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Question 5a ii

Acryl Ltd and Cresco Ltd are two unrelated companies. Acryl Ltd requires advice on the implications of being placed into liquidation, particularly the timing of distributions to its shareholders. Cresco Ltd requires advice on the relief for losses on the cessation of trade, and its obligations in relation to value added tax (VAT).

(a) Acryl Ltd:
– Is a UK resident trading company.
– Has always prepared accounts to 30 June annually.
– Has substantial distributable profits.
– 70% of the company’s share capital is owned by Mambo Ltd.
– The remaining 30% of the share capital is owned by Mambo Ltd’s managing director, Alan.
– Mambo Ltd and Alan both subscribed for their shares at par value on 1 March 2010.

Mambo Ltd:
– Is a UK resident trading company.

Alan:
– Will be an additional rate taxpayer in the tax year 2016/17.
– Will be eligible for entrepreneurs’ relief on the disposal of his shares in Acryl Ltd.

Liquidation of Acryl Ltd:
– Winding up will commence on 1 January 2017 with the appointment of a liquidator.
– It is anticipated that the winding up will be completed on 31 March 2017, when the company will cease trading.

Alternative timing of distributions being considered by Acryl Ltd:
– Acryl Ltd is prepared to distribute the available profits to its shareholders on 31 December 2016.
– Alternatively, Acryl Ltd will delay the distribution until the completion of the winding up of the company on 31 March 2017.

Required:
(ii) Explain the tax implications for both Mambo Ltd and Alan if the distribution to be made by Acryl Ltd occurs either on 31 December 2016, or alternatively on 31 March 2017, and conclude as to which date would be preferable. (7 marks)