It is always essential that the shareholders seek tax advice from their accountants or tax advisers, as this will be the key to deciding the most tax efficient route to take when deciding how to distribute surplus company funds to shareholders.
Historically, shareholders who were looking to close their company would make a request to HM Revenue & Customs under Extra-Statutory Concession 16 (ESC C16) to treat any final distribution as capital rather than income. However since 1st March 2012, ESC C16 was written into tax law with a distribution limit of £25,000. This means that if the distributions are less than £25,000 then 'capital treatment' automatically applies, however if they are in excess of £25,000 they are treated as income in the shareholders' hands.
Where there is a pot of money which would equate to distributions in excess of £25,000, in order to obtain the tax break, a QuickCap Member’ Voluntary Liquidation (MVL) could be the answer.
QuickCap facilitates a distribution of company funds to shareholders, as a return on capital, which in most cases qualifies for Entrepreneurs relief. Once the company is in members’ voluntary liquidation, it is possible to distribute funds to shareholders immediately.
I am often asked whether it is possible to distribute funds in two instalments spanning two tax years thereby spreading the capital income from the capital transaction into both tax years, using both years’ capital gains tax allowances? Or is this treated as just a single transaction that has wholly happened at the point when the liquidation commenced? The answer is that the capital gain would be reported in the tax year in which the distribution was paid. The salient point for which tax year the capital tax allowances can be claimed is the date of the distribution(s) to the shareholders.
What are the benefits of a QuickCap members’ voluntary liquidation?
- Capital distributions are usually more tax efficient than income distributions.
- The shareholders may benefit from Entrepreneurs relief at a tax rate of 10%.
- Funds can be distributed to shareholders immediately.
- Funds can be distributed in two tax years thereby using both years’ capital gains tax allowances.
- Directors’ loan accounts or cash equivalent assets can be distributed in specie.
At Portland, we charge a low cost fixed fee of £2,500 plus disbursements for a QuickCap. To find out more, please contact us today.