Winding up and striking off - changes imminent

Legislation changes are expected in March - possibly in the Pre Budget Report.

In the past it has been possible to rely on an extra statutory concession to informally wind up companies that are no longer required. HRMC's ESC16 has allowed the tax man to agree that returns to shareholders can be taxed as capital (at 10% - 28%), rather than taxed as income (at up to 50%).

If a formal liquidation is required, then as well as the liquidator's time costs an insurance bond is required for the value of the assets, the process has to be advertised and it is likely to cost upwards of £5,000. Indeed HMRC themselves estimate a straightforward liquidation will cost £7,500.

From March 2012, ESC C16 is going to be replaced by legislation. This is expected to say that is the distribution is going to me less than £25,000 it can -by agreement with HMRC - be treated as capital. However if the distribution is more than this then the whole amount (including the first £25,000) is treated as income.

So if you want to deal with a striking off and more than £25,000 is being returned to the shareholders then time is short. You will have to both get HMRC agreement and actually make the distribution before 1st March to be sure you get in before the changes.

There is a slightly different problem that has reared its head in England, and can be expected to do the same in Scotland. Vacant property ("bona vacantia") falls to the Crown, so when a company is struck off then any assets it has can be claimed by someone who delights in the name of the Queen's and Lord Treasurer's Remembrancer (QLTR). The Treasury Solicitor in England used to say he would ignore share capital in a winding up if it was less than £4,000. The line he now takes is that it is now easy to reduce or pay back share capital - and so the £4,000 concession is removed. The prudent thing to do now is to reduce the share capital to a nominal £1 to avoid any problems with bona vacantia.

 If you need a solvent Members Voluntary Liquidation, advice on striking off a company and the use of ESC C16 or the new statutory instrument, or just want to talk about the options available to you in Scotland, then please do not hesitate to contact CS Corporate Solutions.