If you are thinking of winding-up your company, then be warned that one beneficial approach suitable for small companies is now severely restricted.

For a company with straightforward affairs and paid-up creditors, the cost and administrative burden of a formal winding-up can be avoided by simply having the company struck off. The drawback to this approach is that leftover cash withdrawn from the company is treated as income instead of capital – with tax rates up to 36.11% instead of a possible 10%. You were once able to opt for the more beneficial capital treatment using an HMRC extra-statutory concession, but the concession has been replaced by legislation and there is now a £25,000 cap on the amount that can be treated as capital. Exceed the limit and all withdrawn cash is treated as income.

If your company has more than £25,000 to distribute, then careful planning is now necessary. It may be an option initially to pay normal dividends, leaving £25,000 as capital – although this is not a satisfactory solution if there is substantial surplus cash. Alternatively, your company could purchase back its own shares, but this will not work for sole shareholders. Ultimately, the only solution may be to go down the formal winding-up route.

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