News added on 09.10.2011

from Treasury Solicitor's Department LATEST NEWS

Dissolution of Companies

Winding up concession scrapped

Next week, the Treasury Solicitor is removing its concession for companies closing down with less than £4,000 share capital.

ESC C16 concession. Strictly, unless a company is formally liquidated, any cash or other assets it passes to its shareholders in the closing down process are taxable as income. But HMRC’s Extra Statutory Concession C16 (ESC C16) allows the transfer to be treated as a capital payment instead, so shareholders are taxed on it at a maximum rate of 28% instead of 40% or 50%. Unfortunately, this concession is likely to be withdrawn sometime next year, but a concession relating to it is being withdrawn next week.

Treasury Solicitor (TS) concession. Technically speaking, any share capital distributed as part of the closing down “pay out” to shareholders is treated as an unauthorised distribution under company law and this element of the payout can be recovered from the shareholders by the Crown as bona vacantia. But the TS concession said that bona vacantia wouldn't apply to companies as long as their share capital was £4,000 or less. Unfortunately, this concession is being withdrawn by TS with effect from October 14 2011 which means that, from this date, if you use ESC C16 to have a company struck off then any money paid out that represents share capital can be recovered by the Treasury (although, in practice, the Treasury are only likely to recover the share capital if it is significant).

Tip. In future, if you are going to take advantage of ESC C16, you should consider reducing the share capital of the company to a nominal £1 if you want to avoid any problems with bona vacantia. Reducing share capital is a much more straightforward procedure under the Companies Act 2006 than under previous legislation.

From October 14 2011, the Treasury Solicitor removes its concession so it would be sensible to reduce the share capital under the Companies Act 2006 rules before applying for a company to be struck off under ESC C16.

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  • Nerea Larten - 25 September 2012

    Very interesting article

  • George Martin - 25 September 2012

    Thanks for the tip.