Disincorporation relief

Disincorporation Relief

When the draft clauses for the Finance Bill were published, a week after the Autumn Statement, it became known that the Government had decided to remove one of the tax charges which may arise when a small company ceases trading and its business is taken over by one or more of the shareholders.  The draft clauses show that the relief, which will apply from 1 April 2013, will take the form of ‘rolling over’ the notional but taxable gain that would otherwise on the transfer of the company’s goodwill and premises to the shareholders, so that no tax is payable by the company immediately, but more tax may be payable by the shareholder when they eventually dispose of the business (or the business premises).

To pause there for a moment, in reality the trading premises are often held outside the company, by the shareholders personally, by a family trust, or by the directors’ pension scheme.  In such a case, no transfer of the premises will be required and so the new relief will apply only to the goodwill.

To continue, the relief will not be available unless the combined value of the goodwill and the premises (if currently owned by the company) does not exceed £100,000.  Not only does this limit the relief to very small companies, it also means that the shareholder will have to value the goodwill (always a difficult task) before they know whether they are eligible for the relief.

Another problem is that, if the company has claimed Annual Investment Allowances on its machinery and vehicles, a substantial part of that tax relief may be clawed back at the time those assets are transferred to the shareholders.  Other tax problems may arise and, all in all, the whole process is likely to be very complicated and the new relief will by no means be a magic bullet for solving the problems of disincorporating a business.

The shareholders themselves are also likely to suffer a tax charge, because if they do not pay full value for all the assets they take over (premises, goodwill, stock, equipment, vehicles etc), they will be deemed to have received a benefit from the company which in most circumstances will be taxable either as income or as a capital gain.

We can only conclude by saying that whether a disincorporation can be achieved at an acceptable tax cost will depend on all the circumstances of the individual case.  If you have a company that you wish to wind up, we would be pleased to advise on the best method of disincorporation and on the likely tax and other costs of doing so.

 

When a main supplier ceases trading.

This becomes an issue when you have paid in advance for goods and services, or they are specialist sole suppliers.

Well what can you do ?
Business owners who are sole traders or in partnerships are still liable after trading has ceased.   Unless the owners become personally bankrupt you can challenge them through the courts, if discussions fail.

 Limited Companies

 In Administration
The administrator decides the future of the company, whether to rescue, sell on or put the company into liquidation.  Putting a company into administration usually incurs expensive administration fees in addition to the company’s existing debts.  These fees along with banks and other secured debts are generally paid out first.

  • You can approach the administrator to request a refund of  your deposit, but they are not obliged to pay if there is not enough money to repay you.
  • Where unfinished services are being provided, you can discuss this with the administrator, but he is under no obligation to get the work completed.
  • If goods were put by, you can request their delivery, or enter discussions with the administrator to buy them.
  • Companies sold to new owners can be approached over transactions with the old company, but they can refuse to help.

Liquidation
The liquidator will use the company’s assets to clear debts and money owed to secured creditors. He will ensure that the company is closed down in way which meets legislative requirements. 

  • Any stock will be sold to clear debts (even if you have already paid for some of it). You may be able to negotiate the purchase of your goods at a ‘knocked down’ price with the liquidator.
  • The liquidator is not obliged to finished uncompleted work, so the only thing left would be to go through the courts once the secured debts have been cleared.
  • Larger creditors may consider buying the assets of the company via a pre-pack arrangement.