Tuesday, 25 June 2013

Disincorporation relief for small companies

First some notes. You will be aware that
 1. informal winding up of a company by striking off at companies house can result in an income tax charge if the assets of the company exceed £25,000.
 2. There isnt much change out of £2000 in fees for a formal winding up.


A new provision of disincorporation relief is contained in the draft finance act. If you are considering disincorporation do contact us. Both individual gains (relieved by annual allowance and subject to entrepreneurs relief at 10%) and corporation tax (less indexation allowance and subject to small companies corporation tax at 20%) need to be taken into account.

For shareholder-owned companies with land or goodwill worth, in total, less than £100,000, a disincorporation relief will be available whereby the company can transfer the trade and assets to the individual shareholders without suffering a corporation tax charge on the disposal of goodwill or premises. Until now these items would have been treated as if sold at market value to the shareholders which could lead to the company having a corporation tax liability on any gain on sale.  In many cases, this gain would have outweighed any benefits of disincorporating.

It is important to note that it is not a requirement for the business to have its net assets on the balance sheet totalling less than £100,000 in order to qualify for this relief, only that the goodwill relating to the company’s trade and any land and buildings owned by the company, and not held as trading stock, are worth less than £100,000. Many owner-managed businesses would have left the business premises outside of the company on incorporation in any event and this relief is most likely to be of value in respect of any goodwill.

The business may no longer need to prepare limited company accounts tagged using iXBRL; corporation tax returns; or operate a payroll if it has no employees other than its shareholders. The owners may then avoid the costs of winding up the company if it is no longer needed. There may however be tax advantages for business owners in continuing to operate as a company.

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