Q. When closing a limited company (with NO plans of entering business again in future), can I opt for MVL and Entrepreneurs relief? Otherwise, what’s the tax efficient solution for a company who’s balance is morethan 40k?
A. As the company has assets in excess of £25K then to claim the distribution as being capital a formal liquidation will have to take place. Current costs quoted for a small company with a single shareholder & asset consisting of a bank account are £4 – 5K.
Provided that throughout the year ending with the disposal of your company shares, ie the winding up:
- The company is your personal company;
- The company is a trading company; and
- You are an officer or employee of the company
Then the disposal of your company shares will qualify for Entrepreneurs’ Relief & the capital gain will only be subject to 10%.
If the final distribution is not treated as capital, then it will be treated as a dividend. As to which is the best option you will have to do the number crunching bearing in mind that:
- Dividends are taxed as your top slice of income & at least part of the dividend will be taxed at an effective rate of 25% if you are a higher rate taxpayer. If you have no other source of taxable income, then it maybe beneficial to have the final distribution treated as a dividend if you are only a basic rate taxpayer, as no further tax will arise.
- The costs of a formal liquidation.
- Notwithstanding any other capital gains in the year, the annual allowance of £11,100 reduces the gain on a final distribution treated as capital.
The costs of placing a company into MVL can vary greatly. Platinum Restructuring Services fee for doing this is £3,000 plus VAT and disbursements.
Presumably you are planning to make use of the 30k redundancy limit prior to liquidating the remaining assets? Qualifying for this would obviously depend on whether you are giving up employment (in this form at least) and the terms of your employment contract.