Sell limited co - Dodgy ?
Discussion
This could be a post for the finance section more than business; mods please move as you see fit.
I have a limited company that I’ve run for four years, for occasional IT contracting work.
It has £130K in the bank (all Corporation Tax, VAT, and PAYE fully paid), a bank account for nearly four years , and relationship with an accountant again four years).
A friend (based in Dubai) wants to set up a UK consulting firm and has offered to buy my company for exactly the amount held in the bank.
He would get four years of trading history, all filings up to date, VAT registration, and a ready-made corporate structure.
I would be able to extract the £130k in a slightly more tax-efficient way.
Is there something i'm missing ??
I have a limited company that I’ve run for four years, for occasional IT contracting work.
It has £130K in the bank (all Corporation Tax, VAT, and PAYE fully paid), a bank account for nearly four years , and relationship with an accountant again four years).
A friend (based in Dubai) wants to set up a UK consulting firm and has offered to buy my company for exactly the amount held in the bank.
He would get four years of trading history, all filings up to date, VAT registration, and a ready-made corporate structure.
I would be able to extract the £130k in a slightly more tax-efficient way.
Is there something i'm missing ??
Wilmslowboy said:
Is there something i'm missing ??
More money?Let's assume the £130k is all accrued profit, earned at £32,500 each year. Based upon the common convention of valuing a business (as a start point) of profit x 5, that would value your business at £162,500. Negotiation may well bring that closer to £130k of course.
The most tax efficient way for you to extract the cash is to dump it all in a pension. I may be missing something but I don't see the tax advantage to you in extracting it through the sale of the business.
Ultimately, it comes down to if you want to sell or not. On the face of it, it looks an easy and quick way to exit the company with some money in your pocket.
Eric Mc said:
Why does he want your company? Would it not be easier and cheaper for him just to set up one for himself?
It is an odd approach. The one thing I can think of that may justify the idea is if the chap wants to bid for public sector contracts or similar. These tend to stipulate the need for a business that can show at least three years trading - even if the nature of the business has changed over those three years. If there's similarity in the type of work he intends to do, there's also value in the track record. In consultancy, this can be the primary asset of firms.
I would disagree that a 1 person contracting company is worth more than 0.
Is there recurring business that would generate profit if the OP disappeared for a couple of months? Is that profit figure after all management and operational costs?
You will likely have to pay at least 10% ER tax on any disposal I think? (perhaps 14%)
Is there recurring business that would generate profit if the OP disappeared for a couple of months? Is that profit figure after all management and operational costs?
You will likely have to pay at least 10% ER tax on any disposal I think? (perhaps 14%)
Edited by lizardbrain on Monday 18th August 10:24
The business itself has no value (no contracts, no clients). It was simply my limited company through which I did IT contract work.
In effect, buyer pays nothing, he pays £130k, but the business comes with £130k cash in the bank.
For me, the benefit is that I only pay around 14% tax (BADR) instead of ~35%, if I extracted the money as dividends, plus then the cost to shut down the company.
I can not contribute to a pension. since I’m maxed out with my PAYE job, I was considering setting up a pension for my wife, the challenge is that she has no earnings to claim tax relief on.
In effect, buyer pays nothing, he pays £130k, but the business comes with £130k cash in the bank.
For me, the benefit is that I only pay around 14% tax (BADR) instead of ~35%, if I extracted the money as dividends, plus then the cost to shut down the company.
I can not contribute to a pension. since I’m maxed out with my PAYE job, I was considering setting up a pension for my wife, the challenge is that she has no earnings to claim tax relief on.
Wilmslowboy said:
I can not contribute to a pension. since I’m maxed out with my PAYE job, I was considering setting up a pension for my wife, the challenge is that she has no earnings to claim tax relief on.
Hmm, make her an employee, pay her one month at silly small amount, transfer the rest to her pension?Wilmslowboy said:
The business itself has no value (no contracts, no clients). It was simply my limited company through which I did IT contract work.
In effect, buyer pays nothing, he pays £130k, but the business comes with £130k cash in the bank.
For me, the benefit is that I only pay around 14% tax (BADR) instead of ~35%, if I extracted the money as dividends, plus then the cost to shut down the company.
I can not contribute to a pension. since I’m maxed out with my PAYE job, I was considering setting up a pension for my wife, the challenge is that she has no earnings to claim tax relief on.
If you don't need the cash immediately might it work better for you in the long term to turn it into a Family Investment Company?In effect, buyer pays nothing, he pays £130k, but the business comes with £130k cash in the bank.
For me, the benefit is that I only pay around 14% tax (BADR) instead of ~35%, if I extracted the money as dividends, plus then the cost to shut down the company.
I can not contribute to a pension. since I’m maxed out with my PAYE job, I was considering setting up a pension for my wife, the challenge is that she has no earnings to claim tax relief on.
It's certainly not dodgy.
Sell shares for £130k benefit from BADR.
Resign as director.
Pay as solicitor to write up a simple sale agreement which gives you no liabilities and you're done. The motivation of the buyer isn't your problem, is it?
Maybe ask the buyer to cover the legal costs to get a bit more value?
Seems pretty simple to me.
Sell shares for £130k benefit from BADR.
Resign as director.
Pay as solicitor to write up a simple sale agreement which gives you no liabilities and you're done. The motivation of the buyer isn't your problem, is it?
Maybe ask the buyer to cover the legal costs to get a bit more value?
Seems pretty simple to me.
Olivera said:
Just wind up via Members' Voluntary Liquidation (via a 3rd party), and apply BADR. BADR also has absolutely nothing to do with dividends. Avoid what you have proposed, it's convoluted for no gain.
I suppose if the MVL fee is less than the SPA fee you're saving something, but I can't see the benefit to leave your history hanging about in this company for that. And as you say, convoluted is never the best choice, it could attract interest.Wilmslowboy said:
I can not contribute to a pension. since I’m maxed out with my PAYE job, I was considering setting up a pension for my wife, the challenge is that she has no earnings to claim tax relief on.
It's probably worth speaking to your accountant about possible large pension payments by the company to your wife's SIPP. The issue with pension payments is usually tax deductibility, but that ship has sailed here anyway. Without checking I'm not sure on the rules to allow that to happen and if there are any income shifting provisions.If you sell the shares. You'll be taxed.
If you take the money out, and then sell the company for enough to cover legal bills. You'll pay tax on what you take out.
You are going to pay tax. The only question is how much.
There will be a clear paper trail that will show to anybody with a remote ounce of common sense what has actually occured.
The question is always going to be - will anybody ever look. You do however need large balls for that game.
Your easiest route. Quickest, easiest, least liability is to take the cash out. Suffer the tax and then sign the company over to him. Just gift it to him
You resign.
Ain't no issue giving something away.
Of course this does mean he could gift you £130k.....
Like I said though, you would have to believe nobody would ever look
If you take the money out, and then sell the company for enough to cover legal bills. You'll pay tax on what you take out.
You are going to pay tax. The only question is how much.
There will be a clear paper trail that will show to anybody with a remote ounce of common sense what has actually occured.
The question is always going to be - will anybody ever look. You do however need large balls for that game.
Your easiest route. Quickest, easiest, least liability is to take the cash out. Suffer the tax and then sign the company over to him. Just gift it to him
You resign.
Ain't no issue giving something away.
Of course this does mean he could gift you £130k.....
Like I said though, you would have to believe nobody would ever look
Thanks for all the replies.
If there is even a whiff that it’s not going to fly with HMRC, then I’m not interested, I enjoy my sleep far too much.
I’m curious about the wife pension point ?
Is the suggestion the limited co could make a £120k contribution to a SIPP set up in my wife’s name (she is already an employee of the limited co earning a modest salary for doing all the admin). She has zero pension, so full ‘rollover allowance’.
As it’s no longer ‘trading’, we missed out on the corp tax benefit, but there is still the ‘salary sacrifice’ benefit.
If there is even a whiff that it’s not going to fly with HMRC, then I’m not interested, I enjoy my sleep far too much.
I’m curious about the wife pension point ?
Is the suggestion the limited co could make a £120k contribution to a SIPP set up in my wife’s name (she is already an employee of the limited co earning a modest salary for doing all the admin). She has zero pension, so full ‘rollover allowance’.
As it’s no longer ‘trading’, we missed out on the corp tax benefit, but there is still the ‘salary sacrifice’ benefit.
Wilmslowboy said:
Thanks for all the replies.
If there is even a whiff that it’s not going to fly with HMRC, then I’m not interested, I enjoy my sleep far too much.
I’m curious about the wife pension point ?
Is the suggestion the limited co could make a £120k contribution to a SIPP set up in my wife’s name (she is already an employee of the limited co earning a modest salary for doing all the admin). She has zero pension, so full ‘rollover allowance’.
As it’s no longer ‘trading’, we missed out on the corp tax benefit, but there is still the ‘salary sacrifice’ benefit.
Only £60K in this year if she doesn’t already have a SIPP setup to use carry forward. If there is even a whiff that it’s not going to fly with HMRC, then I’m not interested, I enjoy my sleep far too much.
I’m curious about the wife pension point ?
Is the suggestion the limited co could make a £120k contribution to a SIPP set up in my wife’s name (she is already an employee of the limited co earning a modest salary for doing all the admin). She has zero pension, so full ‘rollover allowance’.
As it’s no longer ‘trading’, we missed out on the corp tax benefit, but there is still the ‘salary sacrifice’ benefit.
LuckyThirteen said:
This is sounding like a an easy and great deal for your friend.
And a truck load of hassle for you
Sounds like the trading history has real value to the friend. Presumably he wants to bid for jobs with clients who want to see x years trading history rather than a new startup. And a truck load of hassle for you
If that's what he wants he needs to pay for it - as you say getting it free is a great deal for friend.
LuckyThirteen said:
If you sell the shares. You'll be taxed.
If you take the money out, and then sell the company for enough to cover legal bills. You'll pay tax on what you take out.
You are going to pay tax. The only question is how much.
There will be a clear paper trail that will show to anybody with a remote ounce of common sense what has actually occured.
The question is always going to be - will anybody ever look. You do however need large balls for that game.
Your easiest route. Quickest, easiest, least liability is to take the cash out. Suffer the tax and then sign the company over to him. Just gift it to him
You resign.
Ain't no issue giving something away.
Of course this does mean he could gift you £130k.....
Like I said though, you would have to believe nobody would ever look
If the OP takes the money out without putting the company into members’ voluntary liquidation, the money will be taxed as income (at whatever marginal rate applies) rather than capital. Even ignoring BADR, that is pretty guaranteed to be the expensive choice.If you take the money out, and then sell the company for enough to cover legal bills. You'll pay tax on what you take out.
You are going to pay tax. The only question is how much.
There will be a clear paper trail that will show to anybody with a remote ounce of common sense what has actually occured.
The question is always going to be - will anybody ever look. You do however need large balls for that game.
Your easiest route. Quickest, easiest, least liability is to take the cash out. Suffer the tax and then sign the company over to him. Just gift it to him
You resign.
Ain't no issue giving something away.
Of course this does mean he could gift you £130k.....
Like I said though, you would have to believe nobody would ever look
Wilmslowboy said:
I’m curious about the wife pension point ?
There is a ‘wholly and exclusively’ test to benefit from corp tax savings but as this won’t apply I’m not sure.I still think unless she has a previous association with the company as a director / employee that it wouldn’t pass the sleep at night test.
Gassing Station | Business | Top of Page | What's New | My Stuff