Wind up a company

Question 1

What are the two methods a company can be wound up

Answer 1

Formal liquidation
Informal liquidation

Question 2

Explain a formal liquidation (6)

Answer 2

A special resoltuion is passed to wind the company up (75% of shareholders agree)

Engage a insolvency practicitoner to value the assets to distribute to the shareholders

Oustanding debts are recovered and creditors paid

Distribution to shareholder is treated as a capital distribution

BADR is likly to apply

Downside: costly £2000 - £7000

Question 3

Explain an informal winding up

Answer 3

Shareholder decide to stike off company, if the following conidtions are met the distribution to shareholder is treated as a capital distribution

Collected (intends to) debt, satisfied (intends to) any liabilities

Total distributable reserves are less tha £25,000

If condition are not met, then treated as income ‘dividends’

Question 4

What is pre liquidation dividends and how does HMRC view this

Answer 4

If a company distributes dividends prior to winding up so that the balance on resevres is £25,000 HMRC will include the pre distributed dividends when comparing to the £25,000 cap.

Hard to prove that the shareholder has intended to wind the company up (no evidence in board minutes)

Maximum tax saving is 25,000 *39.35%

Question 5

Explain priority of HMRC debt

Answer 5

If a business enter into insolvency on or after the 1st December 2020 then HMRC will be treated as a secondary preferential creditor in respect of company debts

After an fixed charges have been paid then HMRC will take precedence over other creditors

The debts include amount the company is obliged to pay on other behalf e.g PAYE, VAT, income tax, NI

Not secondary NI or CT