The Extra Statutory Concession C16 (ESC C16) is an enterprise that the HM Revenue and Customs granted. It allows the directors of any company to end up a solvent company by themselves without selecting a liquidator. Afterwards, they will pass the surplus funds to the shareholders as capital receipts instead of dividends.
History of ESC C16
The HM Revenue and Custom formed the ESC C16 in 1985. It enables shareholders to receive imported tax rates from a business that is closing in a solvent position. The major perk of this concession is that distributions on business closures are dealt with as capital receipts.
The HMRC requires an application before providing anyone an ESC C-16 treatment. There is no need to place the company in the Members' Voluntary Liquidation, though.
1. A distribution is an income if it is on the hands of the investor. Distributions made by the company, however, are excluded. These in turn are capital payments to be taken into account by calculating chargeable gains from the shareholders.
2. A company that has closed down or ceased business altogether has an option not to undertake the administration and the costs involved. It may simply distribute the remaining assets to the shareholders. Afterwards, they will await the Joint Stock companies to dissolve them under the sections 1000 or 1003 of the Companies Act 2006.
3. Business closure under the sections 1000 and 1003 or any other related provisions has the distribution of its remaining assets to the shareholders as an income distribution.
The New Order
After the consultation with the HMRC and the local government, the ESC C16 has now developed into legislation. They introduced it as the Enactment of the Extra-Statutory Concessions Order 2012 on March 1, 2012. This limits the amount of distribution that a corporation can make on the closure of a company without using an MVL or Members' Voluntary Liquidation. The HMRC has set a 25,000-pound limit for the right to obtain capital treatment of distribution.
The company needs to apply for an MVL if they want to get a capital treatment, however. This way, the shareholders have their own copy on the distribution when the company closes. The HMRC will classify distributions above 25,000-pound as dividend income, which is subject to income tax rates. It is automatic if the capital tax treatment is lower than 25,000-pound.
Advantages of Using an MVL
The capital reliefs that shareholders can make an application for from distributions of a solvent business closure is lower than the usual tax amount. Corporations can get a 10 % deduction from their tax. Shareholders can request this during the end of year self-assessment tax return or file in the Section A component of their "Business owners' Relief" factsheet.
The Entrepreneurs' Relief has the following features:
1. It is available to businesses that have been in the industry and traded for at least a year.
2. For a lifetime, it has a limit of 10 million pounds.
3. It is not applicable to all business situations, so consulting an expert is necessary.
The Extra Statutory Concession C16 (ESC C16) is an excellent way to distribute the remaining assets of a closing company. In this manner, shareholders are sure that everything is distributed equally. Search online for more information.
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