Q. I have ben self employed for 5 yrs and VAT registered. My partner is on the books but only as a PA/Secretary.
I have completed a contract which lasted 4 1/2 yrs and was thinking of closing the co which has >£100,000 in the account.
My accountant tell me it would be £3-4k to close it and 10% tax but they could come after more.
I would probably be starting up again at some point and realise I shouldn’t perhaps do that.
I eagerly await your response as I am aware it takes 3mths to fully close a company.
A. You have received sound advice from your accountant. As the company has assets in excess of £25K it must undergo a formal winding up if you wish to treat the final distribution as capital rather than dividends and therefore have the capital sum subjected to Capital Gains Tax (CGT) rather than Income Tax. This would appear to be the most tax efficient route as you appear to qualify for Entrepreneurs’ Relief thereby reducing the rate of CGT to 10%.
The voluntary liquidation will normally be undertaken by an insolvency practitioner, hence the £3-4K winding up costs.
There is currently a consultation, ‘Company distributions’ that is seeking views on proposed legislation to take effect from 06.04.16. To prevent individuals from running a business for a short time through a company, liquidating it, extracting the money as capital and then starting a new company, HMRC propose that the final distribution be treated as a dividend and not capital where:
- a shareholder receives a distribution in a winding up of a close company;
- within 2 years, the shareholder continues to be involved in a similar trade or activity, either as a sole trader, partner or as a participator in a company; and
- the arrangements have a main purpose, or one of the main purposes, of obtaining a tax advantage.
The consultation is due to close on 03.02.16 and HMRC are due to publish further guidance shortly which hopefully will provide further clarification.
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