Any Answers Answered: Company shares buyback and year end

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TAXtv’s Giles Mooney and Tim Good are here to tackle two questions from the pages of Any Answers, this time on company shares buyback and year-end changes.

11th Apr 2023
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To view the full questions and AccountingWEB reader answers click on the links below.

Tax on company share buyback

Our first question came from JCW8, who asked: “If a 100% shareholder has 10,000 shares issued at £1 each and the company buys back 9,900 shares at par value reducing the shareholding to 100 shares, what if any are the tax consequences on the shareholder?”

Should a new company change its year end?

Next up was Software Seeker who was trying to get their head around whether or not a new company client should consider shortening its first period of account. Software Seeker gave the following information: “Incorporated and commenced trading on 5/1/23. First period of account defaults to 31/1/24. Profits for the period ended 31/3/23 will be £90k, then similarily £90k for the next three months when the current contract ends. Doesn’t know if there will be any further income thereafter, so currently the profits for the period ended 31/1/24 are looking to be £180k. Apportionment of profits will tax almost three months of this at 19% (5/1/23 to 31/3/23), then the rest at the new CT marginal rates.

“If the first period of account is shortened to 31/3/23, the first accounts will show profits of £90k, all taxed at 19%. The next accounts (y/e 31/3/24) will show profits of £90K, taxed at the new (higher) CT marginal rates. Looks like taxable profits have shifted from a higher to a lower tax rate by shortening the period of account. Am I missing something?”

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Replies (3)

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By Ruddles
12th Apr 2023 15:14

On the capital reduction point, is it correct that there is definitely no immediate tax charge? Let's say £9,900 is paid on cancellation of 9,900 £1 shares. But what if the company is currently worth £50m? If I'm right (and I may not be) there is a small chargeable gain there.

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Tim Good profile image
By Tim Good
12th Apr 2023 18:54

I think Ruddles is right. My analysis assumed we were talking about a reduction in share capital (under CA 2006 s644) rather than a sale of the shares back to the company. A good example of the old adage "Read the question"! If this were structured as a redution in capital there should be no immediate tax charge if executed properly.

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Replying to Tim Good:
By Ruddles
12th Apr 2023 22:43

Surely, though, a capital distribution made in a s644 capital reduction is still subject to the usual part-disposal rules. HMRC certainly seem to think so.

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