The House of Commons recently passed the Enactment of Extra-Statutory Concessions Order 2012, thereby giving legislative effect to six extra-statutory concessions including Extra Statutory Concession C16 which deals with the tax treatment of distributions to shareholders when a company is struck off without a formal winding up.
Under ESC C16, HM Revenue & Customs has allowed certain payments to shareholders during the winding up of a company to be treated as capital gains rather than income, without the need to instigate expensive and time consuming formal winding up procedures. Capital gains tax rates are generally lower than income tax rates and significant tax savings have resulted from the concession.
From 1 March 2012, however, a limit of £25,000 is being put on distributions which can be treated as capital payments despite strong representations from the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales for a higher limit or none at all. There is, therefore, a narrow time frame within which to apply for the application of Extra Statutory Concession C16 before the legislation is introduced on 1 March 2012.
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