia as v k ratliff suggests), or there was a distribution that was made in advance of C16 being agreed. I doubt you'd face challenge unless the distribution occurred before you'd even provided the necessary assurances under C16.

C16 was never a clearance procedure, it was a concession that applied if the relevant conditions were met, including the giving of the necessary assurances. So the date of HMRC saying yes, is mere ratification. C16 applies once the conditions (which rely on intentions) are met. No one can know exactly when the conditions were met though, but once they've been written down and communicated, there is little doubt that the conditions were met at that time.

Thanks (1)
By cfield
19th Jun 2012 13:47

When funds were distributed

Thanks, so it would seem the capital gain occured when the actual distribution officially took place. The question now is when that officially happened. Does it have to be when the money was taken out of the company, or can it be based on paperwork such as board minutes, book entries, etc?

Actually the company has not been dissolved yet as the process was suspended on 3/3/12. I assume this due to an HMRC objection that will be over-ridden by the 2nd Gazette notice in due course.

Strange if HMRC did this as all taxes were paid before the DS01 was filed and we'd also de-registered from VAT & PAYE by then, but I guess it was just an automatic routine triggered by them not updating their records in time. Anyway, no bona vacantia yet should that ever be in point.

Re the loan, some of the money was taken out in dribs and drabs last year and we deliberately charged 4% interest on the DLA up to the date C16 was granted on 18/10/11 to avoid any danger of it being treated as a distribution or a taxable benefit arising. Corporation tax was paid on that interest.

The main bulk of the money was taken on 15/3/12 although he jumped the gun on this as he had time to wait until 6 April. Do we have to go by this date or can we say the final distribution was not authorised until later?

The final accounts and CT600 were made up to 2/2/12 (the date the DS01 was submitted). The final distribution was shown as a deduction from reserves and the DLA had a huge credit balance (as the funds had not been taken yet). On that basis, it sounds like we'd have to treat the gain as arising in 2011/12 (unless of course it was an error!).

The CGT bill with ER would be £20k if the gain was in 2011/12 when he was still UK resident.

Perhaps it might be wise to make a protective claim for ER for both years (in separate letters) and also list when the various actions took place in the additional info box on his 2011/12 tax return (referring to a gain in 2012/13 if the distribution was not authorised until then) so they cannot make a discovery assessment after the enquiry window closes.

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19th Jun 2012 15:51

The point that I and, I think, George Attazder are making is that money cannot be said to have been "taken out of the company" unless it is taken out  as an authorised distribution either as a normal income distribution or a capital distribution under the ESC 16 procedure. In the latter case the capital distribution will be a disposal or part disposal taxable when  received by the shareholder.

But just transferring  funds from the company to the shareholder will not necessarily be a distribution. As the question says, some funds were transferred as loans leaving the company with an asset in the form of a debt owing to it. To get that asset out the company it would either have to be distributed itself in specie or the loan repaid with cash and then the cash distributed. In either case there needs to be prior authorisation of the distribution in the form of a directors' or shareholders' resolution.

This is where the question is rather opaque because it is not clear whether or when or in what words the various transfers of funds were authorised, so it is not clear whether the transfers were loans or distributions. We would need to see the exact words of the relevant directors' or shareholders'  resolutions before we could comment much further. In particular, what was the wording of the authorisation for the 15/3/12 transfer of "the main bulk of the (company's) money"? It appears to have been an authorisation of a distribution since the amount was charged against reserves, in which case it will be taxable when it was received,  on 15/3/12.


Thanks (1)
By cfield
to Clinton
19th Jun 2012 16:32


Thanks to you both for your analysis - very useful indeed.

Apologies for the opaqueness but I didn't want to make the question too wordy!

The board minute said "It is resolved to strike off the company under section 1003 of the Companies Act 2006 and for the remaining assets to be distributed to shareholders once all outstanding liabilities and obligations of the company have been discharged. The director is authorised to discharge any such liabilities personally and offset them against funds received by him from the company. The loan repayable to the company by the director shall be be repaid out of funds received by him in the final distribution".

This was drafted by me prior to Form DS01 being submitted on 2/2/12 and e-mailed to the director but not actually signed by him until after 5/4/12.

So I guess technically the transfer of funds was a loan until then, although the taxman might see it differently, especially as the accounts submitted with the final CT600 in February showed a huge transfer from reserves to DLA. Like I said though, maybe that was just an error!


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20th Jun 2012 10:45

 On the one hand, the

 On the one hand, the directors' resolution wasn't signed until 5/4/12. On the other, the accounts show the "huge transfer from reserves" in February and the resolution was actually drawn up on 2/2/12.

On balance it looks like the decision to make the distributions was taken by 2/2/12 even though it was not formally signed until after 5/4/12.

If that is right, transfers of funds to the director after 2/2/12 would be either income or capital distributions depending on whether ESC C16 applies. If they are capital they will be partial disposals  and subject to CGT at the time they are received by the shareholder. So it looks like the big transfer on 15/3/12 will be taxable in 2011/12.

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By cfield
20th Jun 2012 11:19

Intention may also be a factor

What I mean by intention is that originally we planned for the director to take the money out after 5 April, but then C16 went out of the window and I read somewhere that dissolutions not completed by 31 March would fall under the new regime. 

Therefore, to avoid any possibility of liquidators fees, I advised him to take the money early. Probably unnecessary as C16 had already been granted, but of course it doesn't last for ever and the HMRC letter was 4 months old. In hindsight we could probably have waited a bit longer.

However, we could argue that the extraction of the funds was merely a loan to comply with the C16 undertakings and the final distribution itself was not authorised until later.

After all, you cannot back-date dividends to a previous tax year with a late board minute without some contemparaneous proof (such as an e-mail) that it was in fact decided at that time. Same should go for this too. The taxman cannot have his cake and eat it.

I realise this is a rather tenuous argument, but it might be worth a go.

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