In 1985 the ESC C16 legislation was published in order to enable companies to return assets to its shareholders without the need for formal liquidation. The distribution of assets was treated as capital attracting capital gains tax rather than income attracting income tax.
Any informal distribution of share capital without liquidation is however, an illegal distribution and the Treasury Solicitor can, if they so wish, take action for recovery.
HMRC issued a concession allowing any informal distributions of share capital up to £4,000. This concession has now been withdrawn.
Recent guidance has now been placed on the Government website by the Treasury Solicitor where they have advised that any unauthorised share capital distributions prior to dissolution, will vest in the Crown, although the Treasury Solicitor will no longer attempt to recover them. (www.bonavacantia.gov.uk/output/bvc17-faqs.aspx).
It should be noted however, that such a distribution would be in breach of the Companies Act 2006 which may potentially give rise to a claim against the shareholders and/or directors by another third party. A share capital reduction pursuant to Section 641 of the Companies Act 2006 is however a legally correct method of dealing with such matters.
Under the extra-statutory concessions order 2012 which was implemented on 1st March the extent to which the distribution of reserves can be treated as capital in an informal matter is £25,000. Through a Members Voluntary Liquidation a distribution is still treated as capital without limit.
In view of the above, we have seen a large increase of enquiries from Accountancy Practices for companies with distributable reserves in excess of £25,000 and therefore consideration will need to be given to the taxation benefits versus the costs of a Members Voluntary Liquidation.
In relation to companies with a distribution of less than £25,000 it may still be cost advantageous to reduce the company’s share capital and thereafter issue a distribution to the shareholders following a dissolution of the company pursuant to Section 1000 or 1003 of the Companies Act 2006.
The costs of dealing with a Members Voluntary Liquidation is very much dependent upon circumstances, however, the costs can be from as little as £3,500 plus VAT and a transparent pricing structure is available upon request.
Should you wish to discuss any of the above, please do not hesitate to contact Stephen Wainwright firstname.lastname@example.org.