Closing company

[aqws0987]

Hi,

First post, be gentle....

I have for some time been considering leaving IT contracting and closing the company and using the money I've squirreled away to pay off the mortgage.

Over the years I have managed to build a healthy warchest of just under £350k. My wife is also a shareholder (60/40 split).

My company year is aligned to the personal tax year, so if I decide to jack it all in and take some time off and close the company, what is the best way of doing this? would it be liquidation?

I suppose I'm after a rough idea of how much of that £350k I'm likely to keep after everything is wound up if I do it from the very start of the next tax year.

TIA

[Maslins]

An MVL would seem the obvious choice based on your situation and tax laws as they stand.

Have to admit, dividend tax changes announced yesterday make an MVL superficially look more appealing...which makes me think it could be in for the chop/a nasty surprise in a budget fairly soon.

[northernladuk]

Check out MVL Online. Drop them a line and I am sure they can come up with some figures for you. I don't think you are going to get it much cheaper anywhere else and we have a number of happy campers on this forum after using this service..

Members Voluntary Liquidation | MVL Online®

Don't let the mug shots put you off though, despite what they look like I hear they are pretty good...

[TheCyclingProgrammer]

After deducting costs for the MVL (shouldn't be more than £1-2k), you should ensure you've taken the maximum dividends up to the higher rate. The remainder will be distributed as capital and treated as a capital gain. You should be eligible for ER which should reduce the rate to 10%.

Is your wife also a director or company secretary? If not, she'll be looking at a higher CGT bill on her share.

[aqws0987]

Thanks for all the replies. I see from the FAQ at MVLonline that it could take up to 6 months! hopefully it would be quicker.

Could liquidating a company with such a large amount of cash set off any alarm bells @ HMRC that could cause delays or more scrutiny? or perhaps even trigger other things like an IR35 investigation?

Is your wife also a director or company secretary? If not, she'll be looking at a higher CGT bill on her share.

Yes she is a company secretary.

[Maslins]

Thanks for all the replies. I see from the FAQ at MVLonline that it could take up to 6 months! hopefully it would be quicker.

Could liquidating a company with such a large amount of cash set off any alarm bells @ HMRC that could cause delays or more scrutiny? or perhaps even trigger other things like an IR35 investigation?

FWIW we only recently updated that page, it used to say 3-4 months, but the HMRC dept issuing clearances has fallen behind (see here for a recent post from another liquidator evidently having the same fun MVL Online have had recently). Hopefully it is a temporary blip and things will speed up again soon...but by that I mean back to 3-4 months rather than anything quicker.

Whilst the majority of MVL Online clients probably fit in the £50k-100k bracket, we've done one case >£1m, perhaps a dozen £500k-999k, lots more £250k-499k. I wouldn't be concerned that your case will stick out massively.

There's always the slight risk that HMRC attempt to challenge Entrepreneurs Relief claim on grounds with that much cash, especially if its been doing something more exotic than sitting in a deposit account, the company has drifted from a "trading" to an "investment" company...but I haven't heard any cases where they've challenged to date...but we wouldn't necessarily hear as it'd be the personal tax return that'd be challenged.

I imagine an IR35 investigation would need to be raised before the liquidation was finalised, in which case I can say in 350+ cases finished to date, the majority of which were ex contractors, we haven't had an IR35 challenge once.

[youngguy]

FWIW we only recently updated that page, it used to say 3-4 months, but the HMRC dept issuing clearances has fallen behind (see here for a recent post from another liquidator evidently having the same fun MVL Online have had recently). Hopefully it is a temporary blip and things will speed up again soon...but by that I mean back to 3-4 months rather than anything quicker.

Whilst the majority of MVL Online clients probably fit in the £50k-100k bracket, we've done one case >£1m, perhaps a dozen £500k-999k, lots more £250k-499k. I wouldn't be concerned that your case will stick out massively.

There's always the slight risk that HMRC attempt to challenge Entrepreneurs Relief claim on grounds with that much cash, especially if its been doing something more exotic than sitting in a deposit account, the company has drifted from a "trading" to an "investment" company...but I haven't heard any cases where they've challenged to date...but we wouldn't necessarily hear as it'd be the personal tax return that'd be challenged.

I imagine an IR35 investigation would need to be raised before the liquidation was finalised, in which case I can say in 350+ cases finished to date, the majority of which were ex contractors, we haven't had an IR35 challenge once.

I know it is probably hard to say exactly, but what would a contractor expect to receive in their pocket following liquidation on a balance of, say, £100k, £200k, £300k?

Also, if a contractor wanted to carry on contracting but do it via an umbrella would liquidation be a valid option?

[Maslins]

I know it is probably hard to say exactly, but what would a contractor expect to receive in their pocket following liquidation on a balance of, say, £100k, £200k, £300k?

Also, if a contractor wanted to carry on contracting but do it via an umbrella would liquidation be a valid option?

Inevitably there are a bunch of things which could change the figure:
- 1 or 2 shareholders?
- have they used their CGT annual exemption?
- will it qualify for entrepreneurs relief?

For your standard 1 person company, no other gains, will qualify for ER, you can expect to get the first ~£11k tax free, then pay 10% on the balance. So:
- £100k --> £91k in pocket
- £200k --> £181k in pocket
- £300k --> £271k in pocket
Pretty attractive when compared to dividends, especially if you base it on the proposed new regime.

Re going umbrella, I personally would suggest yes. Basically what you can't do is liquidate OldCo, then start doing the same thing via NewCo soon after.

[youngguy]

Re going umbrella, I personally would suggest yes. Basically what you can't do is liquidate OldCo, then start doing the same thing via NewCo soon after.

Interesting.

If dividends go the way it has been suggested and T&S is possibly removed, I wonder whether you will see the single contractor go for MVL and then just use a brolly? It would also take away the hassle of whatever they do with IR35.

I'm generalising but if most contract for independence, and then do so via a limited co for tax breaks and the majority of those breaks are eroded, it makes you wonder if you need the extra work associated with a Ltd (I say this as a single chap with no children) ?

[Maslins]

If dividends go the way it has been suggested and T&S is possibly removed, I wonder whether you will see the single contractor go for MVL and then just use a brolly? It would also take away the hassle of whatever they do with IR35.

I'm generalising but if most contract for independence, and then do so via a limited co for tax breaks and the majority of those breaks are eroded, it makes you wonder if you need the extra work associated with a Ltd (I say this as a single chap with no children) ?

Certainly a chunk of the typical tax saving of Ltd Co over brolly will be eroded if these changes go ahead as planned. I don't think tax is the sole reason some contractors go Ltd instead of brolly...and also there will still be a reasonably hefty tax saving. Plus you still retain all the control (eg you don't have to take out all profits as divis).

I'm sure many currently on the fence will drift towards brolly, but I can't imagine a mass exodus from Ltd Co.