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To close Ltd. or not to close...?

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    To close Ltd. or not to close...?

    Hi all

    I have a question which I’m a bit perplexed about.

    My situation is this – my current contract will expire end of July - I’ve been looking around for other roles for the last 2 months but found nothing suitable (yes, the last 2 months - the project has fallen through and I'm being booted much earlier than expected - grrr).
    I’m not completely sure I’ll get another job quickly (my rather unique skill set is not currently in demand due to reasons beyond my control). Also, due to the attitude of this current Government I’d like to leave Contracting for good – but that’s another topic.

    My dilemma is, should I close the company down when this contract ends, or keep it running even though there may be no income for an indefinite period of time?

    My options, as far as I see it are, and I am genuinely, I suppose naively, unsure which is the best thing to do – I don’t close Ltd’s down every day! (also, for what it’s worth, I estimate that the remainder of company funds after necessary bills/taxes are paid will be between £7k - £10k):

    (a) Close Ltd. down & pay any remaining bills/taxes, extract remaining profit taxed @ Capital Gains
    (b) Close Ltd. down & pay any remaining bills/taxes, extract remaining profit as Divis’s taxed @ normal Divi rates
    (c) Option (a) or Option (b) but make Ltd. ‘dormant’ rather than closing it down

    The best thing (from a purely selfish perspective) is option (a). But, I assume this would be tantamount to avoiding tax if I returned to contracting as my next form of employment using a Ltd. (not quite sure if there is a time period defined or it is assessed via other criteria – Phoenix Clause?).
    Option (b) looks a safer bet – as I’ve paid all taxes in a straightforward & direct way – but unaware of any potential pitfalls?
    Option (c) – never made a company dormant – sounds like a lot of hassle; but open to be swayed.

    Obviously if I were to get offered a contract role in the meantime everything stays as-is (and if a Permanent role then Option (a) ), but come September, and there’s nothing on the horizon, I need to be able to maximise the amount of money I have at my disposal to keep the roof over our heads, and option (a) provides just that (I also have savings which can be utilised, but every penny counts!)

    I suppose it could be considered a conflict of interest - so need some independent advice...


    Just to make it clear – I am NOT, repeat NOT, looking for a way to avoid paying any debts/taxes or looking for a way to circumvent the law in any way!!


    Are there any golden rules that I should adhere to?
    Any advice?
    Any particular internet info I should read?

    Thanks for reading a long rambling post – any advice appreciated.

    #2
    I'd see what my accountant suggests first based on their knowledge and experience.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #3
      Relatively short answer but;

      If you believe you are going to be contracting again in the near future (12 months or less) then I would suggest keeping the company open.

      If you believe this is it for a while (over 12 months) then it may be a good idea to look at closing the company.

      There is no harm in keeping the company going until the above comes clear (might be that you get the perfect perm position).

      Disclaimer; this is without going into how much reserves are in the company, whether you could take advantage of entrepreneurs relief etc. Speak to your accountant!

      Comment


        #4
        Originally posted by Michael at BI Accountancy View Post
        Relatively short answer but;

        If you believe you are going to be contracting again in the near future (12 months or less) then I would suggest keeping the company open.

        If you believe this is it for a while (over 12 months) then it may be a good idea to look at closing the company.

        There is no harm in keeping the company going until the above comes clear (might be that you get the perfect perm position).

        Disclaimer; this is without going into how much reserves are in the company, whether you could take advantage of entrepreneurs relief etc. Speak to your accountant!

        Yeah I was going to speak to my accountant anyway - but I like to be prepared before hand, and thought there would be a whole raft of differing opinions or other options I hadn't considered.

        Thanks for the info

        Comment


          #5
          I kept my company going through a couple of years of Permiedom. Making it dormant seemed a bit pointless; either close it or keep it going. If you keep it going then the downside is you have to keep it going - i.e. do the accounts, annual return and CT, and if you're incapable of figuring it out for yourself you'll be paying an accountant full whack (probably) for a company that isn't doing much. I just figured it out for myself, starting with deregistering from PAYE and VAT.

          If you keep the company going you can at least choose to pay the money out as dividends at a future date when perhaps it suits your tax situation better - i.e. if you find yourself out of work. Whether that's better than CG or using the £5K dividend allowance I don't know.
          Will work inside IR35. Or for food.

          Comment


            #6
            I'd say option (d) - don't do anything yet. You've got till end of July to find another job (contract or perm) and figure it out. True you've been looking for two months, but you still got some time left. I don't think there's any rush here.

            Your accountant will be able to tell you more but (s)he will not make the decision for you ! Good luck!

            Comment


              #7
              Originally posted by Karbim View Post
              I'd say option (d) - don't do anything yet. You've got till end of July to find another job (contract or perm) and figure it out. True you've been looking for two months, but you still got some time left. I don't think there's any rush here.

              Your accountant will be able to tell you more but (s)he will not make the decision for you ! Good luck!
              Agreed - I was going to start to 'execute' the plan probably September/October time; I just like to be prepared and thinking about things now in a more calm and rational manner. I hope. Hehee

              Thanks

              Comment


                #8
                Option e) could be paying it all into a pension. You won't have to pay CT then either.
                Will work inside IR35. Or for food.

                Comment


                  #9
                  Originally posted by VectraMan View Post
                  Option e) could be paying it all into a pension. You won't have to pay CT then either.
                  Yes, that is an option, but then I wouldn't have it readily to hand to pay the mortgage!

                  Comment


                    #10
                    Originally posted by JustMyUsername View Post
                    (a) Close Ltd. down & pay any remaining bills/taxes, extract remaining profit taxed @ Capital Gains
                    (b) Close Ltd. down & pay any remaining bills/taxes, extract remaining profit as Divis’s taxed @ normal Divi rates
                    (c) Option (a) or Option (b) but make Ltd. ‘dormant’ rather than closing it down
                    You can't do (a) and be dormant.

                    Comment

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