Close a company with a tax saving of over 40%

A solvent company that has ceased to trade can be closed in one of two ways; striking-off or Members’ Voluntary Liquidation.

Striking off is a cheap and simple process and if the surplus funds are less than £25,000 then this will be treated as a capital gain by the individual shareholder. However if they are more than £25,000 then the entire amount is taxable as income. Currently the effective rate of income tax can be over 50%.

Members’ Voluntary Liquidation is the statutory procedure whereby a Licensed Insolvency Practitioner is appointed and the company is formally wound up. The surplus funds paid out to shareholders are all treated as a capital gain. This means that if entrepreneurs’ relief applies that tax will be paid at 10%. In addition, distributions can be made over multiple tax years further increasing the tax relief available.

Conclusion

If a company needs to be wound up and has surplus funds of more than £25,000 then the shareholders should be advised to contact a Licensed Insolvency Practitioner.

Please contact either Ruth Duncan or Filippa Connor to discuss this further.

Posted Thursday, March 13th, 2014

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