Limited Company Closure Route

[john@UKCA]

My Understanding

Careful. My understanding is that if they returned to contracting then the risk is the initial distributions would become taxed on them as dividends, rather than CGT. If caught, it could lead to significant additional taxes in percentage terms.

Exactly its your undertstanding not law until the Finance Bill has been enacted and we know the full facts and how they will be applied. The new rules will apply where three conditions, called conditions A, B and C, are met.

The final discard condition, condition C, requires that it is reasonable in all the circumstances to assume that one of the main purposes of the liquidation/dissolution, or arrangements of which the liquidation formed part, is the avoidance of an income tax liability.

As with much anti-avoidance legislation based upon a “capture and discard” approach, the subjective nature of these proposals is unsatisfactory. In particular, it remains to be seen how HMRC will interpret condition C.

In the OP's case my understanding is that the risk of reclassifying as dividends is minimal hence my comment 'no problem in returning to contracting'

[jamesbrown]

In the OP's case my understanding that the risk of reclassifying as dividends is minimal.

Odd interpretation. Since you've accepted that it's subject to the whims of HMRC interpretation, I can't see how you could possibly view the risk as minimal. The whole point of seeking a capital distribution and ER is to reduce the tax paid, even if it wasn't the primary motivation for the decision to liquidate. Arguing about whether it was a "main" purpose is very sketchy indeed. The risk is quite significant IMO, recalling that risk = probability x cost. There's significant uncertainty, both w/r to the Finance Act and case law (i.e. a non-trivial probability of being wrong), and the potential costs are quite high on a capital distribution of several hundred grand.

[john@UKCA]

I don't want to be rude but are you really expecting to run business under this brand? It's..erm... Not going so well for you so far.. :

Well not in the North anyway!

[john@UKCA]

and the potential costs are quite high on a capital distribution of several hundred grand.

are we dealing with several hundred grand here!

[northernladuk]

Well not in the North anyway!

You know it's the same internet in the south as well as the north?

[john@UKCA]

You know it's the same internet in the south as well as the north?

no a bit faster in the south from what I understand

[biztalk]

Your OP indicates to the contrary, so you might want to edit that.

Sorry James, I have updated it now.

[jamesbrown]

are we dealing with several hundred grand here!

Aside from the direct exposure the OP might face to a small capital distribution, there are indirect costs (of investigation and potentially litigation), and others may not interpret your comments in the narrow context of the OP. Anyway, your statement was about the risk of reclassification, not the exposure in absolute terms. Bottom line, I think Maslins is right to note some caution.

[WordIsBond]

There's significant uncertainty, both w/r to the Finance Act and case law (i.e. a non-trivial probability of being wrong), and the potential costs are quite high on a
capital distribution of several hundred grand.

To be fair, JB, "UK Contractor Account" was responding at that point to someone other than the OP, and it was a distribution well under £25K, probably under £10K, in view.

[jamesbrown]

To be fair, JB, "UK Contractor Account" was responding at that point to someone other than the OP, and it was a distribution well under £25K, probably under £10K, in view.

Sure, but it isn't just about the exposure in absolute terms. There is a risk that a capital distribution (with or without ER) could be reclassified, and I can't see how UKCA can claim that it's minimal (for some of the same reasons that UKCA acknowledges w/r to the final drafting, but also the case law or absence thereof). TBH, I wouldn't have mentioned it, were it coming from an ordinary poster, but the pros need to be held to a higher standard because they're more likely to be listened to.