Informal winding up

Produced by Tolley
Informal winding up

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Informal winding up
  • Requirements for an informal winding up
  • Reduction of capital using a solvency statement
  • Taxation of distributions to shareholders
  • Distributions in anticipation of dissolution
  • Comparing options
  • Transactions in securities (TiS)
  • Loans to participators

A formal liquidation can be seen as an unnecessary expense when a company ceases business. This is especially true for small companies where the owners will not want to incur several thousand pounds of fees simply to realise the profits of their business.

The Companies Act 2006 does offer an alternative to the formal liquidation process. This is an informal winding up, and is done by the company applying to Companies House to strike the company off the register. The strike-off procedure can be a low cost, simple way to dissolve a company, but it will only be suitable if the company is solvent, the company’s affairs are relatively simple to close down and if its assets are relatively easy to distribute. In more complicated circumstances, it may be more suitable to use a members’ voluntary liquidation (MVL). In addition, the tax treatment of the amounts distributed on the dissolution of the company means that an informal winding up is usually only tax efficient for very small companies, ie with reserves less than £25,000.

This guidance note discusses some of the issues a company and its shareholders face when implementing an informal winding up using the procedures under CA 2006, s 1003. For more details on the tax consequences on the winding up of a company, see the Administration and liquidation guidance note.

Requirements for an informal winding up

When starting the process of an informal winding up, a company should ensure that it has transferred all of the company’s assets and property to the shareholders. In order to distribute the assets of the company, it is not necessary for the directors to convert all the assets of the company to cash. Assets may be distributed in specie (meaning ‘in its actual form’) to the shareholders. Where assets are distributed, these are treated as a distribution at market value. In the case of assets which have had capital allowances claimed, balancing adjustments will need to be made using

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