Corporation Tax

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    Corporation Tax

    Hi, Please can someone tell me if Corporation Tax only becomes payable to the IR on sale of an asset.
    My husband is a director of a property development company - there are only 3 directors.
    He wants to leave and there is no communication with the other directors and it is difficult to get any answers from them.
    We have had to hire a solicitor just to see that he gets out fairly with what he is owed. But it isnt helping.
    There is a CT liability of £30000 which was taken off the accounts to Feb 21. We only have one asset (one building) and I assume CT has risen due to the rise in value of the building since we improved it and because property values have gone up.
    Pls tell me if this is payable only when the asset is sold.
    Thanks

    #2
    The company pay CT on the "trading profit" reported in the annual accounts.( which are filed annually at Companies House).

    After the asset (the building) has been sold, the trading profit will be reported in the next annual accounts by accountant and CT will be payable to HMRC.

    The cash balance remaining in company's bank account belongs to the shareholders of the company. Will the company be liquidated and cash balance returned to the shareholders ?

    Is your husband a one third shareholder of the company ?

    Comment


      #3
      Thanks Gordon999. I have been phoning around about this today. This is a property development Ltd co. it had problems and so in 5 years only managed to develop 1 property - a house into flats. My husband owns one third of the company.

      It is not being sold. The other directors need to get a mortgage to pay us off. It has, in the accounts to Feb21, made a considerable profit due to rise in property values, and £30000 CT is due and apparently payable by end Nov. This my husband didnt know as the person in control is not sharing with my husband, as my husband wants to leave the business. Im gobsmacked by it bcos we have managed to just about get £30000 in rents and that will all go now on the CT. This is the first time in the 5 years that we had ever made any money.

      Comment


        #4
        IR (The Inland Revenue) were dissolved April 2005. Advise against sending them payments....
        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

        Comment


          #5
          If your husband is a director, the other directors can't withhold information from them; unless there are some very specific rules in the company articles - and they wouldn't normally be appropriate in a property development business (which are usually set up with boilerplate documentation).
          The directors have a fiduciary duty to the shareholders to act in their interest, and where they are the same people, it's usually pretty simple.
          The solicitor can help with that aspect of it.

          It's very unusual for a business, particularly a property investment business, to realise any of the capital growth in the business before disposing of the asset with the growth.
          That's simply because the value of the asset may fluctuate over time and you could end up paying tax that isn't necessary. If the price of the property drops to the purchase price at the point of disposal, there's no income and no income to tax.

          It would be very unusual for any business to pay tax before it has to and, particularly, when it might not need to at all.

          It is difficult, though, for one minority shareholder and director to exit a business successfully faced with uncooperative majority shareholders.
          It's possible that the other two are trying to manipulate the value of the company and therefore the shares in their favour.

          It depends on the company articles, but it's often possible for a business to be unable to prevent a director resigning, but there may be no obligation for them to buy out his shareholding.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            jpkeates,

            the other directors can't withhold information from them - I am my husband's agent as he has dyslexia and has difficulty with all this. This has been explained to the director but he does not like me and chooses not to recognise in that case anything I/my husband writes.
            The solicitor can help with that aspect of it. He is trying but not succeeding - however we now are at a point where our company will incur filing fees if the accounts arent filed by end of this month (Othere is disagreement on the valuation of the building), so some agreement needs making.
            It's very unusual for a business, particularly a property investment business, to realise any of the capital growth in the business before disposing of the asset with the growth. That's simply because the value of the asset may fluctuate over time and you could end up paying tax that isn't necessary. If the price of the property drops to the purchase price at the point of disposal, there's no income and no income to tax. I asked the accountant - she said it is an asset of the company that has risen in value and that we have not disposed of, thus CT is chargeable on it and is payable 9 mths and 1 day from the accounts - which is now. - I also phoned the CT advice line - their advice was spk to CAB !! and our ac countant will know if CT is payable!
            It's possible that the other two are trying to manipulate the value of the company and therefore the shares in their favour. Exactly. But we just want a fair figure to leave on - but it is a struggle and actually it has really escalated as a problem in my eyes with what we have learned this week re CT becoming due and their failure to communicate regarding the building valuation .

            Comment


              #7
              There seems to be 2 problems ( I am not an accountant ) :

              (1.) The company has to pay £30,000 tax due to revaluation of property asset increased higher by £150,000 ( estimated). Does it have the cash in its bank account to pay ?

              ( 2) husband owns one third interest of property company and wants to exit i.e wishes to sell one third of the total shares ?

              The Total Value of the company = Revaluation of property asset + cash in bank account - £30K tax bill

              Husband 's interest = 1/3 x Total Value. ( only achievable if asset is sold )

              Suggestion : make offer for sale of shares ( 1/3 interest ) to other two directors for 30% Total Value.

              Comment

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