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Rakhi Vasavada
Rakhi Vasavada, Financial Advisor
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when you liquidate the company. how much you can take out as

Resolved Question:

when you liquidate the company. how much you can take out as dividend or capital payment. what is the most tax effective way to take money out of company in liquidation.
Submitted: 2 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 2 years ago.
Dear Friend,

Hello and welcome. Thank you for providing an opportunity to asssit you.

Under normal circumsatances, A limited company can request to be closed / dissolved under Section 1003 of the Companies Act 2006, providing that it meets all of the following requirements:

  • Not traded within the last 3 months
  • Not changed the company name within the last 3 months
  • Is not subject to any legal proceedings, current or proposed
  • Has not made a disposal for value of property or rights

When all of the above criteria are met the Striking Off application (DS01) can be completed.

 

Having said this, There are 2 kinds of voluntary liquidation:

 

  • creditors’ voluntary liquidation - you choose to liquidate your company because it can’t pay its debts
  • members’ voluntary liquidation - your company can pay its debts but you want to close it

I believe that this is your voluntary liquidation.

 

Refer the following link for greater details.

 

https://www.gov.uk/liquidate-your-company/members-voluntary-liquidation

 

http://www.companieshouse.gov.uk/infoAndGuide/faq/liquidationInsolve.shtml

 


Regarding tax implications, During members voluntary liquidation taxation applied to the capital extracted from your company will fall under capital distributions, which means it will be taxed much lighter than the same funds would be taxed if they were extracted in the form of dividends outside of an MVL (Member's Voluntary Liquidation) procedure. If the company were to sell its assets outside of an MVL and distribute the funds to shareholders then those funds would be taxed as income distributions, which means you would pay higher taxes.

 

However, note that Since the funds would be subject to Capital Gains Tax instead of Income Tax they would be eligible for capital reliefs like entrepreneur's relief, which would reduce the taxes owed even further.

 

Entrepreneur's Relief and Reduced Capital Gains Tax - If entrepreneur's relief is available to your company it would effectively reduce your Capital Gains Tax from 18% to 10% on any gains up to £10 million. This relief is available to individuals who are disposing of the shares of a trading or holding company or group in which they hold 5% or more of the voting rights. If entrepreneur's relief is not available an MVL may still provide tax benefits depending on what tax band the individual is in.

 

Regarding corporation taxes, note that even with the liquidation happening, you may still have to file Company Tax Returns and pay Corporation Tax during the closing or winding-up process.


Refer the following link for greater details.


http://www.hmrc.gov.uk/ct/change/selling-closing.htm

 

I am sure this would help.


You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Rakhi Vasavada, Financial Advisor
Category: Finance
Satisfied Customers: 4498
Experience: Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
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