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D6.710 Liquidation—corporation tax implications

Liquidation, or winding up, is essentially about selling off company assets in order to pay creditors (with any surplus, where applicable, returned to the shareholders) and then closing the company. For a solvent company whose directors have decided to stop trading this can be done via a members voluntary liquidation. For an insolvent company, directors can wind up their company through a creditors voluntary liquidation or a compulsory liquidation.

From 1 December 2020, HMRC is a secondary preferential creditor in insolvency proceedings in relation to certain taxes¹. Prior to this date, tax liabilities arising prior to administration ranked as unsecured debts with HMRC standing in the same position as any other creditor and not able to bring proceedings to enforce the debt while the company is in administration. See further A1.608.

The tax implications of a liquidation are wide-ranging. The main areas it affects can be split into the following:

1. Ìý

   •ÌýÌýÌýÌý accounting periods

2. Ìý

   •ÌýÌýÌýÌý computation of profits and terminal losses

3. Ìý

   •ÌýÌýÌýÌý applicable corporation tax rate

4. Ìý

   •ÌýÌýÌýÌý beneficial