- Posted by admin
- On August 24, 2017
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When shareholders receive a dividend (whilst the company is trading) it will be classed as income and taxed accordingly. If a company has come to the end of its useful life and is solvent, it is better for the shareholders if they close the company and receive the funds as a capital distribution.
If the funds are less than £25,000 then concessions can be obtained from HMRC for the company to pay these funds as a capital distribution and then stike the company off.
As from 1st March 2012 if a company undergoes an informal winding up procedure, HMRC will only allow distributions up to a maximum of £25,000 to be treated as capital and any distributions exceeding £25,000 will be categorised as dividend income.
If funds to distribute are in excess of this, the most appropriate way of doing this is by a Members Voluntary Liquidation (‘MVL’) as the £25,000 limit will not apply and distributions will be treated as a capital receipt.
Shareholders receiving this distribution (up to £10million in their lifetime) will be entitled to entrepreneurs tax at 10%. Significant taxation savings can be enjoyed by these shareholders.
An MVL is the most straightforward of all liquidations, involving the members passing resolutions to appoint a liquidator, the liquidator realising the assets and discharging any liabilities and finally distributing the funds to the shareholders. The liquidators may also make more than one distribution to shareholders if it is beneficial to shareholders to receive these in certain tax years.
The costs of an MVL will vary company by company. In most cases, the savings in tax will more than compensate the costs of an MVL.