HM Treasury is taking a tougher line on enforcing its powers to seize ownerless assets from struck-off companies, warns Wemyss Stewart.

Up until last month, the practice of the Treasury Solicitor's department was not to seek to recover assets paid out during a company strike-off, provided the amount involved is less than £4,000. Now, with effect from 14 October 2011 that practice has been withdrawn.

This means that, from now on, if a company is struck-off rather than formally wound up and the extra statutory concession C16 is used, any of the money paid out to the members which is not formally distributed under the Companies Act can be recovered by HM Treasury under the “bona vacantia” rules covering ownerless assets.

Click here to learn more about our Business Advisory services 

HM Revenue & Customs' concession ESC C16 applies to the tax treatment of distributions made in the course of dissolving a company where there is no formal winding-up – which can be an expensive process. The change means that those applying under ESC C16 for distributions to shareholders to be treated as capital, rather than income distributions, for taxation purposes, must - in order to protect the distributions from the Crown's bona vacantia rights – would do well to ensure that the share capital of the company has been reduced to a nominal value.

Meanwhile, the statutory enactment of ESC C16 is to take effect from 1 March 2012 by amendments to the Corporation Tax Act 2010: the amount that former shareholders will be able to distribute under the new statutory provisions as capital will be limited to an absolute maximum of £25,000, regardless of the level of distributable reserves available; and although somewhat restrictive, this is an improvement on the £4,000 limit that was originally proposed. What this means is that if a company wishes to make capital distributions in excess of £25,000, a formal winding-up will be required, rather than a striking-off.

Care is always needed when share capital is repaid or reduced, and when distributions are made, to ensure that those transactions are undertaken in accordance with the provisions of the Companies Act 2006. Unauthorised distributions can be recovered by the Crown and lead to taxation issues with HMRC.

Advice should always be sought from your professional tax advisor before taking any decisions or action towards striking off a company.

Contact

Wemyss Stewart, Director, Business Advisory Group