Enactment of HMRC’s Extra-Statutory Concession C16

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HM Revenue & Customs (HMRC) has limited discretion to make concessions in relation to statutory tax provisions.  Following a recent judicial decision suggesting that this discretion was more limited than had been assumed previously, it has embarked on a programme of enacting many of these concessions.  One such is a concession benefiting shareholders of dissolved small solvent companies, which has recently been enacted in modified form and will come into effect on 1 March 2012. 

ESC C16 was enacted on 31 January 2012 when The Enactment of Extra-Statutory Concessions Order 2012 received Parliamentary approval.  Until now, ESC C16 has allowed shareholders of those companies dissolved without having had a liquidator appointed to treat any distribution of surplus assets as capital payments rather than income.  The new statutory provisions will now require such distributions that exceed £25,000 to be taxed as dividends.

In a formal winding up, distributions to shareholders are treated as capital payments rather than income, which is otherwise the norm.  ESC C16 equalised the tax treatment of a distribution made outside the winding up process by a small company facing disproportionate winding up costs.  Small companies with surplus assets may be dissolved for a number of reasons.  From a tax perspective, however, the goal of shareholders is always going to be the same, irrespective of the circumstances behind a company’s dissolution:  they will be looking for a tax efficient way to end their investment in the company.

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Published In: Bankruptcy Updates, Business Organization Updates, Securities Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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