closing down a small company
Discussion
Firstly - apologies if I seem a lurker; I have created this PH account due to my usual account being a function of my business name (seemed a good idea at the time!) anyhoo I need some advice please.
I started my company almost 2 years ago in order to try and be "tax efficient" on the basis of a large contract which was supposed to come my way but never did (sigh). I am fortunate to have a pension income which just about nudges into the 40% bracket, and Mrs E-B is a non taxpayer and the other shareholder. Since the work isn't going to materialise any time soon and I'm scratching around for any other work now, I'm considering closing the company once it's 2 years old. There is around £35k in the company.
I understand (a) I can pay a fee and close the company and pay (10%?) ish tax, OR (b) if funds are below £25k I can close it and pay no tax. If I do this I'll need to pay tax on the dividends to me and Mrs E-B, which according to my maths will be more tax.
the question I have is; if I choose option (a) - what pitfalls await me? grateful if anyone has been in similar situation and can share some experiences. I have no intentions of running another company, its unlikely I'll work again now. TIA. Rod.
I started my company almost 2 years ago in order to try and be "tax efficient" on the basis of a large contract which was supposed to come my way but never did (sigh). I am fortunate to have a pension income which just about nudges into the 40% bracket, and Mrs E-B is a non taxpayer and the other shareholder. Since the work isn't going to materialise any time soon and I'm scratching around for any other work now, I'm considering closing the company once it's 2 years old. There is around £35k in the company.
I understand (a) I can pay a fee and close the company and pay (10%?) ish tax, OR (b) if funds are below £25k I can close it and pay no tax. If I do this I'll need to pay tax on the dividends to me and Mrs E-B, which according to my maths will be more tax.
the question I have is; if I choose option (a) - what pitfalls await me? grateful if anyone has been in similar situation and can share some experiences. I have no intentions of running another company, its unlikely I'll work again now. TIA. Rod.
Eric Mc said:
And you have an accountant I presume?
I think we have to hope so. What's been set out there seems rather shambolic.Dividends? Out of what?
Share capital?
Trading?
Tax returns?
VAT registered?
The spectrum IMO runs everywhere from "write yourself a cheque and strike off the company" to "this needs properly sorting with paid advice".
The £25k is a red herring vis a vis which of the two options you can pursue. I think you’re describing a) an MVL and b) a strike off.
Assets distributed in an MVL will be treated as a capital distribution, subject to capital gains tax in your hands. if Business Asset Disposal Relief applies, gains could be taxed at 10% (you can offset your annual exemption). Capital treatment only applies if you don’t start a similar business again in the 2 years after any distributions in the MVL - as you’ve indicated - otherwise, any distributions will be income distributions - see below. An MVL will cost you money, and is a much more formal process than strike off, but you have more protection against any future claims.
If you don’t do an MVL, any distributions are income distributions, effectively taxable as normal dividends in your hands. You obviously need distributable reserves to pay a dividend. You can create them by reducing capital if you don’t have distributable reserves. Any assets you don’t distribute, will be lost by the shareholders.
I assume you have nominal share capital in the company? You only get share capital “back” if you liquidate a company (including an MVL). You’ll “lose” the share capital in a winding up - option b).
Assets distributed in an MVL will be treated as a capital distribution, subject to capital gains tax in your hands. if Business Asset Disposal Relief applies, gains could be taxed at 10% (you can offset your annual exemption). Capital treatment only applies if you don’t start a similar business again in the 2 years after any distributions in the MVL - as you’ve indicated - otherwise, any distributions will be income distributions - see below. An MVL will cost you money, and is a much more formal process than strike off, but you have more protection against any future claims.
If you don’t do an MVL, any distributions are income distributions, effectively taxable as normal dividends in your hands. You obviously need distributable reserves to pay a dividend. You can create them by reducing capital if you don’t have distributable reserves. Any assets you don’t distribute, will be lost by the shareholders.
I assume you have nominal share capital in the company? You only get share capital “back” if you liquidate a company (including an MVL). You’ll “lose” the share capital in a winding up - option b).
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