If you have sold your business or business assets and ceased trading and you are considering liquidating your solvent company, there are a number of benefits to completing the process before the end of the financial year. A solvent liquidation, is a process by which a company is wound up and its assets are distributed to its shareholders because it is no longer needed or wanted. The benefits of doing so include:
Tax advantages
By completing your solvent liquidation before the end of the financial year, you can take advantage of tax benefits that are only available to companies that are wound up before the end of the financial year. In particular, you may be able to claim a tax deduction for any losses incurred during the liquidation process, which can help to offset any tax liability that you may have. The Income tax Act 2007 allows a company to make a tax free distribution of capital gains “on liquidation”.
under the short form method.
A formal liquidation can protect against a capital distribution (following that liquidation) being found to be taxable. If a company continues to trade after the winding up resolutions under a short form process or before a formal liquidation, there is a risk a capital distribution in that period is taxable.
Simplified accounting
Completing your solvent liquidation before the end of the financial year can simplify your accounting and bookkeeping, as you'll only need to maintain records for the period up to the liquidation date. This can save you time and money, as you won't need to keep track of expenses and transactions that occur after the liquidation date.
Increased flexibility
By completing your solvent liquidation before the end of the financial year, you'll have increased flexibility in terms of how you can use the assets that are distributed to you. This can help you to reinvest the funds in other ventures, or to use them to pay off debts or other financial obligations.
Protection for directors
Completing your solvent liquidation before the end of the financial year can also provide protection for directors against any unexpected potential claims or legal action that may arise after the liquidation is completed. By winding up the company before the end of the financial year, directors can ensure that they're not held liable for any future debts or obligations that may arise.
Overall, completing your solvent liquidation before the end of the financial year can provide a range of benefits, including tax advantages, simplified accounting, increased flexibility, and protection for directors. If you're considering a solvent liquidation, it's important to speak with a qualified professional to understand your options and to ensure that the process is completed correctly and in accordance with all legal requirements.