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Act now: Extra Statutory Concession C16 (ESC C16) is due to become legislation on 1 March 2012, but in a modified form.

There will be a £25,000 cap on the amount that can be distributed as capital during the course of striking off.

From 1 March 2012 a company that is ceasing trading with capital and/or retained profit and loss reserves in excess of £25,000 will need to undergo the formal winding up process of liquidation to ensure that these amounts can be paid out and taxed using the capital gains tax regime.

Due to the changes in ESC C16 many small service companies will want to take advantage of ESC C16 before 1 March 2012

The other matter is Bona Vacantia, the Treasury Solicitor has recently agreed that the Crown will not claim share capital.

See ESC C16 and striking off

Tax avoidance

It is up to HMRC to counteract any perceived tax advantage under the Transactions in securities (TIS) rules if it considers ESC C16 is being abused. HMRC appears to have used these very rarely to date in connection with striking off.

Alternative solutions

Where a company has two directors/shareholders and one is willing to retire earlier that the other, the company might consider executing a purchase of own shares to ensure capital treatment for one shareholder. This is on the requirement that tax clearance and a trade benefit test are met. 

A capital reduction may also be used to repay share capital but some careful thought may be needed to ensure that capital treatment will apply.