Dissolution (striking off) of companies
Legislation is being introduced in The Enactment of Extra-statutory Concessions Order 2012 to give effect to extra-statutory concession (ESC) C16: Dissolution of companies, but the new legislation has a limit of £25,000, whereas ESC C16 had no limit.
Distributions in excess of the new £25,000 limit will be taxed as income, making it harder for shareholders to get rid of redundant companies in a tax efficient and cost-effective way.
Normally a distribution is income in the hands of the shareholders, but those made by a company in a winding-up are instead treated as capital, to be taken into account in calculating any chargeable gains of the shareholders. Capital treatment usually results in a shareholder paying less tax than income treatment, because of lower Capital Gains Tax rates and various reliefs available for capital gains.
However formal winding-up procedures often involve a level of administration and expense that shareholders wish to avoid. A cheaper alternative (suitable in some but not all situations) is for a redundant company to just distribute its remaining assets to shareholders and apply to be dissolved ie struck off the official register of companies. But distributions in a striking off are, strictly, income (not capital) distributions, because they have not been made in a winding up.
ESC C16 allows a distribution in a striking off to be treated as the equivalent of a distribution in a winding up ie as capital not income, which is normally more tax efficient.
However, the legislation enacting ESC C16 imposes a limit of £25,000 on distributions that can be treated as capital payments. This takes effect for distributions on or after 1 March 2012, despite protests from several of the accountancy bodes that this limit was being set too low and that what was a very useful concession was being unnecessarily restricted.
Some people are trying to beat the 1 March deadline, but anyone who does not will need to be more careful (and may incur more expense) in the future in getting rid of companies which are no longer required.
If you would like to know more about how UNW could help you get rid of a redundant company, please contact Tim McElwaine: T – 0191 243 6067 or E – timmcelwaine@unw.co.uk.
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Budget Summary 2012
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Intrastat Declaration to change
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Profits down, costs up in NASDAL stats for 2020/11
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New single tax definition of a charity
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Seed Enterprise Investment Scheme
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Trio of key appointments shows faith in future at UNW
Leading independent firm of chartered accountants, UNW, has made a significant investment in its future with three strategic appointments.
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Dissolution (striking off) of companies
With effect from 1 March 2012, new legislation enacting Extra-statutory Concession C16 will impose a limit of £25k on distributions that can be treated as capital payments.
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HMRC plans further “tax cheats” campaigns
New campaigns will be launched by HMRC later this year aimed at missing tax returns; home improvement trades, including plumbers and electricians; and direct selling (including E-marketplaces).
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VAT: Cost Sharing Exemption
Further developments from HMRC eagerly awaited by charitable and other non VATable sectors.
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ITR deadline extended to 2 February 2012
HMRC have announced a temporary extension of deadline to 2 February 2012 because of strike by Public and Commercial Services Union.
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Fending off the taxman
Charles Linaker discusses the current position on tax investigations.
