Distribution of Profits

Emma29 Registered Posts: 2 New contributor 🐸
If a company has retained profits of £30000 and then decides to have the company disolved what is the most tax efficient way of distributing those profits to the shareholder (only one shareholder the director). I have had a look at the extra statatory concessions on IR website but am a tad confused by the articles on there......


  • peugeot
    peugeot Registered Posts: 624
    It is usually more tax efficient to have the reserves distributed as a capital distribution. To do this you would have to obtain clearance from HMRC using ESC 16 (Extra Statutory Concession).

    Kind regards
  • JonC
    JonC Registered Posts: 7 Regular contributor ⭐ 😼 ⭐
    Profits distributed

    with £30,000 of post tax reserves you could distribute a dividend and as long as the director has no other income, he would not be into higher rates of tax, if this is the case you could also pay small salary and get a tax deduction!

    The HMRC Extra Statutory Concession 16 allows the revenue to give clearance for capital distribution, and then striking off. But the shareholders have to take responsibility should any investigation reveal additional tax liability.
  • Bluewednesday
    Bluewednesday Registered Posts: 1,624
    But if you go for a capital distribution you get the annual exemption (assuming no other capital gains) and can utilise any capital losses so it all depends on the taxpayers situation.

    We've not yet had a case where the taxpayer was better off having a dividend than a capital distribution.
  • JonC
    JonC Registered Posts: 7 Regular contributor ⭐ 😼 ⭐

    I Agree the majority of the time ESC16 is the best route, but if there are losses, and you dont have to use them, why would you, and if there are other gains utilising the personal allowances the revenue route is another option.

    It all depends on the tax payers circumstances.
  • Emma29
    Emma29 Registered Posts: 2 New contributor 🐸
    Thank you

    Just wanted to thank everyone for their responses and also to ask if anyone could recommend someone within the Swansea are who would be able to assist me with the calculation of the capital distrubtion as this is not something I have ever done before or at least be able to direct me to some literature that may be of help.

    Many thanks
  • catherinecleaver
    catherinecleaver Registered Posts: 2 New contributor 🐸
    maybe a Redundancy payment

    Have not come acress this before, I only do a dozen or so Ltd Companies, and most of them have kept going.

    But does the company have a payroll system in place, If so, is there any reason why you couldn't pay out the reserves as a redundancy payment before the company is disolved? Which would then be free of tax and nationanal insurance as shown on:


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