Contractor - Shutting down Ltd company and starting again!?
Discussion
I'm an IT contractor and have been using my own ltd company since 2005 and been using the route of salary + dividends. I have now accumalated around £50k within the company which I wanted to take out. My accountant is advising me to dissolve the company and take the money out which would equate to a tax of 10% CGT and then start a new company to continue contracting.
I want to know if this is feasible and also legal!? What are the complications, if any, of doing this?
Is he a dodgy accountant or a good one
!?
I want to know if this is feasible and also legal!? What are the complications, if any, of doing this?
Is he a dodgy accountant or a good one
!?khushy said:
Asking a Q like this in an open/public forum with clear references to your REAL NAME and your location is a little daft/stupid dont you think?
Khushy
Why Khushy
He's discussing advice he's been given by his accountant not discussing his latest money making scheme for tax evasion that he thought up down the pub.
He's clearly concerned to make sure that what he's been advised to do is correct.
Can't see the problem personally (except that I know he's got £50k in his company now but TBH you could make those assumptions about other peeps from what they say anyway!)
W4NTED said:
I'm an IT contractor and have been using my own ltd company since 2005 and been using the route of salary + dividends. I have now accumalated around £50k within the company which I wanted to take out. My accountant is advising me to dissolve the company and take the money out which would equate to a tax of 10% CGT and then start a new company to continue contracting.
I want to know if this is feasible and also legal!? What are the complications, if any, of doing this?
Is he a dodgy accountant or a good one !?
As long as you settle all your liabilities it is a legitimate move. Best get HMCE approval in advance? And from a P.R. perspective explain to your customers that it not an insolvency.I want to know if this is feasible and also legal!? What are the complications, if any, of doing this?
Is he a dodgy accountant or a good one
!?Any transaction or series of transactions set in place PURELY to avoid paying tax can be blocked by the Revenue - if they can see no commercial reasoning behind that transaction.
It may be tax avoidance - which is, as has been said, legal (so you won't go to jail) but the Revenue may not allow the transactions to go ahead anyway on the basis that it is an artificial construct with no bona fide reason behind it other than saving tax.
Just because they try to block something doesn't mean they will succeed (witness Arctic Systems) but you would be exposing ypourself to the hassle of tax investigations and enquiries.
You would have to look at all the non-tax implications of shutting down your company and setting up another one staright away -
- cancelling VAT and PAYE registrations - and then having to set new registrations up again
- having to redraft and renegotiate new contracts
It may be tax avoidance - which is, as has been said, legal (so you won't go to jail) but the Revenue may not allow the transactions to go ahead anyway on the basis that it is an artificial construct with no bona fide reason behind it other than saving tax.
Just because they try to block something doesn't mean they will succeed (witness Arctic Systems) but you would be exposing ypourself to the hassle of tax investigations and enquiries.
You would have to look at all the non-tax implications of shutting down your company and setting up another one staright away -
- cancelling VAT and PAYE registrations - and then having to set new registrations up again
- having to redraft and renegotiate new contracts
W4NTED said:
Eric - i know where you are coming from but what has happened here is that I have not been taking enough out of the company so have been left with this big lump sum so need to take it out - next time I'll be taking out more every month I suppose...
If you haven't been taking "enough" from the company, is there any avenue left to take more dividends, salary or genuine rexpense claims and reimbursements before going down the route of actually liquidating your company.Have you maxed out your personal tax allowances and Basic Rate tax band yet?
I may be incorrect but thought new legislation was put in place a year or two ago to prevent this potential tax loophole.
I think the ability to claim Taper Relief on the money left in your company is possible (you have to get it approved by IR) BUT only if your new company/job is not in the same industry/role. Thus preventing people repeating the trick every couple of years.
I think the ability to claim Taper Relief on the money left in your company is possible (you have to get it approved by IR) BUT only if your new company/job is not in the same industry/role. Thus preventing people repeating the trick every couple of years.
W4NTED said:
Done that too
Guys dont forget this is not my idea it's my accountants so he's obviously looked at all avenues before suggesting this...
All I want to know if its legit!?
Eric???????
What do you mean y "legit"?Guys dont forget this is not my idea it's my accountants so he's obviously looked at all avenues before suggesting this...
All I want to know if its legit!?
Eric???????
It is not illegal BUT I doubt if a tax inspector will agree to it on the grounds that it is not a true situation in that the same trade is continuing and the cessation is purely artificial.
You will need to apply for (and have granted) Extra Statutory Concession C16. This will allow you to wind up the company and distribute the profits as capital, rather than income, thus you can benefit from 10% CGT rather than 25% on dividends.
The risk is that starting up a new company and continuing to trade will result in the taxman knocking at your door as the distribution from the previous company will be reassessed as income rather than a capital distribution.
Wait until you've got a lot more in the company to make it worthwhile. Regardless of the above, the £7.5k you might save will be eaten into by:
- new company formation
- accountancy fees
- new insurance policies
- hassle (bank account, VAT, PAYE registration etc)
- etc
http://www.hmrc.gov.uk/specialist/esc.pdf
C16. Dissolution of companies under Sections 652 and 652A Companies Act 1985: distributions to shareholders
A distribution of assets to its shareholders by a company which is then dissolved under Section 652 or Section 652A Companies Act 1985 (or any comparable provisions) is strictly an income distribution within Section 209, ICTA 1988. In most circumstances, and providing that certain assurances are given to the Inspector before the event, the Revenue is prepared for tax purposes to regard the distribution as having been made under a formal winding up so that the proviso to Section 209(1) applies. The value of the distribution is then treated as capital receipts of the shareholders for the purpose of calculating any chargeable gains arising to them on the disposal of their shares in the company.
The assurances include:
The company
- does not intend to trade or carry on business in future; and
- intends to collect its debts, pay off its creditors and distribute any balance of its assets to its shareholders (or has already done so); and
- intends to seek or accept striking off and dissolution.
- The company and its shareholders agree that
- they will supply such information as is necessary to determine, and will pay, any Corporation Tax liability on income or capital gains; and
- the shareholders will pay any Capital Gains Tax liability (or Corporation Tax in the case of a corporate shareholder) in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up.
The risk is that starting up a new company and continuing to trade will result in the taxman knocking at your door as the distribution from the previous company will be reassessed as income rather than a capital distribution.
Wait until you've got a lot more in the company to make it worthwhile. Regardless of the above, the £7.5k you might save will be eaten into by:
- new company formation
- accountancy fees
- new insurance policies
- hassle (bank account, VAT, PAYE registration etc)
- etc
http://www.hmrc.gov.uk/specialist/esc.pdf
C16. Dissolution of companies under Sections 652 and 652A Companies Act 1985: distributions to shareholders
A distribution of assets to its shareholders by a company which is then dissolved under Section 652 or Section 652A Companies Act 1985 (or any comparable provisions) is strictly an income distribution within Section 209, ICTA 1988. In most circumstances, and providing that certain assurances are given to the Inspector before the event, the Revenue is prepared for tax purposes to regard the distribution as having been made under a formal winding up so that the proviso to Section 209(1) applies. The value of the distribution is then treated as capital receipts of the shareholders for the purpose of calculating any chargeable gains arising to them on the disposal of their shares in the company.
The assurances include:
The company
- does not intend to trade or carry on business in future; and
- intends to collect its debts, pay off its creditors and distribute any balance of its assets to its shareholders (or has already done so); and
- intends to seek or accept striking off and dissolution.
- The company and its shareholders agree that
- they will supply such information as is necessary to determine, and will pay, any Corporation Tax liability on income or capital gains; and
- the shareholders will pay any Capital Gains Tax liability (or Corporation Tax in the case of a corporate shareholder) in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up.
Up the Iron knows his stuff - al;though there are new Companies Act regulations in place and more to come over the next 6 to 9 months plus the fact that the CGT rules are changing fundamentally on 6 April. However, I am sure the gist of the soon to be out of date legislation will be re-incorporated in the new rules.
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