ESC C16 clearance: go ahead without our approval says HMRC.

With less than one month to go before the implementation of new measures that change Extra Statutory Concession C16 HMRC is dealing with a backlog of clearance applications.

One accountant claims to have been holding on since last August for a reply.

According to the Tax Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW), HMRC has now confirmed that if that you have written to HMRC and made the required assurances and you make the distribution before 1 March 2012 then the fact that you have not heard back from HMRC before doing so does not matter. You still come under ESC C16 and pay CGT.

The ICAEW says, "If the distribution is made in February, the distribution can be treated as capital receipts in the hands of the shareholders and the £25,000 ceiling does not apply."

The ICAEW also suggests that if all the company assets are not yet in cash then it should be possible to make a distribution in specie and come within ESC C16.

If a full distribution is not made before 1 March and the rest of the company's assets are distributed afterwards the view of HMRC is that all distributions count toward the £25,000 limit, and are liable to income tax. The ICAEW does not agree with this analysis. By all accounts a barrister's chambers have been consulted and they side with the ICAEW. 

 

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