Limited Company Closure Route

[biztalk]

To begin with, you should pay a dividend up to the higher rate threshold for 2015/16, regardless of how you choose to close your company. Next, if you don't plan to carry on the same trade or "activity" within two years, ER remains an option on your self assessment for 2016/17 following closure. In your specific case, it would be difficult to argue that tax is a primary motivation, since you're moving overseas. As noted by Maslins, listen out for the budget.

Thanks James for the reply, I have paid myself dividend for 2015/2016(£31,777.78 with tax credit) . I was wondering if I can pay myself dividend for year 2016/2017 as I will be trading till June 2016.
With profit of approx 100K in the company what you think is the most tax efficient route ?
TIA

[Mister Clark]

Thanks a ton for the informative response.
I am having an Oz perm residency and also an Indian nationality.
As you suggested, I must maximise my allowance, does that mean , I will be able to use the allowance of australia while drawing the funds from my limited company ?
Also, I have got the residency, but haven't activated it yet. by this I mean, I need to go to Australia before end of this year to activate my PR.
In terms of returning to UK, I doubt I will be coming back in 5 years or ever...
So , Can you please suggest me what you think will be the best option for me ?
Appreciate you response on this

You need to pay someone who has both UK and Australian tax knowledge.

Australian tax in a lot of respects is much less forgiving than in the UK, for example you have the MediCare levy.

The problem is, if you you're in Australia when the distribution is made you will be liable to Australia CGT rules which I'm not familiar with. I would bet it's more than 10% though. Taken from the ATO website:

"...For individuals the rate will be your income tax rate for that year."

For me, that's 37% plus 2% medicare levy.

If it were me and I had the time, I think it could be worth while hanging around in the UK until at least the initial distribution is made. That way you can get away with paying 10% on that chunk of the money. I've been told to expect a 6 plus month wait for final clearance so that final distribution may well be caught under Australian tax rules.

With regards to using your Australian allowance, yes, you could do that but you need to understand that Australia is very different to the UK with regards to the equivalent limited company here. Google the 80/20 rule - I don't know what kind of setup you have, but, I can almost guarantee that even if you contract you will pay tax as PAYG levels.

I'm not 100% sure of this, but I believe Australia pro-rata your allowances as well so it's no good turning up a day before the end of the tax year to utilise your allowance - check that out thought as I'm not sure.

[jamesbrown]

Thanks James for the reply, I have paid myself dividend for 2015/2016(£31,777.78 with tax credit) . I was wondering if I can pay myself dividend for year 2016/2017 as I will be trading till June 2016.
With profit of approx 100K in the company what you think is the most tax efficient route ?
TIA

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

[Maslins]

Will be no problem coming back to contracting as ER not claimed.

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.

[northernladuk]

The £11K CGT allowance applies to each shareholder so there will no need to claim ER with your wife as a shareholder.

Will be no problem coming back to contracting as ER not claimed.

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.. :

[WordIsBond]

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.

Yes.

Although to be fair, if it is less than £10K in distribution, and the person in question left contracting to go to a perm job, it would be very hard for HMRC to claim that the closure of the company was tax-motivated, and very unprofitable for them to investigate it and fight it.

It was foolish to say there is no risk (anyone want to bet this "accountant" that has started posting here isn't ICAEW?), and you were right to correct that, but the amounts under discussion were so small that the risk is probably minimal. Hard to imagine HMRC going after someone for paying CGT instead of dividend tax on less than £10K, if there's any chance they'd lose the argument, and in this case, there's a decent chance they would.

[Maslins]

Although to be fair, if it is less than £10K in distribution, and the person in question left contracting to go to a perm job, it would be very hard for HMRC to claim that the closure of the company was tax-motivated, and very unprofitable for them to investigate it and fight it.

It was foolish to say there is no risk (anyone want to bet this "accountant" that has started posting here isn't ICAEW?), and you were right to correct that, but the amounts under discussion were so small that the risk is probably minimal. Hard to imagine HMRC going after someone for paying CGT instead of dividend tax on less than £10K, if there's any chance they'd lose the argument, and in this case, there's a decent chance they would.

TLDR - agree with everything you've said, but still feel important to correct it.

I added "percentage terms" to the end of my final para as like you suggest, given the modest closing sums, it wouldn't be huge...but could still easily be 25% tax compared to 0% tax. The previous comment implied that it would still be CGT, still with annual exemption.

It was more the suggestion that they wouldn't be caught because they hadn't claimed ER. I think some people misunderstand and think that the transactions in securities rules (old or new) stop entrepreneurs relief applying, but still leave it as a capital gain. This logic I believe is wrong, and I wouldn't want people mistakenly assuming it correct when the amounts at stake were potentially much higher.

Also whilst I completely accept your point re with the amounts being modest HMRC would be unlikely to challenge it, that doesn't justify it in my mind. Same way if I just went on a cheap holiday and claimed it as business travel, or bought a modestly priced TV for my lounge and claimed it as computer equipment, it wouldn't be ok irrespective of risk of getting caught.

[TheFaQQer]

Although to be fair, if it is less than £10K in distribution, and the person in question left contracting to go to a perm job, it would be very hard for HMRC to claim that the closure of the company was tax-motivated, and very unprofitable for them to investigate it and fight it.

Since when have either of those points been a factor in the actions of HMRC?

[WordIsBond]

Also whilst I completely accept your point re with the amounts being modest HMRC would be unlikely to challenge it, that doesn't justify it in my mind. Same way if I just went on a cheap holiday and claimed it as business travel, or bought a modestly priced TV for my lounge and claimed it as computer equipment, it wouldn't be ok irrespective of risk of getting caught.

Certainly. That is a matter of right and wrong.

In the case in question, the poster is accepting a perm job, so he's not doing anything wrong, even if he ends up coming back to contracting in 6 months because things went pear-shaped. So whilst I agree with the principle, I don't think it actually applies in the case under discussion.

It's entirely a question of risk, which is still relevant even though he's doing nothing wrong, due to the inclusion of "intent" in the rules. Once "intent" gets into the rules one has to measure risk of that being challenged even if one is doing nothing wrong, because we apparently don't have people in this country capable of writing clear legislation without relying on the omniscient ability to divine someone's intent.

[WordIsBond]

Since when have either of those points been a factor in the actions of HMRC?

Why do you think there are so few IR35 cases brought to completion? If they weren't A) hard to prove and B) relatively low-yielding, there would be a lot more. Not everyone at HMRC is as stupid as we might think. They have plenty of people to target, I mean work with, high net worth individuals to bring them into compliance, because that brings in the money.