This document summarizes some of the key tax considerations when winding up a company. From the company's perspective, any assets sold will generate capital gains or losses, while distributions to shareholders are treated as proceeds for capital gains tax purposes. Shareholders must consider capital gains tax on distributions and may claim losses on shares. Entrepreneurs' relief may apply to shareholders if certain conditions are met. The timing of expenses, treatment of losses, loan interest relief, and pension contributions are also important factors to consider when winding up a company.
Alternative Structures for Life Sciences Companies: The LLC Holding CompanyWilmerHale
Explores the following:
- Establishing the LLC Holding Company
- Benefits and Drawbacks of Using the LLC Holding Company Structure
- Timing Considerations
While the financial sector is facing headwinds including increase in non-performing assets resulting in increased losses and shortage of liquidity, the real estate sector too has witnessed a tough time due to disruptions in labour supply, logistics and increasing finance cost on unsold inventory.
Squared. Essential Guide for New Businesses in UKmondayfriday
Before Starting Up
Many people dream of running their own business.
In recent years this has become a reality for some who have been made redundant.
Others may decide to start their own business
in search of independence, to work for themselves
and be rewarded for their efforts financially.
Whatever the reason for considering setting up
in business, a number of challenges exist.
Despite considerable effort and financing which
may be poured into a venture, there is always a
risk of business failure.
Before you start your business, take some time spent to think through your plans as
this will minimise the risk of failure.
Think about the possible downfalls of being
self-employed. Certainty of income, both in
terms of quantity and regularity, disappears,
whilst fixed outgoings, such as mortgage
repayments, remain. Consider the loss of other
company benefits such as life assurance cover,
a company pension, medical insurance, a company
car, regular hours and holidays.
Consider the views of your family and friends.
Their support is essential. It is important they
understand that the administrative and financial
requirements of running a business can be time
consuming and stressful.
Success in business depends on many factors;
most importantly you need to critically review all
aspects of the business proposition before
progressing too far.
For easy reference, we have carved this guide
into 10 parts:
Part 1 | Selecting a Legal Entity for Your
Business
Sole Proprietorship
Partnership
Limited Liability Partnership
Limited Company
Business Structure – The Pros and Cons
Part 2 | Registering with the Tax Authorities
H M Revenue & Customs
H M Revenue & Customs – NI Contributions Office
H M Revenue & Customs - VAT
Tax Calendar
Part 3 | Accounting & Bookkeeping
Accounting Records and Record Keeping
A Word About Accounting Software Systems
Internal Control
Part 4 | Value Added Tax
Registration
Taxable Persons and Supplies
Tax Rates
Input VAT
Penalties
VAT Checklist
Money Laundering Regulations
Part 5 | Payroll Taxes
Helpful Publications
Do You Have Employees?
The Operation of a PAYE Scheme
Real Time Information
Benefits in Kind
Payroll Software
Part 6 | Income Tax and Corporation Tax
Which Accounting Year Should I Choose?
Tax Returns
Companies
Sole Traders / Partnerships
Tax Credits
Child Benefits
Part 7 | Cash Planning and Forecasting
Starting the Analysis
Cash Collections
Disbursements
Part 8 | Obtaining Credit and Financing
Your Business
How Do I Get the Money?
Business Plan
Financing Alternatives
Debt Financing Sources
Equity Financing Sources
Venture Capital Companies
Part 9 | Insurance
Required Policies
Commercial Liability Insurance
Property Insurance
Business Interruption
Fidelity Guarantee
Directors & Officers Liability
Key Person Protection
Identifying a Key Person
When is Key Person Protection Needed?
Partnership Protection
Shareholder Protection
Fee Pro
S corporations are legally structured in a way that allow them to go untaxed. This is because income that is recognized by owners is taxed at the personal level and not via the business. Moreover, an S corporation is a pass-through or flow-through entity, which means income passes through to the shareholders. This newsletter details tax management information and methods used by and relevant to S corporations.
Alternative Structures for Life Sciences Companies: The LLC Holding CompanyWilmerHale
Explores the following:
- Establishing the LLC Holding Company
- Benefits and Drawbacks of Using the LLC Holding Company Structure
- Timing Considerations
While the financial sector is facing headwinds including increase in non-performing assets resulting in increased losses and shortage of liquidity, the real estate sector too has witnessed a tough time due to disruptions in labour supply, logistics and increasing finance cost on unsold inventory.
Squared. Essential Guide for New Businesses in UKmondayfriday
Before Starting Up
Many people dream of running their own business.
In recent years this has become a reality for some who have been made redundant.
Others may decide to start their own business
in search of independence, to work for themselves
and be rewarded for their efforts financially.
Whatever the reason for considering setting up
in business, a number of challenges exist.
Despite considerable effort and financing which
may be poured into a venture, there is always a
risk of business failure.
Before you start your business, take some time spent to think through your plans as
this will minimise the risk of failure.
Think about the possible downfalls of being
self-employed. Certainty of income, both in
terms of quantity and regularity, disappears,
whilst fixed outgoings, such as mortgage
repayments, remain. Consider the loss of other
company benefits such as life assurance cover,
a company pension, medical insurance, a company
car, regular hours and holidays.
Consider the views of your family and friends.
Their support is essential. It is important they
understand that the administrative and financial
requirements of running a business can be time
consuming and stressful.
Success in business depends on many factors;
most importantly you need to critically review all
aspects of the business proposition before
progressing too far.
For easy reference, we have carved this guide
into 10 parts:
Part 1 | Selecting a Legal Entity for Your
Business
Sole Proprietorship
Partnership
Limited Liability Partnership
Limited Company
Business Structure – The Pros and Cons
Part 2 | Registering with the Tax Authorities
H M Revenue & Customs
H M Revenue & Customs – NI Contributions Office
H M Revenue & Customs - VAT
Tax Calendar
Part 3 | Accounting & Bookkeeping
Accounting Records and Record Keeping
A Word About Accounting Software Systems
Internal Control
Part 4 | Value Added Tax
Registration
Taxable Persons and Supplies
Tax Rates
Input VAT
Penalties
VAT Checklist
Money Laundering Regulations
Part 5 | Payroll Taxes
Helpful Publications
Do You Have Employees?
The Operation of a PAYE Scheme
Real Time Information
Benefits in Kind
Payroll Software
Part 6 | Income Tax and Corporation Tax
Which Accounting Year Should I Choose?
Tax Returns
Companies
Sole Traders / Partnerships
Tax Credits
Child Benefits
Part 7 | Cash Planning and Forecasting
Starting the Analysis
Cash Collections
Disbursements
Part 8 | Obtaining Credit and Financing
Your Business
How Do I Get the Money?
Business Plan
Financing Alternatives
Debt Financing Sources
Equity Financing Sources
Venture Capital Companies
Part 9 | Insurance
Required Policies
Commercial Liability Insurance
Property Insurance
Business Interruption
Fidelity Guarantee
Directors & Officers Liability
Key Person Protection
Identifying a Key Person
When is Key Person Protection Needed?
Partnership Protection
Shareholder Protection
Fee Pro
S corporations are legally structured in a way that allow them to go untaxed. This is because income that is recognized by owners is taxed at the personal level and not via the business. Moreover, an S corporation is a pass-through or flow-through entity, which means income passes through to the shareholders. This newsletter details tax management information and methods used by and relevant to S corporations.
American Incorporators has been helping businesses incorporate for more than 35 years. Here, we break down the pros and cons of the most common business entities: C-Corporations, LLCs and S-Corporations.
Here we have discussed some restructuring ideas used and implemented in recent big deals in India. We have focused on the pros and cons of the strucuture the company choses while undergoing merger, acquisition or internal restructuring process.
What is Seed EIS?
Seed Enterprise Investment Scheme (SEIS) is the most
generous, tax-advantaged venture capital scheme ever
introduced that offers investors enhanced income tax
and Capital Gains Tax (CGT) reliefs.
Higher rate tax payers and profitable business owners now have a low hurdle threshold to recover up to £50,000 income tax annually.
The 2014 Budget has made this a permanent feature of UK tax savings schemes and this Guide highlights the main conditions that need to be satisfied, but the conditions are complex and you should take professional advice before making an investment.
Liquidation in Dubai is winding up of an entity and the selling of its assets to distribute them, depending on the factor whether the company is solvent or insolvent.
American Incorporators has been helping businesses incorporate for more than 35 years. Here, we break down the pros and cons of the most common business entities: C-Corporations, LLCs and S-Corporations.
Here we have discussed some restructuring ideas used and implemented in recent big deals in India. We have focused on the pros and cons of the strucuture the company choses while undergoing merger, acquisition or internal restructuring process.
What is Seed EIS?
Seed Enterprise Investment Scheme (SEIS) is the most
generous, tax-advantaged venture capital scheme ever
introduced that offers investors enhanced income tax
and Capital Gains Tax (CGT) reliefs.
Higher rate tax payers and profitable business owners now have a low hurdle threshold to recover up to £50,000 income tax annually.
The 2014 Budget has made this a permanent feature of UK tax savings schemes and this Guide highlights the main conditions that need to be satisfied, but the conditions are complex and you should take professional advice before making an investment.
Liquidation in Dubai is winding up of an entity and the selling of its assets to distribute them, depending on the factor whether the company is solvent or insolvent.
Winding up of a company and Limited Liability Partnership (LLP)B.H. Loh & Associates
Winding up is a process where the company dissolve from the registration. We will guide you through on how to step by step to strike off from the registration.
Background of Company Law in England,
Background of Company Law in India,
Definition of Company,
Nature & Characteristics,
Features of Company,
Lifting the corporate veil,
Types of Companies,
Formation of a Company,
Memorandum & Article of Association,
Prospectus,
Share & Share Capita,
Company Management & Director,
Meetings,
Borrowing Powers,
Debentures & Charges,
Accounts & Auditors,
Prevention of oppression & Mismanagement,
Winding up,
What is the procedure for a members voluntary liquidation in the UKProperty Classifieds
The Sunday Times recently named Norwich as one of their ‘best places to live in 2022’, praising the city for “its creative spirit and thriving independent shops”. Whilst it has struggled over the past year – as every city has done throughout the UK during the pandemic – the city has proved it is in a good position to thrive. But is Norwich a good place to invest in property in 2022?
60% of the shops in Norwich are independents – just look at the much-visited Norwich Lanes – and the city centre revels in its pop-ups. Add to the mix their historic outdoor market that has adapted to customer demand, the council’s green initiatives including a dedicated cycle network and sustainable social housing on Goldsmith Street (it won the Stirling prize for architecture in 2019) and you’ve got a city that is attracting buy-to-let investors in their droves.
Residential property can be a lucrative business, but profits or gains will be subject to tax. In this post we discuss some of the property tax planning options, including using limited companies or LLPs, trading vs investment property, capital gains tax and entrepreneurs relief.
There are many people creating new entities in order to protect their assets and liability. This small presentation of running an S-Corporation has been provided to offer some "Basic" understanding of certain requirements that are often overlooked when choosing the S-Corporation entity type.
Top Ten Tips on striking off your companyjayjani123
Have you remembered to file your annual accounts and annual return with Companies House? Have you got no further use for your company?
If you responded no to the first question or yes to the second question, read on to find out about the different ways a company can be struck off. Of the 2,663,100 companies that were registered as trading in the UK last year 283,400 companies were dissolved.
Accounting and Income tax aspects : Merger/AmalgamationHU Consultancy
Here we are trying to list the taxation and accounting implications for a typically Merger/Amalgamation of companies.
We also look at various methods for accounting to treat different types of merger
2. either has to dispose of its assets, realise its debts and pay off its creditors, or distribute its assets in specie
to its shareholders. In either event this can give rise to corporation tax as well as personal tax liabilities.
Disposal of assets by the company
Where a company disposes of its chargeable assets, for example freehold or leasehold property or pre-2002
goodwill, a chargeable gain or capital loss will arise. If those assets are sold to a third party it can usually be
taken that this is on an arm's-length basis, so that the consideration received for those assets will be taken
as proceeds for CGT purposes. However, where assets are transferred to the shareholders as part of the
proceeds of liquidation or winding up the market value of those assets will need to be considered and a
capital gain computed accordingly. This will form part of the company's profits or give rise to a capital loss for
corporation tax purposes.
If the company's trade started on or after 1 April 2002, any goodwill would be dealt with under the intangible
assets rules in CTA 2009 Part 8. Transactions between related parties will be treated as having been
effected at market value, which could give rise to a profit for corporation tax purposes where a business is
transferred to the shareholders.
Disposal of stock, plant and equipment
The disposal of stock will give rise to a trading profit or loss for corporation tax purposes. The market value of
that stock will need to be considered if it is transferred to the shareholders, but if they are going to take over
the stock and carry on a trade themselves it may be appropriate to make an election under CTA 2000 s 167
so that the stock is transferred at original cost. In order to do this the parties must enter into a joint election,
within two years of the end of the accounting period in which the trade discontinued. This election is not
available to large companies.
The disposal of plant and machinery will give rise to a balancing allowance or balancing charge, although if
the shareholders take over the trade it would be possible to elect for the assets to be transferred at tax
written-down value under CAA 2001 s 266.
Terminal losses
If in the period to cessation the company makes a trading loss for corporation tax purposes, that loss can be
carried back three years. A practical point to bear in mind is that insolvent companies that are in formal
administration are exempted from online filing, and it is often possible to agree losses with HMRC without the
need for formal accounts, although the loss claim should usually be made in a return so a CT600 may be
required.
The shareholders' position
Looking at the shareholders, proceeds and extraction of funds from the company will be taxed either as a
distribution or under CGT principles. Particularly where entrepreneurs' relief is not available on a disposal of
shares in the company the shareholders should consider paying a dividend of a part or the whole of the net
assets of the company. This may be appropriate where the shareholders are basic rate taxpayers so that
dividends can be paid without incurring an income tax liability.
Tax Journal, Issue 1133, 24 at 25
Once any dividend payments have been dealt with, the company can be put into liquidation (through a
members' voluntary liquidation) or wound up informally prior to striking off. Where the company is liquidated
Page 2
3. through a members' voluntary liquidation, distributions by the company to a shareholder will be treated as
proceeds for CGT purposes. Where there are several distributions each will be treated as a part disposal,
which means that a liquidation can span more than one tax year, with the result that the shareholders could
make use of more than one annual exemption. Where distributions take the form of assets, the value of
those assets will be used for CGT purposes -- it does not matter whether those assets are themselves
chargeable assets.
Informal winding up followed by striking off at Companies House used to be dealt with under ESC C16,
which gave capital gains tax treatment for any distributions by a company in the course of winding up once
clearance had been sought under the concession. ESC C16 has now been enacted as an amendment to
CTA 2010 s 1030A which affords capital gains tax treatment only where total distributions from the company
are less than £25,000. This means that, except for the smallest of companies, a formal members' voluntary
liquidation would have to be used if capital gains tax treatment is required.
If the company has significant issued share capital it may be appropriate to carry out a capital reduction to
return share capital to the shareholders. If as a result less than £25,000 remains in the company, the balance
could be distributed in the course of an informal winding up.
Phoenix arrangements
A simple liquidation or winding up is not caught by the transactions in securities legislation, following the
case of CIR v Joiner [1975] 3 All ER 1050. However, where a company is wound up, and the trade is
transferred to a new company under the control of the same persons as the old company, transactions in
securities would be in point. This means that HMRC would issue a counteraction notice, as a result of which
the proceeds on liquidation of the old company would be treated in whole or in part as if the company had
paid a dividend. However, if the trade is transferred from the company and carried on in an unincorporated
form these anti-avoidance provisions are unlikely to apply.
Entrepreneurs' relief
Where entrepreneurs' relief (ER) is available the gains arising on the disposal of shares will be charged to
tax at 10%. The ER rules are quite generous where a company has ceased to trade. The disposal of shares
(or a distribution on dissolution) will qualify under the rule that the company has within three years
immediately preceding the disposal ceased to be a trading company. Therefore where a company is wound
up ER should be available if the following ER tests are met throughout the last 12 months before the disposal
or cessation of trade if earlier:
· the individual holds at least 5% of the shares and voting rights;
· the company is a trading company; and
· the individual is an officer or employee of the company.
* * * * * *
Checklist of issues to consider
Company Shareholder
Terminal losses Entrepreneurs' relief
Disposal of assets/stock Distributions
Expenses Striking off
Overdrawn loan account Transactions in securities
Pension/termination payments Loss on disposal of shares
Page 3
4. Close investment holding companyLoan interest relief
* * * * * *
Under current proposals, from 6 April 2013, if shares are acquired under an EMI share option scheme, the
5% test does not need to be met, but they still need to have been held for a year up to cessation of trade or
sale of the shares. Nevertheless, where an individual has options over shares he would need to consider
whether to exercise those options if the company is going to cease trade and be wound up.
So long as the winding up is completed within three years of the cessation of trade ER would continue to be
available to the shareholders.
Income tax relief for losses on shares
The distributions made on liquidation will be in satisfaction of the individual's shares. As such where the total
distributions amount to less than the base cost paid for the shares, the individual may be able to claim for
income tax relief up to the value of the loss under ITA 2007 s 131 provided the shares are qualifying shares.
Qualifying shares are those which have EIS relief or those in a qualifying trading company which were
subscribed for by the individual.
Shares are subscribed for by the individual if they are issued to the individual by the company in exchange
for money or money's worth. Therefore, second-hand shares will never qualify for relief unless they were
transferred from a spouse (or civil partner) and the spouse (or civil partner) had originally subscribed for the
shares.
Relief under ITA 2007 s 131 may be capped to the greater of 25% of the individual's income and £50,000
from 6 April 2013 following recent government proposals.
Overdrawn directors' loan account
Where there are overdrawn directors' loan accounts, these need to be dealt with. Where the company is
solvent, these are usually cleared by
Tax Journal, Issue 1133, 24 at 26
a credit which is treated as a distribution on the winding-up. However, if this does not happen, it may simply
mean that the loan is written off. Where any part of a loan from a company to a director/shareholder is not
repaid the director is assessed on it under ITTOIA 2005 s 415 (as if the amount were a net dividend)
provided they liquidate or formally write off the unpaid balance. To do this, the liquidator must take an active
decision either not to chase the debt or to write it off.
Click here to view image
Loan interest relief
An individual may have borrowed money to buy shares in or to lend money to the company, and claimed
loan interest relief against total income for income tax purposes. Relief would cease to apply if the loan
remains outstanding after the company has ceased to trade, at which point it may become a close
investment holding company.
If possible, therefore, the proceeds from winding up the company should be used to repay the loan.
Page 4
5. However, where a loan has been made to a trading company, and the loan becomes irrecoverable, a capital
loss would be available so long as the provisions of TCGA 1992 s 253 are met.
Close investment holding company
On ceasing to carry on a trade, the company may become a close investment holding company. This means
that it will pay 24% tax on all its post-cessation income and gains. A company which was trading in the
period ending with the date of cessation will not be treated as close investment holding company in its
following accounting period, for that year only.
Pension and termination payments
It may be tempting, on cessation of a company's trade, to make a large pension contribution in relation to a
retiring director. A contribution following the cessation of trade may result in the company being denied a
corporation tax deduction. In order to get a CT deduction the pension contribution must be made wholly and
exclusively for the purposes of the company's trade. Whether a deduction is available will depend on the
facts. A deduction will be denied where the contribution is made in connection with the cessation of a
company's trade. So for example, where a large discretionary pension contribution is made to a retiring
director and similar contributions are not made in relation to other unconnected company employees it is
likely that a CT deduction will be denied. Where a pension contribution is made as part of the director's
remuneration package, it will be a business cost that crystallises on cessation and will therefore attract a CT
deduction.
The same principle applies to termination payments. The case of CIR v Anglo-Brewing Co Ltd (1925) 12 TC
803 held that where a termination payment or pension contribution is made for the purposes of winding up a
company and not for the purpose of a trade the company will not be entitled to a CT deduction. However,
where payments are made to employees under a pre-existing contractual or statutory obligations (for
example, statutory redundancy payments), they will be deductible for CT purposes.
When does a company cease trading?
The date a company ceases to trade is important because it may affect:
· the date the accounting period ends -- which may result in excess losses which cannot be
carried back;
· whether pension or termination payments are deductible expenses; and
· whether shares have been held for one year in order to qualify for entrepreneurs' relief.
Exactly when a company ceases trading is a question of fact. Records should be kept to evidence the date of
cessation, such as letters to customers and public notices.
Stamp duty and SDLT
Usually there are no liabilities to stamp duty or SDLT when a company is wound up. However, care needs to
be taken where a company transfers realty to the shareholders and there is a loan secured on the property
that is to be taken over by the shareholders. In this case an SDLT liability could arise on the value of the
loan, which may be treated as consideration for the acquisition of the property.
Page 5
6. Conclusion
When a company ceases to trade the shareholders need to consider what to do with the company. Usually
they would want to dissolve the company and extract the assets to which they are entitled as shareholders.
However, there are a number of potential tax liabilities that should be considered so as to ensure that the
winding up is achieved in the most tax-efficient manner.
There are tax liabilities both at the corporate and shareholder levels, and implications that cross over,
especially where assets are transferred in specie to the shareholders.
For further tax guidance, see www.taxjournal.com.
Page 6