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To liquidate or not to liquidate, that is the question…

There has been a few developments over the last few months in relation to HM Revenue & Customs’ extra statutory concession (ESC) C16 dealing with distributions to shareholders outside of a formal winding-up.  Previously a concession had been given by HMRC for distributions to shareholders outside of a members’ voluntary liquidation limited to £4k although the scope of HMRC’s discretion to make concessions that depart from statutory provisions had recently been challenged.....

We have now been advised of the planned change, which is to effectively replace ECS C16 with legislation but instead of the threshold being £4k it is £25k.  This comes into effect for all distributions made on or after 1st March 2012.  This will also be treated as a capital distribution as though it had been made in the course of winding-up the company as long as it is limited to £25k.

HMRC advises that “In 2010 approximately 325,000 companies were dissolved informally and struck off without going into liquidation.  It is possible that some companies making large distributions on the cessation of the business may now opt for to be formally wound up, in order to protect the tax position of their shareholders.

Whilst increasing the amount to be treated as a capital distribution to £25k will help some companies avoid the costs of a formal winding up, it should also be remembered that this informal approach can leave the door open to future claims against the company / directors and shareholders and is only possible if there is no objection to the dissolution from an interested party.    

The usual dangers of dissolutions outside the protection of a formal liquidation still apply so if this is relevant to your business or you have a client that it relates to and wish to discuss any particular situation, please contact Portland on 01489 550 440 or email me at mike.field@portbfs.co.uk.

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