Striking off a UK company as a US citizen

Can a US citizen strike off a UK company with form DS01

Yes. Nationality plays no part in the Companies House test. What matters is the company's recent history: it must not have traded, sold off stock or changed its name in the last three months, it must not be threatened with liquidation, and it must have no arrangement with creditors. A majority of the directors sign the form.

GOV.UK's guide to striking off a limited company (opens the official GOV.UK page in a new tab) sets out the steps. A copy of the application goes, within seven days, to members, creditors, employees, the managers or trustees of any employee pension fund, and any director who did not sign. If the form is in order, Companies House publishes a first notice in The Gazette. If nobody objects within the two months stated in the notice, the company is struck off and a second notice follows, after which it no longer exists.

A company that stops meeting the conditions, for example by trading again or becoming unable to pay its debts, must withdraw the application, which one director can do. Where a company has larger reserves, property or creditors who will not be paid in full, liquidation is the usual route, and our business tax returns service can compare the two before a form is signed.

How does HMRC tax money taken out before strike-off

Distributions made in anticipation of a strike-off can be taxed as capital rather than as dividends, but only within a fixed cash limit. GOV.UK says that if the amount taken out exceeds that limit, it is treated as income. Below it, a UK resident shareholder reports a disposal for Capital Gains Tax on their own Self Assessment return.

The rule is section 1030A of the Corporation Tax Act 2010, which HMRC's Company Taxation Manual (opens the official HMRC page in a new tab) explains. Two conditions apply. When the distribution is made, the company must intend to collect what it is owed and to pay its debts, or have done so already. And the distribution, or the total of all such distributions, must not exceed the limit. If the total goes over, that condition fails, the relief is lost on the whole amount and the payment is taxed as a dividend.

There is also a time condition. If the company has not been dissolved within two years of the distribution, the relief is treated as never having applied. Where capital treatment does apply, Business Asset Disposal Relief may reduce the UK rate on a qualifying disposal. Our UK Self Assessment service reports the disposal or the dividend in the right tax year.

What happens to money left in the company after dissolution

It passes to the Crown. Cash in the bank, refunds still owed to the company, and any other property the company still owns at dissolution become bona vacantia, ownerless property, and the former shareholder has no claim to it unless the company is restored.

The Government Legal Department's guidance on bona vacantia from dissolved companies (opens the official GOV.UK page in a new tab) lists bank accounts, tax refunds and insurance payouts among the assets it deals with, and notes that the company's liabilities do not pass to the Crown but are normally extinguished. Restoration may bring the assets back, and if the Crown has already sold them the restored company receives the proceeds less costs.

For a US owner this has a practical consequence. Money left behind is never received, so it is not part of the amount realised on the US side either. The cleaner course is to empty and close the account before the DS01 goes in, and to keep the closing statement for both returns.

How does the US tax the closing distribution

Usually as a sale of the shares. Under section 331 of the Internal Revenue Code, amounts a shareholder receives in a complete liquidation are treated as full payment in exchange for the stock. The UK label of capital or dividend does not change that. The owner compares the dollar value received with the dollar basis in the shares.

Publication 550 (opens the official IRS page in a new tab) explains the mechanics for liquidating distributions. Nothing is taxable until the basis in the shares has been recovered, and anything beyond that is capital gain. A loss can be claimed only once the final distribution has been received. For a company formed with a nominal sum of share capital, the basis is often close to nil, so most of the payment is gain.

Two points need review before the return is prepared. Each sterling payment is converted at the rate on the day it is received, so several payments over months produce several dollar figures. And for a shareholder with a tenth or more of the vote while the company was a controlled foreign corporation, section 1248 can recharacterise part of the gain as a dividend, as our post on selling a UK company as a US citizen explains. Earnings already taxed under the anti-deferral rules affect that answer.

• UK, within the limit: a capital distribution, taxed as a disposal of the shares
• UK, above the limit: the whole amount taxed as dividend income
• US, in either case: generally an exchange for the shares under section 331
• US, for a controlling owner: section 1248 to review for any dividend portion

Which US filings close with the company

Three in most cases: the final Form 5471, the last FBAR entry for the company account, and the owner's own Form 1040 reporting the gain. A UK company that files no US return generally does not file Form 966, the US notice of a corporate dissolution. Its US shareholders report the closure on Form 5471 instead.

The Instructions for Form 5471 (opens the official IRS page in a new tab) say the final year box, item D, is checked only for the final year of the foreign corporation's existence as a corporation for federal tax purposes, and give a complete liquidation as an example. Schedule O must then be completed. The instructions for Form 966 (opens the official IRS page in a new tab) state that foreign corporations not required to file a US return are generally not required to file it. The final period's income is still reported, and Subpart F or net CFC tested income for that period can still produce an inclusion for the owner.

The company's bank account was open for part of the final year, so it still counts in that year's FBAR aggregate where the owner had signature authority over it or owned more than half the company. The FBAR is filed with FinCEN, not with the tax return, once the total across all foreign accounts exceeds $10,000 at any time in the year, and is due by 15 April, extended automatically to 15 October.

• Form 5471 for the final period, with item D checked and Schedule O completed
• Form 1116 to claim credit for UK tax charged on the same payment
• The FBAR for the year, listing the company account where the rules bring it in

Why the UK and US years do not line up on a strike-off

Because three calendars run at once. The company has its own accounting period, the owner's UK tax year ends on 5 April, and the US year ends on 31 December. The distribution, the Gazette notices and dissolution can fall in different years on each side, which moves both the date tax is paid and the year it can be credited.

A distribution paid in February falls in that calendar year for the US, but in the UK tax year that began the previous April, with UK tax due by 31 January after that tax year ends. Unused foreign tax credits can be carried back one year and forward ten, which usually bridges the gap, but only if the computation is planned. Our international tax service sets the dates against both returns.

Form 5471 adds a fourth date. It is filed for the company's annual accounting period, and the last period ends when the company stops being a corporation for US purposes. Whether that is the final distribution or dissolution can depend on the facts, so record the position taken. GOV.UK advises keeping business records for seven years after strike-off.

In what order should a US owner close the company

Finish the tax and the money before filing the DS01, because once the company is struck off its bank accounts close and anything left goes to the Crown. The sequence below is our constructed checklist, not an official one.

Take a US citizen who ran a one-person consultancy company in Bristol and has stopped taking clients. She files final accounts and a Company Tax Return with HMRC, telling HMRC they are the final trading accounts and that the company will be struck off, and pays the last Corporation Tax. She lets three months pass without trading. She then pays out the remaining cash, checking the total against the HMRC limit, closes the account and keeps the statement. Only then does she file the DS01 and send copies within seven days.

On her US return she reports the distribution as proceeds for her shares, converts each payment at the rate on the day received, reviews section 1248, and files a final Form 5471 with Schedule O. Her Self Assessment shows a capital disposal or a dividend, depending on the total. Our post on Form 5471 for a one-person UK limited company covers the earlier years. For the wider picture, return to the guide to US-UK tax for founders, fund managers and executives, or contact us with the last accounts.

• Settle every debt, including Corporation Tax, VAT and PAYE, and collect any refund due
• File final accounts and a Company Tax Return with HMRC, marked as final
• Let three months pass with no trading and no change of name
• Distribute the cash, check the total against the limit and record each dollar value
• Close the bank account and keep the closing statement for the FBAR and Form 5471
• File the DS01, send copies within seven days and diarise the two-month notice period