Categorized | closing a company, esc16

How contractors can use ESC16 to close down their limited company

How contractors can use ESC16 to close down their limited company

When a company is closed down and all its various taxes and debts paid off, there is usually a sum of money left over. This money belongs to the shareholders of the company and is usually distributed to them as a final dividend.

As usual this is treated as personal income by the shareholder and tax is to be paid on it, less personal allowances and company tax credits.

However, you can apply for the cash to be distributed as Capital rather than as a dividend. To do this you make an application to HMRC under the provisions of Extra Statutory Concession C16, or ESC c16 for short.

The benefits of doing this are that the monies are then liable to Capital Gains Tax rather than PAYE. CGT is due at 18% of the total less the annual allowable amount, currently £10,100 for the typical shareholder. This can represent a significant saving, especially if the shareholder has already used up their annual tax allowances.

To follow this route you should get professional guidance and write a formal letter to HMRC, signed by all interested parties. Furthermore, the application must be made and approved and all monies paid before the company is closed under the provisions of Section 652 or 652A, so some forward planning will be needed.

You can only apply for ESC c16 if you meet the following qualifications:

The company must not be subject to an investigation either by an individual or a corporation
The company must not intend to trade in the future
All creditors and debtors must be paid
The company will distribute all of its assets to its shareholders
The company must intend to seek or accept a striking off order and dissolution
The company must pay all of its corporation tax due
The officers and shareholders of the company must pay all CGT due
Finally, if the company is not subsequently closed down, HMRC have the right to cancel the order and reclaim the full tax on the assets.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: by pheezye

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