Strike off while the iron is hot!

Prior to 1 March 2012 it was possible to withdraw reserves from a solvent company that had ceased trading prior to it being dissolved without the need to go through a formal members’ voluntary liquidation. Under Extra Statutory Concession C16, the company could apply to HMRC to get confirmation that distributions made prior to the striking off would be subject to capital gains tax in the hands of the shareholders.

ESC C16 was withdrawn with effect from 1 March 2012 and replaced with a statutory rule contained within section 1030A of the Corporation Tax Act 2010. An important feature of this legislation is that capital treatment is only available to companies with distributable reserves of £25,000 or less. It applies where a company makes a distribution in respect of share capital in anticipation of its dissolution in one of two situations:

1. Where the company is in the process of being struck off under the procedure in section 1000 of the Companies Act 2006 (where the Registrar strikes off a company that it believes not to be carrying on business or in operation e.g. because it fails to file accounts on time); and

2. Where the company in in the process of applying or intends to make an application to be struck off under section 1003 of the Companies Act 2006 (voluntary striking off).

With the threat of capital gains tax rises in next week’s Budget, some small business owners may want to rely on section 1030A to crystallise a capital gain (using the second option) before Budget day. 

Given the fact that the striking off process takes around three months – as various statutory notices have to be placed in the London Gazette – the question arises of whether they have left things too late.

Relevant legislation

Helpfully, the conditions set out in section 1030A are friendlier than one might expect. Having established that the company is making a distribution either because it is in the process of being struck off, or because it intends to apply to be voluntarily struck off, the relevant further conditions are simply:

a. That at the time of the distribution the company intends to secure, or has secured, the payment of any sums due to the company, and intends to satisfy, or has satisfied, any debts or liabilities of the company; and

b. That the amount of the relevant distribution(s) does not exceed £25,000 in total.

Consequently, the company does not need to have collected all its debts to qualify under section 1030A before it makes the distribution.  It is only necessary that it intends to collect all its debts. Also, it is not necessary for the dissolution process to have started – if following the voluntary strike off route – at the time the distribution is made.

Note, though, there is a longstop date within section 1030B, which provides that the dissolution must occur within two years of the distribution. If this does not take place then any capital treatment claimed would be withdrawn.

Example

Baldrick has a company with £20,000 of reserves. It made losses in the final period of trading, and he intends to claim a refund of £3,000 of corporation tax under the terminal loss relief rules. He has been told that HMRC could take up to 6 months to process the claim, and he will not be able to strike the company off until the refund is received (otherwise the money will go to the Crown under the bona vacantia rule). He wants to get the £20,000 out before Budget Day on 30 October 2024.

Provided Baldrick can demonstrate that: (a) he intends to collect the corporation tax repayment; and (b) intends to apply for the company to be voluntarily struck off, then the £20,000 could be distributed, say, on 29 October 2024 with capital treatment, provided that the dissolution is completed by 29 October 2026.

Eventually, Baldrick obtained the £3,000 refund in May 2025, which he subsequently distributed.  He then applied to have the company struck off and this took place in August 2025. As the distributions were less than £25,000 in total, capital treatment applies (and helpfully the second one will benefit from a new tax year’s annual exemption!)

Forbes Dawson view

Obtaining capital treatment via the striking off route is, regrettably, only available to very small companies. However, in relevant circumstances it is helpful that the legislation provides up to two years to complete the winding up and enjoy capital treatment on earlier distributions. Furthermore, an initial distribution can be made quickly, provided the business owner can evidence their intention to tidy up the company’s affairs (by collecting debts and satisfying liabilities) and then apply to strike the company off. It would make sense to evidence this with appropriate board minutes around the payment. However, this approach does not circumvent general risks associated with liquidations such as the ‘anti-phoenixing rules’. These rules can have the power to reclassify a capital distribution as a taxable dividend where similar activities are carried out within two years of the payment.

 

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