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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Madam, we want to sell our trading company. The

Resolved Question:

Dear Sir / Madam,
we want to sell our trading company. The Ltd consists of one shareholder which is also company’s director. The person in case is a Romanian and is living in Romania, but he has indicated UK address as a residential (he registered the company in 2012 when being a student at LSE) when completing director's and shareholders' details, and he is the holder of 100% stake in the company, which represents two unpaid ordinary shares of £1 each. The company does not have any tangible assets or liabilities. The firm did not have any financial activities since incorporation in 2012. In 2015 a late filling penalty was paid (by an individual) to Companies House.
Can you please help us to answer the following questions?
1) Is the shareholder/director considered a non-UK resident, thus he has no taxes to pay when selling shares? (he has registered with UK address, but de facto fills Annual Returns and Accounts from abroad) (He left UK in 2013, after finishing his tuition, and since, he did not travel back)
2) What taxes and what amount does shareholder have to pay if transferring/selling all shares for £1M? (eg. CGT, Income Tax, Corporation Tax, Wealth Tax)
3) Does the shareholder need to fill tax returns every year since incorporation if the company did not have any financial activities since incorporation? (What would be the penalty if not filling?)
4) What is the legal way of selling the following Ltd. for more than its market price?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.
Can you tell me what assets the company possesses that make it worth a large sum of money, given that it has never traded. Can you elaborate on exactly what you mean by Q4.
Customer: replied 2 years ago.
Hello,The company does not have any assets. The new buyer wants to buy the company because of the nice company registration number, and is willing to pay more for it, even if it does not have any assets.
Expert:  TonyTax replied 2 years ago.
Thanks.
Leave this with me while I draft my answer. It will take a while so please bear with me.
Customer: replied 2 years ago.
Thank you in advance.
Expert:  TonyTax replied 2 years ago.
Hi again.
1 The company is UK resident and is subject to UK company law and UK tax law. If the director/shareholder is non-UK tax resident when he sells his shares, then he will pay no UK CGT. Without more information, I cannot tell you if the shareholder is or has been non-UK tax resident. Take a look at the notes at the links below for more information on UK tax residency for individuals.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/458559/RDR3_govuk_hyperlink__updated_078500.pdf
http://www.shipleys.com/resources/issue/statutory-residence-test
You might also look at the rules on temporary non-residence at the link below.
https://www.gov.uk/government/publications/temporary-non-residents-and-capital-gains-tax-hs278-self-assessment-helpsheet
2 If the shareholder was treated as UK resident when he sold his shares, his gain would be liable to Capital Gains Tax. The first £11,100 of gains an individual makes in the current tax year would be exempt from CGT. There are two rates of CGT, 18% and 28%. The rate or combination of rates that he would pay would be dependent on the sum of his income and the net taxable gain for the tax year in which the gain arose.
Given that the company has never traded, I doubt that entrepreneurs relief could be claimed. If it could the CGT would be limited to 10% of the net taxable gain. You can read about ER at the link below.
https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet
As it will be the shares that are being sold, there would be no liabilities for the company arising from the share disposal but the new owner may have to play catch up with Companies House and HMRC.
3 A company should file annual accounts and a CT600 corporation tax return every year unless it has informed HMRC that is non-trading in which case HMRC may allow it not to until it is trading. Annual returns and abbreviated accounts should also be filed with Companies House.
Take a look at the notes at the links below.
https://www.gov.uk/restart-a-non-trading-or-dormant-company
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/447157/GP2_Life_of_a_Company_Part_1_v4_5.pdf
http://resources.companieshouse.gov.uk/webfiling/demoVideos/dormantAccounts.shtml
Information on late filing penalties can be found at the links below:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/422518/GP5_Late_filing_penalties_v2_9.pdf
https://www.gov.uk/prepare-file-annual-accounts-for-limited-company/overview
4 A company like anything else is worth what someone is prepared to pay for it. Clearly the company has no assets so it is technically worthless as far as I can see but if someone is prepared to pay a large sum of money for a company registration number, then there is nothing to stop the owner legally from selling at a higher price than the asset is worth provided the buyer has all the information to make an informed decision.
Many UK companies are set up that never trade and never comply with Companies House and HMRC regulations and end up being struck off with seemingly little in the way of consequences for the director(s). However, if a company has been run badly incurring debt and not paying its taxes, directors can be disqualified from serving as directors for life.
I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.
Thank you for your answer, can we define the tax residency status of the current shareholder, having the information below:
1) He firstly came to UK in September 2009 for studying (having romanian passport)
2) He didn't work anywhere in UK and did not have a Employer Identification Number
3) He never registered as a tax payer
4) The company is not registered for VAT
5) The company was incorporated in 2012, and was not doing any activities
6) The above shareholder was hired as the director of the LTD. and he filled all account and annual returns each year
7) While 2009-2013 he was flying to UK just for studying and not working or doing business
8) In July 2013 he left UK, and went back to his Romania, and since he did not travel back to UK
9) He is using Barclays debit card
Expert:  TonyTax replied 2 years ago.
Does the shareholder have a home in the UK or any family in the UK?
Customer: replied 2 years ago.
No
Customer: replied 2 years ago.
He doesn't have any relatives in UK, or any property
Expert:  TonyTax replied 2 years ago.
Thanks.
If the shareholder has not been back to the UK since July 2013, then he will have been non-resident for 2014/15 and for the current tax year, 2015/16, to date. He should be able to sell his shares and pay no CGT in the UK but he should seek local expert advice as far as tax in Romania is concerned.
Customer: replied 2 years ago.
Thank you, ***** ***** means that if UK and Romania has double taxation agreement stating that no tax has to be paid in Romania, than the shareholder will pay nor CGT nor Income Tax in UK ? And if there were filled dormant account to Companies House than no tax return has to be filled ?Regards
Expert:  TonyTax replied 2 years ago.
The existence of a double tax agreement does not mean that the gain is not taxable in Romania.
Article 14, paragraph 4 of the UK/Romania double tax treaty says that gains from the sale of any property other than those mentioned in of Article 14 will be taxable only in the country of residence of the vendor, ie the shareholder. Read Article 14 here:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/412594/romania.pdf
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.
Thank you very much for the information.
Expert:  TonyTax replied 2 years ago.
Thanks and good luck.
Customer: replied 2 years ago.
Regarding to our previous discussion, we skipped a question which sounds as: if the director from our LTD indicated an UK address as his contact address and registered office address for Companies House, but he lives abroad. In the case he wish to sell shares within the company, will he be considered as living abroad or living in UK? Will this influence UK tax residency status?
Expert:  TonyTax replied 2 years ago.
No, it won't.
Customer: replied 2 years ago.
Thank you