Schedule 16

[davies515]

Good morning

My husband is sole director for a ltd company which ceased trading at the end of August, the plans are to keep the company name and file dormat accounts when applicable. There are net assets in the company which are available for distribution to the shareholders. I have been told that these can be distributed by using schedule 16 as this will save tax but I do not know how to go about it! Can anyone give me any advice on how to proceed?

Also we were both on the payroll, he ceased to be employed from 31 August but I am still employed. I am aware that I can have redundancy pay of 1 week for each full year's employment, but would it be acceptable to be paid £1000 for each year's employment as severance pay and how should I treat this in the accounts and payroll?

[David Griffiths]

I think that you mean Extra Statutory Concession C16 (http://www.hmrc.gov.uk/specialist/esc.pdf)

That only applies if the company is being dissolved using the process in section 652 of the Companies Act. As you are not dissolving the company, it won't apply, so distributions will be normal dividends.

The revenue will only permit deduction of redundancy pay if it is for the purposes of the trade, and excessive amounts paid to a director or shareholder will very probably be challenged, and treated as normal pay

[Maslins]

Agree with David they probably mean ESC C16. Technically, in order to get funds received upon closing a company as a capital receipt (more tax efficient than income in the majority of cases) you need to have a formal liquidation done. These can be fairly expensive.

ESC C16 basically means you can get the same tax treatment (capital) even if you don't go into liquidation, but simply have the company struck off (much cheaper).

If you do want to keep the company, you could potentially pay out dividends over several years, at amounts depending upon your other income. But formal accounts would still need to be filed.

[davies515]

Thank you.

I thought it would be unusual for HMRC to agree that shareholders may take funds out of the business without the tax being paid!

[yorkshirejames]

Good morning

My husband is sole director for a ltd company which ceased trading at the end of August, the plans are to keep the company name and file dormat accounts when applicable. There are net assets in the company which are available for distribution to the shareholders. I have been told that these can be distributed by using schedule 16 as this will save tax but I do not know how to go about it! Can anyone give me any advice on how to proceed?

Also we were both on the payroll, he ceased to be employed from 31 August but I am still employed. I am aware that I can have redundancy pay of 1 week for each full year's employment, but would it be acceptable to be paid £1000 for each year's employment as severance pay and how should I treat this in the accounts and payroll?

If this is a genuine situation, then as far as I am concerned you can both pay yourselves £30,000 each tax free and sign a compromise agreement. HOWEVER this is something that you must get a solicitors' advice on.

GET ADVICE before doing something that could have been done better.