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Company closure and tax treatment of distributions

From 1 March 2012 the rules concerning closing a company have changed. Should you have reserves in excess of £25,000, it will not be possible to close the company and take the balance of reserves as a capital gain unless a formal liquidation is performed.

The cost of a formal liquidation depends on how complex the case is however Warr & Co have referral partners who have quoted typically around £3,000.

The alternative course of action would be to declare dividends to ensure reserves are just below £25,000. Should this be the case, the dissolution can be performed by ourselves avoiding significant fees.

If your company has traded in the final period of accounts and the reserves are in excess of the annual Capital Gains threshold, for 2012/13 this is £10,600, you may wish to instruct us to apply to HMRC to obtain Entrepreneurs relief of the gain.

The final distribution, if treated as a capital distribution is taxable at the following rates:

  • 10% If Entrepreneurs relief applied
  • 18% If you are a basic rate tax payer and have unused basic rate band (2012/13 £42,475)
  • 28% On gains once the basic rate band is used.

Please contact us to assess the right course and timing of action for you and your business.

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