Wednesday, 29 August 2012

SOLVENCY ABUSE-Winding up, tax and MVL's - Guest Blogger and Tax expert Aidan McLaughlin wants your feedback....


For a Chancellor committed to the abolition of red tape, one of the subtle changes George Osborne introduced this year is likely to tie some SME owners up in the stuff.  For those who may be seeking to wind up a solvent business, the new measures have the potential to heap time, costs and complexity into the process.

 Winding Up A Solvent Company

Legally, the default position for winding up a solvent company was, and still is:-

1.       Wind up informally via a strike off

2.       Liquidate through a members’ voluntary liquidation

Tax - the tax treatment for the final distributions made to the shareholder(s) under both of the above options is:-

1.       strike off - distributions are taxed as dividends

2.       members’ voluntary liquidation -distributions are taxed as capital gains

Whilst everyone’s tax position is different, for higher rate and top rate taxpayers capital gains tax treatment will generally afford a much better outcome than dividend treatment; even more so if entrepreneur’s relief is available.  

Generally therefore the preference would be to seek capital gains treatment.

Pre 1 March 2012

As liquidations are generally much more costly than the £10 fee payable to Companies House for a strike off, prior to March 2012 HMRC used to allow - via Extra Statutory Concession C16 – that, providing certain criteria were met and undertakings given, a solvent company could be struck off without the need for a liquidator to be appointed, and any distributions treated as a capital gain.

That concession therefore allowed the best of both worlds – the cheaper option for winding the company up and the more efficient tax treatment on the distribution.

1 March 2012

From the above date, however, Concession ESC C16 no longer exists but is now enshrined in legislation – with a nasty twist.  

Under the new legislation for company strike offs,

·         If the assets to be distributed are less than £25,000, then the shareholder automatically gets capital gains tax treatment (and an application to HMRC is no longer required), but

·         If the assets are above £25,000, any distribution will be treated as a dividend.

So for companies where the assets are above £25,000, the better option is likely to be winding the company up formally via a members’ voluntary liquidation. The subsequent distribution of assets will be taxed on the shareholder(s) as a capital gain.

However, winding up need not be an expensive service.  As Maureen Leslie, MLM Director of Corporate Solutions explains:

                         “MLM has a risk based approach to members’ voluntary liquidations.

                         Working alongside the Company’s tax adviser, we can provide a cost

                          effective solution to the difficulties Aiden has highlighted, which

                          removes any risk to the business owner.”

The message is clear – anyone intending to get rid of a solvent company should always obtain good advice, ideally from a chartered tax adviser.  As tax on the transaction can range from 10% to over 40%, some time and money invested up front could provide significant savings later.

A note about the Guest Blogger

Aidan McLaughlin is a partner at McLaughlin Crolla LLP. He has more than 25 years experience in tax, advising sole practitioners and large corporations alike.

Aidan specialises in reconstructions, acquisitions, mergers and corporate finance.
For more information, please see



  1. I think that is an interesting point, it made me think a bit. Thanks for sparking my thinking cap. Sometimes I get so much in a rut that I just feel like a record.
    MLM Leads
    New MLM

  2. Thanks for the feedback, glad to hear it makes sense!

  3. Hello there! This is a good read. I will be looking forward to visit your page again and for your other posts as well. Thank you for sharing your thoughts about tax solutions in your area. I am glad to stop by your site and know more about tax solutions. Keep it up!
    The most significant endorsement of the STMS approach to sales tax compliance has come from the Streamlined Sales Tax Project, once known as SSTP but now widely referred to as SST. SST is a consortium of states that has been developing a centralized standardized system for sales and use tax collection across multiple states. The first service-provider, “STMS model” vendors SST has certified to help implement and manage its centralized collection and remittance system are three SST certified service providers.
    Know all the tax solutions offered by Tax Group Center

  4. Because of the economic uncertainty we live in today, more and more people from all walks of life are coming to the MLM Home Business industry with the dreams that someday they will be able to quit their job or a traditional business so that they can enjoy more financial security and a better quality of life. MLM Home Business has created freedom and wealth for millions of people all over the world, and it is expected to continue to do so. In fact, more millionaires are expected to come from the MLM industry than any other industry. MLM is a proven system of business that is based on leveraging your time, energy and resources. If you are someone who wants to have a better way of life, then an MLM Home Business can be your answer. A successful MLM business can be one the most wonderful thing for yourself and your family.