Prior to 1 March 2012 there was a relatively straight forward way for shareholders to wind their company up and withdraw the remaining funds. Under Extra Statutory Concession C16 (ESC C16) it was possible, on giving of certain assurances to HMRC, for the distribution made on a winding up to be treated as a capital receipt in the hands of the shareholder. This is usually, (but not always!) the desired result as the resulting capital gain can usually (but not always!) attract the beneficial 10% tax rate (due to Entrepreneurs Relief) as well as the annual exemption (currently £10,600). The alternative tax treatment, (as a dividend), means an effective rate of tax of 25% for higher rate taxpayers. Moreover no formal liquidation process was required, simply a completed form and £10 payment to Companies House did the trick.
However new rules introduced from 1 March 2012 mean that the capital treatment is now subject to an overall cap of £25,000. If the remaining undistributed funds are in excess of this, and capital treatment is desired, a formal liquidation will be required. In even the simplest of cases, where all creditors have been paid and only cash remains on the balance sheet, this is likely to cost in the region of £5,000. As always where tax is concerned, there are both pitfalls and planning opportunities. If you would like more information, please contact us at [email protected] or call one of our offices on the numbers below.