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Close and open Limited Company same day

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    Close and open Limited Company same day

    Hi All,

    I heard from an accountant that government is planning to look at current distribution tax and may propose to remove 10% tax and treat all distribution as income when winding up a limited company.

    See the URL below:
    https://www.gov.uk/government/upload...ent__7029_.pdf

    So I have just a month to act or may be less if the new rules gets applied from the date when budget is presented by chancellor.

    I have around £200,000.00 in my limited company. I have been running this company for last 5 years.
    I have an existing contract with my client ending in Jun-16.
    I am planning to go via MVL route, close my existing company and distribute £200,000.00 between me and my wife (equal shareholders) and pay 10% tax on it. I want to open a new company at the same time as this one is closed as I have a contract running at the moment. I will mark the new company as Management Consultancy while the previous one was IT Consultancy.

    If I do not do as above then I will be liable for 32.5% dividend tax on this income.

    I know it is tax avoidance and sheer purpose of me closing the company is saving on tax. I believe in worst case if HMRC comes after me and if I end up paying tax to HMRC then it will not be more than dividend tax but I want to try my luck and see if I can save some on tax.

    I can try to get a permanent job just to show that the intention to close the company was to join the permanent job but somehow it did not work.

    Can you anyone throw some light on this if they have closed and opened the company at the same time (without any gap)?
    Is there anything I am missing here?
    Did anyone tried this and faced issues from HMRC?

    Thanks.

    #2


    Seriously, if you thought for a minute this might be possible, there are probably other things you should be worried about. Perhaps leave the hard stuff to your accountant, eh?

    This would be squarely within the Transactions in Securities legislation and is colloquially known as phoenixing. You can relabel your new company in whatever way you choose, but any idiot would see straight through it.

    In any case, even if this were possible (it hasn't been since TiS was introduced), you're far too late for an MVL within the current rules (before April 6). They take several months and require approval from HMRC who will not be looking to wave these through quickly. You have a couple of options: 1) forget about it; or 2) do the MvL next year and either retire or take at least 2 years off.

    Comment


      #3
      Not possible. You can't claim ER (which is how you get the 10% rate) by doing this. There was a thread on this a couple of days ago.

      Comment


        #4
        Originally posted by NoviceContractor View Post
        I can try to get a permanent job just to show that the intention to close the company was to join the permanent job but somehow it did not work.
        ps. even if you did this, it's unlikely to work. The current best guess is that permanent employment constitutes "activity".

        Comment


          #5
          So you've been giving divis both of you and still managed to save 50k a year? That's good going. It would be a shame to throw away a good chunk of it try to do something you can't.
          I'd speak to a professional first if I was messing around with over 200k of my money.
          'CUK forum personality of 2011 - Winner - Yes really!!!!

          Comment


            #6
            Originally posted by northernladuk View Post
            So you've been giving divis both of you and still managed to save 50k a year? That's good going. It would be a shame to throw away a good chunk of it try to do something you can't.
            I'd speak to a professional first if I was messing around with over 200k of my money.
            I spoke to liquidator and he said that he can easily get it done in 2-3 days...certainly not few months.
            Many of my friends are currently doing this and some previous colleague done this many times earlier.

            I am new to MVL and with legislation changing now, I wanted to try my luck.

            Comment


              #7
              http://forums.contractoruk.com/showthread.php?t=112695

              Doesn't matter what your pals are doing / have done. Get expert advice. It's worth noting that you won't necessarily get this advice from a liquidator. This tax advice.

              Comment


                #8
                Originally posted by NoviceContractor View Post
                I wanted to try my luck.
                At what? Let's assume the rules weren't changing. What's your commercial motivation? Why would anyone believe that you had no expectation to continue in the same trade? You've stated yourself that you have every expectation to do just that. I think you're confused about what is changing in April. Under the circumstances you've described, you would not be eligible for a capital distribution and ER right now because you don't have a commercial reason, and this will be obvious from your actions. If you intended to take permanent employment, you could mount a reasonable argument for tax being a secondary factor (although none of this is well tested), but this is unlikely to be an option from April (unless the new legislation specifically excludes employment as an "activity" or you intend to completely change career).

                I don't know how on earth your liquidator can make such crazy promises if they haven't started the process. I guess it's theoretically possible to achieve within weeks, but days? It could take several weeks just to get all the initial admin sorted, depending on how quickly your bank(s) respond. At the very least, the final disbursement will fall under the new regime, because this requires HMRC clearance, and that takes several months. IMO, you'd also be painting a red flag on your back in engaging in this process now.

                Anyway, I'm sure some of our friendly MvL experts will be along shortly to outline the steps involved and time taken, but you don't have a commercial motivation to begin with (read: a plausible argument to show why it was commercially motivated, because I accept that many liquidations are not).

                Comment


                  #9
                  Originally posted by NoviceContractor View Post
                  I wanted to try my luck.
                  200K at risk and you say that!
                  Methinks you need to sit down and rethink your appetite for risk!

                  Ignore the bloke offering you a quick (allegedly) MVL, what does your accountant/IFA suggest?
                  So now I am worried, am I being deceived, just how much sugar is really in a spoon full!

                  Comment


                    #10
                    Originally posted by DallasDad View Post
                    Ignore the bloke offering you a quick (allegedly) MVL, what does your accountant/IFA suggest?
                    Amen, and bear in mind that, once the liquidation process has begun and the liquidator has the funds, those funds are no longer in your control. A reputable company will insure against this risk (e.g. that the liquidator runs with the money), but you don't want to be trusting 200k with some used-car salesman. Someone making such promises won't give a **** about your self-assessment tax return, which is where you ultimately claim ER. Once they have their fee, it's job done.

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