An ‘informal’ liquidation, or ‘winding up’ is done by small companies applying to Companies House to strike the company off the register. This document discusses some of the issues a company and its shareholders face when they wind up a company. It provides guidelines on tax considerations on winding up, distribution of assets, taxation of distributions to shareholders, and rules on distributions in anticipation of dissolution.

A formal liquidation can be seen as an unnecessary expense when a company ceases business. This is es-pecially true for small companies where the owners will not want to incur several thousand pounds of fees simply to realise the profits of their business.

The Companies Act 2006 does offer an alternative to the formal liquidation process. This is an 'informal' liq-uidation, or 'winding up', and is done by the company applying to Companies House to strike the company off the register.

This guidance note discusses some of the issues a company and its shareholders face when they wind up a company using the procedures under CA 2006, s 1003.

Tax considerations on winding up

Before the cessation of the trade, the diminishing of the business has no tax effect unless done over a con-siderable period of time. In this instance it might be seen as a change in the nature or conduct of the trade. Accordingly, it is possible that losses brought forward may be lost.

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