This article highlights the fact that the HM Revenue & Customs’ concession used to inexpensively wind up and strike off a solvent company may only have a remaining 5 month shelf life. For at present government departments are struggling to fit the concession ESC C16 into a legislative compliant ‘straight jacket’ to enable the current simplification to continue in law.
So could the spring 2010 budget be the end of the concession? Well, yes and that would make now about the best time to act as the alternative winding up procedure requires appointing a liquidator and that is not cheap.
In summary, the concession enables the final distribution of accumulated profit in a company to be treated in the hands of the shareholders as capital proceeds, subject to capital gains tax, rather than as a dividend subject to income tax. So who should act now?
For a start anyone wishing to wind up a dormant or non-trading company should at least consider the matter. Then there are the individuals for whom the concession was designed – those in the process of retiring, selling or closing down a trade and business operated by their company.
As part of the concession company directors and shareholders must provide the following assurances to HM Revenue & Customs that the company:
- does not intend to trade or carry on business in future, and
- intends to collect its debts, pay off its creditors and distribute any balance of its assets to its shareholders (or has already done so), and
- intends to seek or accept striking off and dissolution
That the company and its shareholders agree:
- to supply such information as is necessary to determine, and will pay, any Corporation Tax liability on income or capital gains, and
- the shareholders will pay any Capital Gains Tax liability (or Corporation Tax in the case of a corporate shareholder) in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up
Aside from the company trade ending there are other factors to consider but as a general rule, individuals will probably have a good idea of whether they want rid of the burden of owning a company, in particular if it is dormant.
If this is you then please contact me.
This article is for discussion purposes only and does not represent advice on which you should act without consulting a professional as tax legislation is complex and changes frequently.