What Happens To Money In A Members Voluntary Liquidation? If you are a Director of a company in Liquidation, Oliver Elliot can help you address your concerns.
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The money is typically transferred from the company bank account to a Liquidation bank account.
What Happens To All Of The Company’s Money In A Members Voluntary Liquidation?
In a Members Voluntary Liquidation, the Liquidator has to realise the assets and take control of them. That includes the Company’s money sitting in its bank account.
As a result, the Liquidator will transfer the company money into a Liquidation bank account which is under the control of the Liquidator. At Oliver Elliot in every Members Voluntary Liquidation, a new bank account is set up in the name of the company. It is not mixed with monies of any other party, company or person. It is in effect a separate bank account that holds all the money of the company on trust for the company and therefore its shareholders. This money is to be used to settle the costs and expenses of the Liquidation and to make distribution(s) to the shareholders.
What Happens To The Company Bank Account In A Members Voluntary Liquidation?
The company bank account will be closed by the Liquidator. This will also ensure that no further bank charges are incurred in the operation of the old company bank account.
How Is The Money Transferred To The Shareholders In A Members Voluntary Liquidation?
In order to transfer the money to the shareholders, clearance is sought from two HMRC departments. If clearance is not obtained first and if an HMRC tax problem was to arise then it would need to be paid back to the company in Liquidation.
When HMRC clearance has been obtained then the Liquidator can transfer the money to the shareholders by what is called a dividend or distribution. It will involve a transfer of money from the Liquidation bank account to the personal bank accounts of the shareholders. The shareholders will therefore need to provide their bank details to the Liquidator to effect the same or alternatively the payment can be made by cheque.
In addition, there will be a dividend declaration which will be recorded and the documents will be provided by the Liquidator to the shareholders so that they can then support the position on their personal tax returns.
What Is HMRC Clearance?
As a company is subject to Corporation Tax, it is necessary to obtain clearance from HMRC’s corporation tax department to fully Liquidate the company and close it down. The purpose behind this is to ensure that all Corporation Tax Returns (“CT600s”) for the trading periods have been filed and are up to date. HMRC will not provide clearance if there are any outstanding CT600s or unpaid Corporation Tax.
In addition, there is another HMRC department at what is known as the MVL Unit that provides HMRC tax clearance for other taxes such as VAT, PAYE/NIC etc. The same principles will apply as for Corporation Tax in relation to outstanding returns and unpaid tax. HMRC will not provide clearance if there are any outstanding returns or unpaid tax.
When Will HMRC Clearance Be Obtained?
HMRC clearance can take sometime to be obtained. HMRC deals with correspondence typically in date order and therefore it can take a number of weeks or months before HMRC deal with the Liquidator’s formal requests and confirms clearance. The timescale is difficult to speculate on as it is outside the control of the Liquidator and down to HMRC.
How Do Shareholders Calculate And Declare Capital Gains Tax On The Dividends Received?
The shareholders who have received dividends from the Liquidator might be eligible to claim Business Asset Disposal Relief (formerly known as Entrepreneurs Relief) having received the dividend payments often as capital instead of income. The dividends will need to be declared on the personal tax returns of the shareholders.
If you are eligible for Business Asset Disposal Relief you may well find yourself with a generous relief from paying capital gains tax personally. Upon the company being placed into Members Voluntary Liquidation and a distribution being made by the Liquidator, the same can then potentially be subject to tax at the favourable rate of 10% as a capital gain.
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