Tax aspects of the extraction of funds when winding up a company
Posted on 12th June 2019 at 16:15
If you have stopped trading through your own personal company and have no further use for it you could sell the shares or wind it up taking out any value as cash.
There is a limited market for second hand companies which do not hold any valuable assets, so winding up the company is probably the next best solution. There are two way to do this: a formal liquidation or an informal dissolution when you simply apply for the company to be struck off the register at Companies House.
A licensed insolvency practitioner needs to be appointed to carry out a liquidation and their fee will be at least £1,500. However, all the surplus funds can be paid to you as a capital gain. If this is done within three years of the date the company stopped trading you may be eligible to claim entrepreneurs’ relief, reducing the rate of tax payable on the gain to 10%.
All the conditions for entrepreneurs’ relief need to be met for at least 24 months to the cessation of the trade, so we need to look closely at who held the shares during that period.
Using an informal dissolution up to £25,000 of value from the company can be treated as a capital gain. If the amount distributed on dissolution of the company is greater than £25,000, then the whole amount is taxed as if it were a dividend. You may wish to reduce the value in the company by paying out a dividend before the dissolution process starts.
Beware of starting up a similar business within two years of winding-up your company as that can result in all the value received on liquidation of the old company being taxed as dividends.
Questions or queries?
Please do let us know if you have any questions or if you need any further help understanding the guidance – please call us on 01932 564098 or message us here.
Information correct at time of publication
This note was published from our Summer 2019 Tax Briefing dated June 2019
Please be aware that the information above may have changed in subsequent months.
This note is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or for taking professional advice.
Tagged as: Winding Up
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