Contractor - Shutting down Ltd company and starting again!?
Discussion
Seany88 said:
Can you clarify what they mean by 'same trade'? i.e. an IT contractor who offers support services etc to companies (with a business name to reflect a service) winds up and then starts his own IT business? Is that likely to be allowable?
Don't know if it is an indicator or not, but would the businesses be classed differently at Companies House (i.e. different SIC)?The Revenue would conclude that the same trade was still going on if the trader was still doing business with his same customers in more or less the same way and carrying on more or less the sme type of activity.
They will always look beyond what's written down on paper or filed somewhere.
They will always look beyond what's written down on paper or filed somewhere.
Eric Mc said:
The Revenue would conclude that the same trade was still going on if the trader was still doing business with his same customers in more or less the same way and carrying on more or less the sme type of activity.
They will always look beyond what's written down on paper or filed somewhere.
What if the trader had changed their business direction whilst using the same Ltd company. Would this be an appropriate time to close down the existing company and form a new one? I was thinking of doing this myself for branding purposes more than anything else.They will always look beyond what's written down on paper or filed somewhere.
The only issue I would have is pushing a bit of working capital into the new company, as I started my first company with zero capital and have no idea what tax implications this would have. Is it possible to get taxed twice on this money, if you're using it to pay your own salary?
A limited company can change its trading activity without disolving itself. A company can actually carry on more than one trade at any one time. There are no laws against this.
The Revenue only get concerned when one of the trading activities creates a trading loss. Then speciala Loss Relief tax rules come into play - and the fact that separate trades are being carried out become important.
There are also accounting and company law disclosure requirements that need to be taken on board when a company carries on more than one trade or changes from one trade to another.
The Revenue only get concerned when one of the trading activities creates a trading loss. Then speciala Loss Relief tax rules come into play - and the fact that separate trades are being carried out become important.
There are also accounting and company law disclosure requirements that need to be taken on board when a company carries on more than one trade or changes from one trade to another.
Eric Mc said:
So the types of service he actually provides, the people he deals with, his suppliers, his customers etc would all be completely different?
Yes. So say its a doctor who is currently a locum that works at various practices as a ltd co. He then decides he's going to buy/start his own practice (which will be a practice that he hasn't been to before). Is that sufficiently different to qualify?Perhaps.
There was a legal case where an individual ran two fish and chip shops. They both sold the same produce and he bought his fish etc from the same suppliers. In every way they were identical except for their location (and presumably, their customer bases).
One shop was profitable, the other wasn't. He tried to carry forward the losses incurred in one shop against the future profits in the other shop. The Revenue argued that he couldn't do this as they held that the two shops constituted two separate trades. He argued he was trading as a fish and chip shop owner who happened to have one trade carried out in two shops. The Revenue won and his loss relief claim was denied.
In the situation being discussed on this thread, for tax purposes the individual would be keen to demonstare that the new activity was indeed a different trade - and it might be the Revenue who would be arguing the opposite - unlike the fish and chip shop case where the Revenue were insisting separate trades were being carried on.
Would his new practice be a new limited company?
Are doctors allowed practice through limited companies?
There was a legal case where an individual ran two fish and chip shops. They both sold the same produce and he bought his fish etc from the same suppliers. In every way they were identical except for their location (and presumably, their customer bases).
One shop was profitable, the other wasn't. He tried to carry forward the losses incurred in one shop against the future profits in the other shop. The Revenue argued that he couldn't do this as they held that the two shops constituted two separate trades. He argued he was trading as a fish and chip shop owner who happened to have one trade carried out in two shops. The Revenue won and his loss relief claim was denied.
In the situation being discussed on this thread, for tax purposes the individual would be keen to demonstare that the new activity was indeed a different trade - and it might be the Revenue who would be arguing the opposite - unlike the fish and chip shop case where the Revenue were insisting separate trades were being carried on.
Would his new practice be a new limited company?
Are doctors allowed practice through limited companies?
Edited by Eric Mc on Friday 29th February 13:15
Eric Mc said:
Perhaps.
There was a legal case where an individual ran two fish and chip shops. They both sold the same produce and he bought his fish etc from the same suppliers. In every way they were identical except for their location (and presumably, their customer bases).
One shop was profitable, the other wasn't. He tried to carry forward the losses incurred in one shop against the future profits in the other shop. The Revenue argued that he couldn't do this as they held that the two shops constituted two separate trades. He argued he was trading as a fish and chip shop owner who happened to have one trade carried out in two shops. The Revenue won and his loss relief claim was denied.
In the situation being discussed on this thread, for tax purposes the individual would be keen to demonstare that the new activity was indeed a different trade - and it might be the Revenue who would be arguing the opposite - unlike the fish and chip shop case where the Revenue were insisting separate trades were being carried on.
Would his new practice be a new limited company?
Are doctors allowed practice through limited companies?
That's crazy! Did he have both shops as separate ltd co's? As if it was under a single company that would have been fine, correct? In the case of a doctor (hypothetical situation) the practice would be a ltd co and surely the major difference of 'owning' a practice as opposed to being a temporary on-contract GP would be enough?There was a legal case where an individual ran two fish and chip shops. They both sold the same produce and he bought his fish etc from the same suppliers. In every way they were identical except for their location (and presumably, their customer bases).
One shop was profitable, the other wasn't. He tried to carry forward the losses incurred in one shop against the future profits in the other shop. The Revenue argued that he couldn't do this as they held that the two shops constituted two separate trades. He argued he was trading as a fish and chip shop owner who happened to have one trade carried out in two shops. The Revenue won and his loss relief claim was denied.
In the situation being discussed on this thread, for tax purposes the individual would be keen to demonstare that the new activity was indeed a different trade - and it might be the Revenue who would be arguing the opposite - unlike the fish and chip shop case where the Revenue were insisting separate trades were being carried on.
Would his new practice be a new limited company?
Are doctors allowed practice through limited companies?
Edited by Eric Mc on Friday 29th February 13:15
He was a sole-trader - there were no limited companies involved.
Normally, running two businesses (even if they are identical in what they do) through two separate limited companies would ensure that they would not be construed as being the same trade.
However, tax legislation is complex and not always black and white. Revenue officials have the power to interpret things as they see fit - although the ultimate interpretation of a situation migfht mean a journey through the court system - just look at what happened with Arctic Systems to see where the Revenue can end up taking you.
In the case of an individual making a habit of winding up successive limited companies purely to trigger advantageous CGT reliefs and tax rates, the Revenue would be inclined to interpret that as attempting to disguise the fact that a continuous trade existed in reality.
Normally, running two businesses (even if they are identical in what they do) through two separate limited companies would ensure that they would not be construed as being the same trade.
However, tax legislation is complex and not always black and white. Revenue officials have the power to interpret things as they see fit - although the ultimate interpretation of a situation migfht mean a journey through the court system - just look at what happened with Arctic Systems to see where the Revenue can end up taking you.
In the case of an individual making a habit of winding up successive limited companies purely to trigger advantageous CGT reliefs and tax rates, the Revenue would be inclined to interpret that as attempting to disguise the fact that a continuous trade existed in reality.
Edited by Eric Mc on Friday 29th February 14:05
Eric Mc said:
He was a sole-trader - there were no limited companies involved.
Normally, running two businesses (even if they are identical in what they do) through two separate limited companies would ensure that they would not be construed as being the same trade.
However, tax legislation is complex and not always black and white. Revenue officials have the power to interpret things as they see fit - although the ultimate interpretation of a situation migfht mean a journey through the court system - just look at what happened with Arctic Systems to see where the Revenue can end up taking you.
In the case of an individual making a habit of winding up successive limited companies purely to trigger advantageous CGT reliefs and tax rates, the Revenue would be inclined to interpret that as attempting to disguise the fact that a continuous trade existed in reality.
Really doesn't sound like its worth the hassle does it? And all you seem to get out of paying is NI contributions? As taking a dividend taxed at 10% (unless higher rate taxpayer) is equivalent to 10% CGT isn't it? Or do those tax credits come into it again...??Normally, running two businesses (even if they are identical in what they do) through two separate limited companies would ensure that they would not be construed as being the same trade.
However, tax legislation is complex and not always black and white. Revenue officials have the power to interpret things as they see fit - although the ultimate interpretation of a situation migfht mean a journey through the court system - just look at what happened with Arctic Systems to see where the Revenue can end up taking you.
In the case of an individual making a habit of winding up successive limited companies purely to trigger advantageous CGT reliefs and tax rates, the Revenue would be inclined to interpret that as attempting to disguise the fact that a continuous trade existed in reality.
Edited by Eric Mc on Friday 29th February 14:05
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