Any Answers Answered: Company shares buyback and year end


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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