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C16 RIP
Although it sounds like a car registration number (LE55 TAX anyone?) this note is actually an update on the enactment of a statutory replacement for the Concession universally but incorrectly described as dealing with "informal liquidations". This is the concession whereby (subject to the giving of certain undertakings) the return to shareholders of assets held by a company which is about to be struck off can be dealt with under the CGT code (including scope for Entrepreneurs' Relief) rather than the much more expensive Income Tax code.
The original draft legislation proposed that it be limited to cases where the total assets were less than £4,000, thereby aligning its usefulness firmly with chocolate teapots. Following "consultation" the cap has been uplifted to £25,000. Why is any cap at all needed when the existing ESC has none? Apparently "to avoid the need for complex anti-avoidance legislation". But since the enacted ESC will in any event remain subject to the "transactions in securities" legislation at s682 et seq which would catch any attempted shenanigans, the logic for a financial cap to protect the exchequer escapes us. But there we are.
One point of clarification though: there seems to be a common misunderstanding that following the change it will not be possible to extract more than £25,000 as capital gain on closure of a company and that any excess will inevitably be charged as income. This is not the case at all. Any and all amounts distributed following appointment of a liquidator will remain capital: all that is changing is that if assets exceed £25,000 it will henceforth be necessary to incur the (not insubstantial) cost of a formal liquidation if capital treatment is to be secured.
The amended draft legislation will be laid before Parliament early in 2012. HMRC will make a further announcement to advise when the legislation will come into effect. Best advice is to get rid of those redundant companies soon: as if you had nothing better to do in the next month or two...
