Shareholder capital reduction?

[crossfirehurricane]

Hi All,
Please can you tell me if my understanding is correct here:
1. I could convert some of my company's retained earnings into shareholder capital by issuing bonus shares in this company
2. I could then reduce the shareholder capital as no longer required, by passing of a special resolution supported by a solvency statement given by me as the director?
That would mean I could use £12,300 capital gains allowance to take some of the money out.

What's your thoughts?

[Lance]

Hi All,
Please can you tell me if my understanding is correct here:
1. I could convert some of my company's retained earnings into shareholder capital by issuing bonus shares in this company
2. I could then reduce the shareholder capital as no longer required, by passing of a special resolution supported by a solvency statement given by me as the director?
That would mean I could use £12,300 capital gains allowance to take some of the money out.

What's your thoughts?

Some questions.

1) have you asked your accountant?
2) why has nobody else done it?
3) does it sound too good to be true?

I'm also not sure that issuing 'bonus shares' gets the money out.
Surely you'd have to buy back shares in any case.
Company share buyback | Gannons Solicitors



EDIT: Assuming it is possible I'd need to issue a load of shares first as there aren't enough to allow me to buyback.

[eek]

People tried this 100 years ago.

Which means HMRC definitely know about it and won't allow it now.

HMRC know all the routes in which income could become capital gains and have closed those routes down - even routes that are way more plausible or convoluted than your plan

[crossfirehurricane]

Some questions.

1) have you asked your accountant?
2) why has nobody else done it?
3) does it sound too good to be true?

I'm also not sure that issuing 'bonus shares' gets the money out.
Surely you'd have to buy back shares in any case.
Company share buyback | Gannons Solicitors



EDIT: Assuming it is possible I'd need to issue a load of shares first as there aren't enough to allow me to buyback.

Hi!
Ad 1) My accountant doesn't approve anything that could mean extra work for him, including director's loans
Ad 2) Good question, but I've done some research and found no issues with this approach. I was wondering if anyone here has done it.
Ad 3) Yeah but it doesn't sound impossible either.
So the thing is that issuing 'bonus share' would only convert your retained earnings into shareholder capital and increase the number of shares, but no other change in the balance sheet. You could then try to reduce your shareholder capital to take out the money which is a separate thing. The only problem is the Solvency statement because it's then director's resposibiltity to ensure the company will still be able to pay its creditors

[crossfirehurricane]

People tried this 100 years ago.

Which means HMRC definitely know about it and won't allow it now.

HMRC know all the routes in which income could become capital gains and have closed those routes down - even routes that are way more plausible or convoluted than your plan

But you'd still pay CGT on anything over £12,300. To me it sounds like an alternative to MVL that you can spread over years. The whole point is to make it capital gains instead of income payments through the payment of dividends.

[northernladuk]

You aren't convincing us.

[eek]

But you'd still pay CGT on anything over £12,300. To me it sounds like an alternative to MVL that you can spread over years. The whole point is to make it capital gains instead of income payments through the payment of dividends.

At the moment CGT is taxed at a lower rate than income.

And HMRC cares about total tax take nowt else.

[crossfirehurricane]

You aren't convincing us.

I'm not trying to, I was just interested in your thoughts.

[northernladuk]

Hi!
Ad 1) My accountant doesn't approve anything that could mean extra work for him, including director's loans

Which isn't a bad thing when people keep coming to them with wacky schemes. We've had more than enough people come on who have seen DL's, got kiddy and screwed it up so it's not for everyone that's just seen it as free money. Accountant initially blocking and questioning anything like this isn't a bad thing.
[quote]
Ad 2) Good question, but I've done some research and found no issues with this approach. I was wondering if anyone here has done it.[quote]
And has that research looked at small one man band companies that are doing this for no other reason than to artifically lower their tax burden? I don't remember any scheme including a bonus being an idea that worked on here.

Ad 3) Yeah but it doesn't sound impossible either.

Many things are possible. That doesn't go to say the tax man won't come after you or it's a daft idea.

So the thing is that issuing 'bonus share' would only convert your retained earnings into shareholder capital and increase the number of shares, but no other change in the balance sheet. You could then try to reduce your shareholder capital to take out the money which is a separate thing. The only problem is the Solvency statement because it's then director's to ensure the company will still be able to pay its creditors

Anything that is an attempt to reduce the tax burden that isn't for business reasons is going to be frowned upon, including this.

[northernladuk]

I'm not trying to, I was just interested in your thoughts.

Not really, looks like you are countering the advice you've been given with reasons to do it. We see it plenty when people have an idea they aren't willing to let go.

Threads like this usually end up with us saying 'Just go for it, we've said our bit, you've convinced yourself so fill your boots'.