What Is Moneyboxing In Company Liquidation?

Question

What is moneyboxing in company liquidation?

Answer

Moneyboxing is the keeping money in a company. Nothing to do with the sport of boxing.

The company is in effect the box that holds the money. It is the activity of not drawing money out of a limited company but retaining it.

If money is held in a company and not drawn out as dividends or used for a trading purpose then it sits in the company and can accumulate.

When money is simply boxed by sitting in a company, the tax effect of this is usually zero. To accumulate a box of money in a company, it may have already paid tax by way of corporation tax on the profits that created this money. However, thereafter, corporation tax might be limited to the tax on the interest earned by the money sitting in the company’s bank account.

HMRC may consider this moneyboxing activity one that creates an unfair tax advantage. The potential advantage for the shareholders of the company might be that when the time comes to withdraw the funds on winding up the company through a procedure in a tax efficient way, such as a members voluntary liquidation and perhaps through seeking to take advantage of business asset disposal relief that a tax benefit might be obtained.

Under Section 684 of the Income Tax Act 2007 it is possible that moneyboxing could be considered to create a tax advantage. However, this might, depending on the circumstances, be considered an overstated risk. There are many good reasons for companies to retain cash and not distribute too much money to shareholders, such as for working capital and future financing options.