MVL

[willip4]

Hi,

I have been contracting for a number of years and have decided to take a year off to spend with my family. When I return to work I am not sure if I will continue to contract or go permie. There is the possibility of a permanent job at the the company where I have just finished contracting and for a number of reasons I would like to pursue this. My accountant was not able to provide a hard and fast rule as to whether around winding up my limited company, other than HMRC will frown upon it, if it is just to take retained profits from the company. Can anybody provide any further guidance / advice. Would I fall foul of the regulations if I wind up the company and then reopen a new company in a years time and provide the same services?
Thanks
Willip4

[webberg]

If your accountant can't (or won't) answer this relatively simple question, you might want to think going to one who can?

[eek]

Hi,

I have been contracting for a number of years and have decided to take a year off to spend with my family. When I return to work I am not sure if I will continue to contract or go permie. There is the possibility of a permanent job at the the company where I have just finished contracting and for a number of reasons I would like to pursue this. My accountant was not able to provide a hard and fast rule as to whether around winding up my limited company, other than HMRC will frown upon it, if it is just to take retained profits from the company. Can anybody provide any further guidance / advice. Would I fall foul of the regulations if I wind up the company and then reopen a new company in a years time and provide the same services?
Thanks
Willip4

The requirement is hat you don't foresee yourself in the exact same industry again. So retiring (even not full time) or going permanent are both valid reasons for wanting the company closed down.

[willip4]

Hi both,
Thanks for your responses. Can I clarify when you say you do not forsee yourself working in the same industry again, what would happen if you do re-open a company in the same industry after winding up the company? Could a penalty be applied?

Thanks
Willip4

[TheCyclingProgrammer]

It's about your intention at the time. Liquidating your company does not stop you from contracting ever again.

[TykeMerc]

Hi both,
Thanks for your responses. Can I clarify when you say you do not forsee yourself working in the same industry again, what would happen if you do re-open a company in the same industry after winding up the company? Could a penalty be applied?

Thanks
Willip4

The timing is relevant, if you close one and then open another almost immediately it's going to look like phoenixing or trying to play the system to gain a tax advantage.

If you've taken a permy role or gone into a different line of business then return later to what you were doing there's more credibility to the MVL.

[JB3000]

If your accountant can't (or won't) answer this relatively simple question, you might want to think going to one who can?

Ignorant and naive comment.

If you do some reading you will find that even HMRC can't give a correct answer some of the time; they have lost many cases that have gone to court. Google "Artic Systems" if you don't believe me.

The same is true with accountants, even the most expensive accountants/tax advisors cannot guarantee their interpretation of the tax legislation is correct. Hence all the wins HMRC have had in court against accountants, tax advisors and tax avoidance scheme promoters.

[Maslins]

As some have said above, no clear cut answer on this. It's the "transactions in securities" rules which could potentially bite. Basically it's anti avoidance for situations where whilst the legal entity of something could change, if the underlying business remains the same, any tax benefits of legal changes could be negated.

Eg in your situation, you currently have OldCo, contractor company with big pot of cash in. If you transfer trade and assets except cash of OldCo to NewCo, NewCo then continues to trade no differently, whilst you liquidate OldCo to get the cash out tax efficiently, you could be caught.

Problem is whether the trade is transferred or not isn't always black and white. Eg if you took a 1 week break between the two, it's unlikely that would be considered a break in trade, that's just a normal holiday. If it was a couple of years, HMRC would be hard pressed to argue the same underlying trade continued throughout. However where the line is drawn in between is anyone's guess. Plus it's not just about the time elapsed.

My personal view would be if you do take a whole year out to do other stuff, you're extremely unlikely to get caught by the rules...but that's just my humble opinion. See here for an example HMRC give which would be caught.

[Chris at CrunchAccounting]

MVL cut off points

Providing your stopping trading for genuine commercial reasons (retiring or going permanent for example), closing via an MVL is normally the best option when net assets are above £40,000.

If assets are below this amount then before stopping trading, issue dividends (speak to an accountant to get actual figures, as it will change depending on circumstances). Any remaining profits will be taxed as a capital gain (there is a current annual exemption is £11,000). The company would then produce accounts to when it stopped trading, then a DS01 would be filed with Companies House (CH) to remove the organisation off the CH register.

If you believe you are going to use the company in the near future, then making the company inactive would be best.

Again speaking to our Accountant would be best as they would know your individual circumstances.

Hope this helps!

[Dan@OrangeGenie]

I think the fact you don't know whether you will come back as a permie or contractor is a good enough reason, plus you have taken a reasonable amount of time out.