ESC16 and Entrepreneurs relief

[seasider]

Hi,

Does anyone have any experience of how successful claiming money extracted from a closed company as a capital distribution is when the Revenue were not informed at the time ?

In short, a company ceased to trade in October 2008 and was closed down in the normal way (652a form, corp. tax all paid etc.) But ESC16 was not even asked for apparently. Now the directors personal tax return for that year is showing the distribution as a capital gain. Will the revenue accept this ? And if not what will they do.

TIA.

[David Griffiths]

Strictly if ESC16 was not applied for in advance any distributions will be regarded as normal dividends. You haven't given any figures - if the director is a higher rate taxpayer then additional tax will be due. If not, then there may be nothing to pay, so the failure to apply won't matter.

If the return is submitted with the amount as a capital gain, then it's up to the Revenue to open an enquiry into the return. If they do open an enquiry, I suspect that they won't give retrospective approval and that they'll want the distributions returned properly.

If no enquiry is opened within 12 months of the return being submitted it's likely that the director will get away with it.

I've never come across the situation in practice, and I suspect that most other accountants haven't, simply because it's our job to make sure that things are done in the right order

[seasider]

Thanks David.

There is a £6k difference between the Capital Gains return and the Dividend return so hopefully the former is OK.

Without going into detail we can't ask the accountant who helped close the business down if he did an ESC16. Is there a way of finding out, and if the only way is to ring the rev. is that wise ?

[John Mansley]

It's doubtful an ESC16 claim has been sent in. We recently carried out ESC16 work and, although we prepared the claim, it was the director who signed the document.

[David Griffiths]

The document has to be signed by all shareholders (as it contains undertakings about payment of corporation tax), but when we deal with the matter we send the signed documents to the Revenue