Reply to: End of ESC C16 1/3/12.

[Nixon Williams]

Does anyone know if the changes have been approved for definite now. If so for a company closing post 1st March with less than 25k is it definite that HMRC permission now not needed to treat as Capital?

Yes, they were approved in Parliament on Monday.

Alan

[Nixon Williams]

Will NW be providing liquidation services? If so, at what charge?

Nixon Williams will not be providing a liquidation service in-house.

We do expect to be able to direct clients to an insolvency practitioner at a cost expected to be around £3500, although we will strive to get this cost reduced.

Alan

[Ruprect]

The expense will be part of the costs of liquidation, there is no corpoartion atx relief, although in effect you receive tax relief as the amount subject to personal capital gains tax will be lower due to paying the liquidation costs.

Alan

Will NW be providing liquidation services? If so, at what charge?

[MrRobin]

OK well in that case I have worked out this rough and ready calculation then:

Take the liquidation cost, multiply by 5 and add 25000.

If that number is MORE THAN your retained profit then take divs until 25k is left and the rest as capital.

If that number is LESS THAN your retained profit, then employ the services of a liquidator and take the entire amount as capital.

Assumes personal income of <£100k and higher rate tax payer

[Nixon Williams]

Can the amount that you pay for the liquidator be paid from the company as a business expense?

I.e. if it costs £5,000, that's £1,000 off your CT bill

The expense will be part of the costs of liquidation, there is no corpoartion tax relief, although in effect you receive tax relief as the amount subject to personal capital gains tax will be lower due to paying the liquidation costs.

Alan

[Nixon Williams]

The enactment document states that nothing changes for amounts smaller than £25,000 - i.e. I assume you will still have to apply for permission to treat the distributon as capital, just as before.

The 'application' was for approval to use the ESC C16 - as this will go, there is no need to 'apply' after 01/03/12, the tax treatment of the distribution will depend upon the cash amount etc.

As ever, use your accountant to do this, most will not charge a lot and it can save you a fortune if you do something in the wrong sequence etc.

Alan

[Nixon Williams]

Would this also apply to the liquidation of a limited company that's been dormant for several years? Would the capital gains tax rate be 10% or 28% in this scenario?

The distribution would be treated as capital.

One of the requirements for Entrepreneur's Relief is that the company is or very recently been trading, if the company has been dormant for several years then clearly it fails this test and so the distribution would be taxed at 28% (assuming the receipient is a higher rate taxpayer).

Depending upon your income, it might be more efficient to distribute dividends (and pay tax at 25%) but leave sufficient to utilise the tax free capital gains allowance of £10,600.

Alan

[MrRobin]

Can the amount that you pay for the liquidator be paid from the company as a business expense?

I.e. if it costs £5,000, that's £1,000 off your CT bill

[MrRobin]

I have deleted this post as the info was wrong (see Nixon Williams post below instead)

[mark5y]

If the company is liquidated, the treatment as capital of the distribution is guaranteed.

Would this also apply to the liquidation of a limited company that's been dormant for several years? Would the capital gains tax rate be 10% or 28% in this scenario?

[Mr_Z]

Does anyone know if the changes have been approved for definite now. If so for a company closing post 1st March with less than 25k is it definite that HMRC permission now not needed to treat as Capital?

Anyone know the answer to this?

[Nixon Williams]

Frankly I'm happy to pay 3 or 4 thousand to guarantee treatment of the funds as capital distribution. The advantage is clear for any business that has a reasonable balance in the company a/c.

HMRC have missed a trick here: they may as well have said "give us £5k and we'll waive your ESC16 through with no questions asked".

If the company is liquidated, the treatment as capital of the distribution is guaranteed.

[Nixon Williams]

I don't believe that is correct. My understanding is that if an accountancy practice has an insolvency practioner, it can deal with MVLs on behalf of its clients. Not insolvent liquidations though.

Happy to stand corrected, although I doubt if this would apply to any specialist contractor accountant.

[ChimpMaster]

<snip>
The main thing to agree is the fee up front, I envisage liquidators will attempt to charge a very large fee if they can. If someone can do it for £2000 then that sounds very good value.

Alan

Frankly I'm happy to pay 3 or 4 thousand to guarantee treatment of the funds as capital distribution. The advantage is clear for any business that has a reasonable balance in the company a/c.

HMRC have missed a trick here: they may as well have said "give us £5k and we'll waive your ESC16 through with no questions asked".

[THEPUMA]

If you appoint a liquidator, they will take control and administer the company assets and ensure liabilities are paid etc, any funds remaining would be distributed to the shareholders.

It is quite a simple process, but the liquidator must be independent and your accountant will not be able to do this for you, although they will probably be able to direct you to someone.

The main thing to agree is the fee up front, I envisage liquidators will attempt to charge a very large fee if they can. If someone can do it for £2000 then that sounds very good value.

Alan

I don't believe that is correct. My understanding is that if an accountancy practice has an insolvency practioner, it can deal with MVLs on behalf of its clients. Not insolvent liquidations though.