Why am I being charged Class 2 National Insurance in my 2024/25 Self-Assessment?

Some self-employed taxpayers are mistakenly charged Class 2 NICs due to an HMRC IT issue. If your profits exceed £12,570, you should only pay Class 4 National Insurance, not Class 2. Always check your self-assessment 2024/25 calculation to ensure it is correct.

Do I need to pay Class 2 NICs through Self-Assessment for 2024/25?

No. From 6 April 2024, Class 2 NICs are voluntary for self-employed individuals with profits below £6,725. Voluntary contributions can help build qualifying years for your State Pension, but if your profits are above this threshold, Class 2 should not appear on your self-assessment.

What should I do if my Self-Assessment shows the wrong Class 2 NIC charge?

If you’ve filed your 2024/25 self-assessment and notice an incorrect Class 2 NIC charge, contact HMRC to request a correction. If you haven’t filed yet, consider waiting until HMRC resolves the issue (expected by September 2025).

What happens if I already paid the incorrect Class 2 NICs through Self-Assessment?

HMRC will refund or credit any incorrect Class 2 NIC payments to your self-assessment account once the error is fixed. Keep proof of payment and HMRC correspondence for reference.

When is the deadline for submitting my 2024/25 Self-Assessment?

The online filing and payment deadline for 2024/25 self-assessment is 31 January 2026. The HMRC Class 2 NIC error does not affect this deadline. Submit on time to avoid late filing penalties.

Shareholder Distribution on Company Liquidation UK 2025/26

Shareholder Distribution on Company Liquidation UK: 2025/26 Tax Guide

When planning a shareholder distribution on company liquidation UK, careful tax strategy can make a major difference.

Whether you’re closing your business for personal reasons or winding down operations, understanding how HMRC treats distributions in 2025/26 is essential to avoid unexpected liabilities.

Why Companies Cease and What Happens to Assets

Companies may cease trading for various reasons—retirement, restructuring, or changing market conditions.

Once liabilities are settled, remaining assets are distributed to shareholders.

The method of this shareholder distribution on company liquidation UK determines whether it’s taxed as income or capital.

Striking Off vs Formal Liquidation

If a company applies to be struck off rather than entering liquidation, any surplus distribution (including share capital) is generally treated as income.

However, where total assets are below £25,000, distributions may be treated as capital gains, eligible for Capital Gains Tax (CGT) rather than dividend tax.

Royal blue infographic titled “Shareholder Distribution on Company Liquidation UK 2025/26.” It features four sections with white text and icons: Striking Off vs Liquidation (capital treatment under £25,000), Distributions Over £25,000 (requiring formal liquidation), Tax Planning Opportunities (using CGT exemptions and Business Asset Disposal Relief), and Anti-Avoidance Rule (distributions reclassified if for tax avoidance). The footer includes Trueman Brown’s contact details — mark@truemanbrown.co.uk<br />
and 01708 397262.

From April 2025, CGT rates remain at 10% (basic rate) and 20% (higher rate), but Business Asset Disposal Relief (BADR) still allows qualifying shareholders to pay only 10% on up to £1 million of lifetime gains.

Distributions Exceeding £25,000

When distributions exceed £25,000, they are automatically treated as dividends—even if part of the intention was liquidation.

In such cases, formal liquidation is the only route to gain CGT treatment on a shareholder distribution on company liquidation UK.

Typical small company liquidation costs remain around £1,500–£2,000, but these costs can be offset by lower tax rates when planned correctly.

Tax Planning Opportunities for 2025/26

Liquidators can sequence distributions to optimise tax. For example, releasing cash before 5 April 2026 and assets after can use two CGT annual exemptions.

Directors can also choose to extract pre-cessation dividends before liquidation to balance income and capital treatment.

Be cautious: HMRC closely examines cases where it appears directors intentionally manipulated distributions to avoid income tax.

The “targeted anti-avoidance rule” (TAAR) still applies in 2025/26, allowing HMRC to reclassify distributions as income where the main purpose was tax reduction.

How Trueman Brown Can Help With A Shareholder Distribution On Company Liquidation UK

Navigating a shareholder distribution on company liquidation UK requires expert advice. The accountants at Trueman Brown can help you minimise tax liabilities, structure your cessation efficiently, and ensure HMRC compliance.

📧 Email: mark@truemanbrown.co.uk
📞 Call: 01708 397262

Our team offers tailored guidance for directors, investors, and business owners preparing to close or restructure their companies.

FAQs: Shareholder Distribution on Company Liquidation UK

Q1: Is the £25,000 capital distribution limit still in place for 2025/26?
Yes, the £25,000 limit remains. Amounts above this threshold require a formal liquidation for CGT treatment.

Q2: Can Business Asset Disposal Relief still apply?
Yes. BADR remains available for qualifying shareholders, reducing CGT to 10% on up to £1 million of lifetime gains.

Q3: Are there changes to dividend tax rates for 2025/26?
The dividend allowance has reduced to £500, and dividend tax rates are unchanged: 8.75%, 33.75%, and 39.35% for basic, higher, and additional rate taxpayers.

Q4: Can I extract assets instead of cash?
Yes, but asset valuation affects whether the £25,000 threshold is breached and may influence your tax treatment.

Q5: Should I consult an accountant before liquidation?
Absolutely. Early advice ensures you structure the shareholder distribution on company liquidation UK in the most tax-efficient way.

Shareholder Distribution on Company Liquidation UK 2025/26

Shareholder Distribution on Company Liquidation UK: 2025/26 Tax Guide