All good things come to an end…
If directors wanted to wind up a solvent business, a little known tax concession called the Extra-Statutory Concession (ESC) C16, allowed shareholders to informally realise assets, without the requirement to go through a formal liquidation procedure. Funds distributed to shareholders are then subject to Capital Gains Tax (CGT) rather than Income Tax –resulting in substantial savings.
However on 1st March 2012, new formal rules were introduced. The previous informal route, mentioned above, is now only available to small companies with distributions under £25,000. Any distribution amounting to more than £25,000 is now deemed an income dividend to shareholders.
Whilst shareholders did prefer the comfort of a Members Voluntary Liquidation or MVL, since it avoided any subsequent comeback, previously however it was not necessary to incur the costs of an MVL in order to obtain the CGT relief.
However the Government, in enacting “Extra-Statutory Concession C16” clearly believed the informal system was being abused.
Now you can still get distributions from solvent companies over £25,000 subject to Capital Gains Tax. But to do so requires a formal MVL.
There are NO hidden costs, BEACON charge a fixed fee, including disbursements, from £2,500 plus VAT.
At BEACON following years of experience we have developed a system that enables Beacon to proceed as quickly as is required to suit your needs.
- Quick turnaround
- Straightforward and streamlined process
- Same day distributions to shareholders
- All paperwork required to place your company into MVL
- No hidden costs
The whole process can be via email, or in whatever way suits your requirements.
The only document that needs careful consideration is the ‘declaration of solvency’; as this must be sworn in front of a solicitor or commissioner for oaths (there is a charge for this, by the solicitor, usually between £5-10).
The Liquidation of the company is then advertised in the London Gazette, the appointment of the Liquidator and for any outstanding creditors to submit claims.
We will then seek to obtain post Liquidation tax clearance from HMRC to make sure that any outstanding liabilities of the Company are settled. Following liquidation clearance being received from HMRC, we then convene and advertise a final meeting to be held 8 weeks later. The Liquidation is then concluded and the Company will be struck off 3 months later at Companies House.
If the company was VAT registered, we are able to then reclaim the VAT and whilst initially payable, when the vat refund is received we would pay the refund across as a distribution to the shareholders.
- A retiring contractor?
- Have cash in excess of £25,000 left in your contractor limited company?
- Taking a permanent role?
Following the creation of Section 1030A, contractors with cash of more than £25,000 left in their company were only able to distribute funds as income and not capital, this would incur income tax liabilities at a rate as high as 37.5%.
Contractors may now choose to wind up the affairs of their company using an MVL. Liquidating a contractor’s company by a licensed insolvency practitioner will enable cash reserves to then be distributed as capital, potentially attracting a tax rate as low as 10%.
There are many contractors we see are obtaining a long-term permanent role or deciding to move out of the country, thereby seeking both closure and peace of mind that any risks associated with the company, are minimised as far as possible.
Sometimes, contractors may have other reasons for wanting the use of the money more urgently, such as paying off a mortgage or other personal debts. Of course, many contractors want to avoid the costs of running a contractor limited company that is no longer trading and has become dormant.
Whilst a formal liquidation process does require the appointment of a licensed insolvency practitioner, this does inevitably entail a fee – if the company’s reserves are significant the tax saving by using this process may well outweigh the fee payable in an MVL.
We estimate that seeking to close down a company with reserves of around £36,650, then formally liquidating the company will generally yield the highest return even after paying all taxes and professional fees.
This does assume that your income has or will, at some point during the tax year, exceed the higher rate threshold and that the gain is eligible to entrepreneur’s relief.
There are NO hidden costs at BEACON, we do not offer different levels of service or packages - all BEACON clients deserve and receive the same high standards.
BEACON charge a fixed fee, including disbursements, from £2,500 plus VAT.