Closing a Business

There is an important piece of legislation called ESC 16 which basically states that what’s left in a company on closure can be distributed to the shareholders as a capital distribution rather than as a revenue distribution as long as the amount does not exceed £25,000 without the company going through a formal dissolution process.

What this means to the layman is if there is less than £25K left in the company you can have the company struck off and distribute whats remaining as capital and not dividends.

Capital distributions are subject to capital gains tax rather than income tax  and so you can take advantage of the yearly tax free capital gains tax allowance and the tax rates are taxed at 18% or 28% rather than income tax rates.

If there is more than £25,000 left in the company then it may be beneficial to appoint an official insolvency practitioner and go through a formal dissolution of the company via something called a Members Voluntary Liquidation. This will also mean that what’s left in the company will be distributed as capital rather than income but there will be fees to pay to the liquidator

It all depends on the personal circumstances of the shareholders and of course professional help should be sought in all cases.

If you need further help and advice please do not hesitate to contact me at [email protected] or call me on 0845 680 7084


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