CH 29 - Extracting Profits From a Company

Question 1

How a company can distribute profits?

Answer 1

in a way of;
* - reward the directors and employees by means of remuneration; or
* - distribute profits to their shareholders by dividend; or
* - accumulate the profits within the company
* - capital route - purchase of won shares & distribution on winding up

Question 2

What means TAAR?

Answer 2

TARGETED ANTI-AVOIDANCE RULE (TAAR) TO PREVENT PHOENIXISM

There are anti-avoidance rules to prevent a company from declaring dividends before winding up such that only £25,000 is left in the company’s reserves.

Question 3

What happens if company goes insolvent with HMRC liablity for company’s own taxes and collected taxes?

Answer 3

Company’s OWN taxed owed to HMRC
- HMRC may issue notice making jointly and severally liablity for the company’s tax liablities and taxes (the directors & people connected to a company)
- given that;
* - the company’s liabilities arise from the avoidance/evation of tax
* - there has been repeated insolvency; or
* - a penatly for faciliatiing tax avoidance or evasion has been imposed.

TAXES COLLECTED (VAT, CIS, PAYE)
- HMRC is a preferred creditor in respect of money owed to HMRC

Question 4

What forms can take winding up a company & its tax consequences?

Answer 4

Formal Winding up;
* liquidators are appointed = capital distribution, liable to CGT
* BADAR may be availalbe (personal trading company, employee of the company & disposed within 3y from the date the trade ceased)

Informal Winding up
* (aka Struck Off CTA 2010, s.1030A)
* if a company has more than £25,000 to distribute, any distributions are treated as dividends chargeable to income tax. This £25,000 ‘cap’ applies to the total amount distributed by the company (not ‘per shareholder’).