Treasury Solicitor withdraws concession in relation to dissolution of companies
Background
Generally speaking, when a company is dissolved, its property can pass to the Crown as “bona vacantia” (meaning 'ownerless property'). In order to circumvent this, the shareholders should ensure all assets are distributed before the company is dissolved. With an informal winding up share capital cannot legally be repaid to the shareholders therefore a situation could arise where the share capital becomes bona vacantia. To avoid this position, a formal liquidation or reduction of share capital would normally be recommended.
The “£4,000” limit
It was recognised by the Treasury that, for smaller companies, it was impracticable and not cost effective to liquidate such companies and therefore the “£4,000” limit on share capital was introduced – what this meant was where the share capital of a company was less than £4,000 the Treasury would not seek to invoke bona vacantia. It is this limit which has now been removed.
What effect does this have on HMRC’s ESC C16?
The Treasury Solicitor Concession (TSC) and HMRC’s ESC C16 concession have always been applied for different reasons. The TSC dealt with the potential bona vacantia interest in the former company’s share capital whilst HMRC’s ESC C16 concession relates to the tax treatment of distributions made in the course of dissolving a company where there is no formal winding up. The removal of the guidelines and the TSC will have no effect on the application of ESC C16 or any other law or regulation on share capital distribution.
18 October 2010
EDF Tax says:
HMRC have previously signalled their intent to withdraw ESC C16 and it is expected this will be legislated for next April. By removing the £4,000 limit every informal winding up under ESC C16 will potentially be exposed to the bona vacantia procedure where the share capital is distributed. In order to avoid this issue and distribute all assets of the company to shareholders (including share capital), a formal liquidation and/or a reduction in share capital should take place instead.
Who to contact?
For further information contact Craig Hughes on 0115 983 5580 or email at chughes@edftax.co.uk.