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Poor old Kwasi he was a Kings Scholar!
AGE
3. What profits shown in the accounts are “available” to pay dividends?
The starting point for understanding whether a company has profits available to pay dividends will typically be its last annual accounts circulated to shareholders.
The balance sheet in those annual accounts will often show “retained earnings” or “profit and loss reserves”. However, for micro companies the balance sheet will simply show a figure for “capital and reserves”. It is important to determine what element of those reserves qualify as available to pay dividends.
In law, these are profits that meet a test of being “realised profits”. Profits from normal trading activity are typically (but not automatically) realised profits.
The face of the accounts may not distinguish between profit reserves that are realised or unrealised. For example, some companies have transactions that result in entries in reserves that are unrealised (such as revaluations of properties or certain intra-group transactions). Care is needed to make sure dividends are only made from realised profits.
Gazzleberry the answer is contained in the following link
http://www.icaew.com/technical/trust-and-ethics/company-law/paying-dividends-the-essentials
The key part is
2. Why is a dividend payment different from other types of payment?
A dividend is a distribution of post-tax profits of the company to its shareholders. It is payable to all shareholders (of the same class of share) in proportion to their shareholdings and in accordance with the company’s constitution (articles).
Have a look at AMC's balance sheet and you do not see any retained profits you only see accumulated losses.
A dividend is a distribution of post-tax profits of the company to its shareholders.
I cannot see any profits in AMC balance sheet so where is the special dividend being funded from?
AGE
Gazzleberry HMRC will naturally try to say that the special dividend is subject to U.K. dividends tax because it is called a special dividend and it is in their interests to say it is a dividend because they will receive more tax revenue.
The ultimate arbiters as to whether something is income in the hands of shareholders are judges as they make the decisions which form binding precedents.
Decisions in the First Tier Tribunal do not set binding precedents.
HMRC have taken lots of cases to tribunals because they do not agree with the manner in which a tax payer has treated something in their tax return and the judges have found in favour of the tax payer!
AGE
When the board clarifies how the special dividend has been structured, the shares will fly through 1.8 pence on the offer and then adjust with remaining cash in a shell company with RTO prospects in mind. Its 2.3 pence plus all the way. On x dividend, AMC will be valued at about or around .05 pence. Its a strong hold for me.
Ilovesushi I agree with your comments.
A normal dividend which is income in the hands of shareholders does not reduce the tax base cost of a share because it is being paid out of distributable reserves in other words retained profits shown in the balance sheet.
In AMC’s case it does not have any distributable reserves from a U.K. domiciled Company perspective as it only has retained losses however AMC is domiciled in the BVI and not the U.K. hence it is allowed to pay the special dividend out of its share capital as long as it meets the solvency requirements.
To me it is quite clear that if AMC had retained profits in excess of the total special dividend then it would have been income in the hands of shareholders as the dividend would be funded via the retained profits and so those AMC shareholders who are not holding their shares via an ISA would be subject to U.K. dividends tax .
AGE
"....a guy who was in my class at Eton...."
Not Kwasi Kwarteng by any chance?
TDT
What I mean is the special dividend is NOT subject to UK dividends tax.
The 1.8 pence tax is a free special dividend being return of Capital is going to reduce the tax base cost of the shares after dividend is paid.. e.g. If you paid 2 pence for the shares, then the adjusted cost for CGT purposes is 0.20 and not 2.0p
Well I am ready for my 1.8 pence and happy to get shares worth a minimum of 0.5 pence. I am expecting news next week of when I can get the payout. The company will shortly at the same time make it clear that this special dividend, is a return of capital and will not have to be declared profit for capital gains purposes. Its a win win. I am glad I was allowed to top up. Its like taking candy from a baby. Going to have shares in a cash shell to boot and the 1.8 per share. Happy Bunny. Update next week should clarify things.
Ilovesushi Fieldfisher who are AMC’s solicitors released a press release which says the following:
The sale marks the conclusion of a challenging two year process to divest the nickel-copper sulphide assets in Russia’s Far East!
The statement is on their website!
I am also puzzled how it is possible to buy AMC shares at 1.71p and yet receive a 1.80 pence tax free special dividend by the latest of the 12 June 2023 and the Company will still have cash retained in it after the payment of the dividend as the 35m USD less remaining legal fees payable is more than the total amount of the dividend plus they had cash before the sale of Irosta as they sold their shares in the NRR iron ore mine in Australia.
As the saying goes “The markets know the price of everything but it does not know the value of anything!”
AGE
Doesn't matter what it's classed as, declaring it or not is up to you!
As far as I'm concerned this will be no different to selling the shares. If that means you made a profit and it's over your CGT allowance then you pay tax on the profit.
This was discussed a lot months ago and the conclusion was that a 'return of capital' was exactly the same as selling the shares.
AGE, how did you know the solicitors were working on the deal for 2 years? I cannot understand that it is possible to buy AMC shares at 1.71 when we are going to receive a tax free dividend of 1.8 pence and still have remaining cash left together with a cash shell company.
Plus remaining cash shell of 0.50 pence. That must total 2.3 pence. Minimum. More on a good RTO and future prospects.
Yes, I confirm this has to be a return of Capital.
There are a few typo errors in my last post as I did it via my iPhone but the principles have included are correct!
Does any one have any comments?
AGE
Search on Google for share purchases and redemptions under the BVI business companies and you will find the following:
There is no concept of share capital under the Act. Instead the Act refers to the consideration paid for the issue with f a share. Where the nature of the payment is important to the shareholder for tax or other reasons, it would be necessary to look to the accounting principles under which the company’s financial statements are prepared or the tax laws of the place the shareholder is resident for tax purposes.
U.K. dividends tax is a tax on dividends that is income in the hands of shareholders.
The payment paperwork of a dividend out of a share premium account is prohibited by the U.K. Companies Act but prior to that prohibition the payment is of a dividend would be income.
The payment out of share capital in the U.K. is a return of capital and not income in the hands of AMC shareholders!
AMC’s lawyers have been working on the Irosta disposal for two years so they would have considered the U.K. tax implications of the payment of a special dividend.
I doubt very much that the Board would have got shareholders to vote to approve the payment of a special dividend if shareholders would then have to pay U.K. dividends tax on the 1.8 pence shares dividend.
I would imagine that the majority of AMC shareholders average share purchase price is above 1.8 pence so they would not want to pay tax on the special dividend.
Paying tax on a dividend when the dividend plus the cash retained in the Company after the payment of the dividend is less than shareholders average purchase price would be adding insult to injury!
AGE
What is c
Expect an announcement shortly by the board on the structure of the return and payment date. Should be a lot of buying when that is announced and movement over 2.0p
Hi BB,
A GM was held to approve the sale of Irosta and the payment of the 1.8 pence special dividend so there is no need to have another GM to classify the special dividend as a return of capital.
Have a look on Google and do some research the rules re U.K. Companies paying dividends and then look at the rules for BVI Companies and you will see that they are different.
A U.K. Company must have made sufficient after tax profits and have retained them in other words not paid the after tax profits out via previous dividends to be able to pay the next dividend.
But these rules do not apply to a BVI Company!
AGE
Agneissearner
The dividend has been called a special dividend. However it will most certainly be structured as a return of capital. No tax to pay.
So value increases from 1.8 to 2.33 p
Hi,
I assume that once the dividend (and I also assume that this will indeed be classed as a special “return of capital” dividend rather than normal “distribution of profit” dividend is recommended by the Board then we as shareholders will need to vote at an yet to be arranged GM to pass the recommendation and allow the payment to be made. On that basis, I do not see the payment being imminent (in the next few weeks). Possibly why the within 90 days has been stated.
BB2
Hope you are right AGE
ATB
DK
Gazzleberry in other words the special dividend is tax free whether you hold your shares via an ISA or an ordinary trading account.
I suspect the mm’s are pricing the share on the basis the special dividend is subject to U.K. dividends tax.
AGE
Gazzleberry a guy who was in my class at Eton works in Corporate Finance and he has advised me that the special dividend is a return of capital hence it is not subject to U.K. dividends tax.
A U.K. Company is only allowed to pay a dividend if it has sufficient distributable reserves in a words it has sufficient retained profits.
There is no such restriction for a BVI domiciled company as it can pay a dividend out of the share premium account or out of share capital as long as it meets the solvency requirements.
Look at AMC’s last balance and you will see it has accumulated losses so the special dividend is not being paid out of that so it is being funded out of share capital hence it is a return of capital.
AGE
The DMA trades are slowly increasing the average bid/ask. And the delay in paying out the divi is causing a few impatient holders to sell. Won't be many left in this category and given there is a definite 1.8p coming at some point, the price will start to rise.
Still a chance to buy at sometimes as low as 1.7 but this will be gone soon. Those big buyers will need to offer more to keep buying.
And so is the person who is buying 1m/1.5m/2m blocks of AMC shares!
AGE