Qualifying for Entrepreneurs Relief

[Willapp]

I've done some research online but can't seem to find clear guidance on what allows a contractor to close his LTD and claim ER on the capital reserves in the company?

Both myself and a friend (who also contracts) may be taking up permanent positions in the next few months and there is the usual dilemma of what to do with the LTD. Could leave it open but that incurs on-going costs, and given how cheap it is to set up a new LTD in the future, don't know if I see the point.

I've heard about MVL as a means of liquidating the company but it's unclear what the criteria is for claiming ER and thus only paying 10% CGT on the money taken from the company?

Both companies are actively trading right now, are solely owned by a single director (and have been for 3+ years). Both have between £50-150k in capital, and only minimal assets other than the funds in the bank.

The government's website (https://www.gov.uk/entrepreneurs-relief) doesn't say anything to suggest that we wouldn't qualify, and yet I've read mixed reports as to whether we can do it?

Edit: yes we're going to discuss with the accountants, just wanted a wider opinion.

[l35kee]

Could leave it open but that incurs on-going costs, and given how cheap it is to set up a new LTD in the future, don't know if I see the point.

Depends how much reserves there are I guess? If a lot, then would it make sense to keep it open and gradually withdraw?

What are the ongoing costs? Just the annual return which is like £13 or so? I suppose you wouldn't necessarily need an accountant to gradually withdraw funds and nothing else (could be wrong)?

[Maslins]

...and yet I've read mixed reports as to whether we can do it?

What reports have you read suggesting you can't? You do need to ensure you don't start a similar business within a couple of years...but other than that, should be pretty clear cut.

[BillHicksRIP]

What reports have you read suggesting you can't? You do need to ensure you don't start a similar business within a couple of years...but other than that, should be pretty clear cut.

What about if you switch to an umbrella but doing a similar role shortly after closing your LTD via MVL?

[craigy1874]

Depends how much reserves there are I guess? If a lot, then would it make sense to keep it open and gradually withdraw?

Exactly the opposite actually, if a lot, liquidate it and claim ER now while you can...no brainer

[Willapp]

Depends how much reserves there are I guess? If a lot, then would it make sense to keep it open and gradually withdraw?

What are the ongoing costs? Just the annual return which is like £13 or so? I suppose you wouldn't necessarily need an accountant to gradually withdraw funds and nothing else (could be wrong)?

Between £50 - 150k so a decent amount. The issue with leaving it open is the accountancy fees. Could ditch the accountant but would then mean filing annual accounts etc. myself which I don't really fancy doing. Just seems pointless when I could close it down and (to some extent) forget about it.

When I say mixed reports, my friend asked his accountant about closing down his company (not specifically mentioning ER to see if they suggested it) and they didn't mention it as an option. He is going to push back and ask specifically but I wanted to see if there were any other criteria I might have missed.

I understand you can't then open an LTD doing the same or similar within 2 years but that shouldn't be a problem.

[TheFaQQer]

I understand you can't then open an LTD doing the same or similar within 2 years but that shouldn't be a problem.

I can't remember the exact wording, but the grey area comes from it being something like "operating in the same trade". Does that cover working in a perm job doing the same thing? What about an umbrella company?

That's where the confusion / complexity lies.

[Maslins]

HMRC have basically promised going into a permie role will not be considered similar trade/activity. They haven't mentioned umbrella, so that's a bit grey:
- is umbrella more similar to employment, cos that's how you're taxed, or
- is umbrella more similar to Ltd Co contracting, cos you're a temporary resource.

Re your friend's accountant, could be loads of things. Possibly they're just grouchy that one of their clients closing means one less client for them.

[Willapp]

Re your friend's accountant, could be loads of things. Possibly they're just grouchy that one of their clients closing means one less client for them.

I suspect this could be part of it though I'd hope they would be more professional than that, especially because we both us the same accountancy firm! His contract finishes a few months before mine, so in theory he will be going through the process first and I'm hoping to benefit from his experience. ER sounds like a very appealing option given the effective tax relief, so just wanted to see if it is feasible first.

[Maslins]

ER sounds like a very appealing option given the effective tax relief, so just wanted to see if it is feasible first.

There isn't really much to stop it tbh. As discussed there's the two year thing but you're fine with that.

Otherwise, ER itself is pretty black and white. Only time contractor type businesses might come a cropper is if:
- they traded for <1 year,
- they shuffled shares around within 1 year of closing,
- the shareholder isn't a director/company secretary, and leave payroll a bit before the end.
The above are all unlikely to be the case, but will catch some niche scenarios.