Extra Statutory Concession C16
As you may be aware HMRC have been reviewing various Extra Statutory Concessions (ESC) with a view to formally legislating them. They have announced that ESC C16 (Dissolutions of companies under s1000 and s1003 CA 2006) will be formally introduced onto the statute book, subject to Parliamentary approval, for distributions made on or after 1 March 2012. From this date only distributions up to £25,000 under an informal winding up (or striking off) will be treated as “capital” and therefore could be taxed at a rate as low as 10%, if entrepreneurs relief applies.
Without taking any other action, distributions over £25,000 would be taxed as a “dividend” and therefore could suffer tax at effective rates of up to 36.1%.
In order to ensure that all of the proceeds from a winding up of a company are treated as “capital” a formal liquidation will need to be undertaken from 1 March 2012.
EDF Tax says:
It has been known for a while that ESC C16 would be formally legislated and a Consultation process has been ongoing since last December. Initially HMRC proposed to have a cap of £4,000 for qualifying distributions so it is positive to see this limit increased to £25,000 although this will still only be relevant for the smallest of companies. For the vast majority of companies a liquidator will need to be appointed so that the shareholders can receive distributions in a capital form.
12 December 2011
Who to contact?
For further information contact Craig Hughes on 07717 840596 or email at chughes@edftax.co.uk.