The director of a scrap metal company approached Bailey Ahmad when he decided to close his business and retire. He sought our help to extract the value of his shares in the company (over £1.3 million) in the most tax efficient manner possible.
We recommended placing the company into a solvent liquidation (known as Members Voluntary Liquidation or MVL) with a view to making a capital distribution to the shareholder.
Following the withdrawal of Extra Statutory Concession c16 earlier this year (concerning distributions to shareholders when a company is struck off the register at Companies House without first being formally liquidated), in the absence of an MVL, any distributions to shareholders exceeding £25,000 would be treated as income rather than a capital distribution. A capital distribution carries a substantially lower tax charge for the shareholders, when compared to tax charged on income. In cases where distributions to shareholders are made via an MVL, the £25,000 restriction on capital distributions doesnt apply, potentially saving shareholders considerable amounts of tax on larger distributions.
We worked closely with the company accountant and the director to ensure that all records were up to date and all outstanding debts were paid prior to the closure of the company. In this case we were able to distribute over £1.3 million to the shareholder, saving around £400,000 in tax.
If the company were to simply be struck off, any unpaid creditor would have a number of years to apply for the company to be restored and thereafter petition to liquidate the company through the courts, which could result in criticism of the director(s).
Bailey Ahmad offers expert advice on Members Voluntary Liquidation and related issues. If you or your clients would like more information, please call Paul Bailey or Tom Ahmad on 020 8662 6070 for a confidential chat or a free consultation.