Changing SIC code when you stop contracting

[ChimpMaster]

Just throwing this out there for discussion.

There is often chatter on here and elsewhere about retiring from a business, liquidating and claiming ER etc. I want to know if anyone had done it differently.

So you're ready to give up contracting but you don't want to liquidate the company. You have funds retained in the company account, after all debts/taxes are accounted for.

And you want to do something else with your time/money/business.

Can you simply change the SIC code and use the same company and funds for the new business?

For example, can you become a property investment company and invest your retained funds into property?

Seems the answer is yes, but it would be interesting to get some views on this.

[Darren at Fox-Bartfield]

New Direction

A change of direction in a company does happen, have seen it a couple of times as part of a wider planning exercise. The move into property is a popular one (as opposed to an additional SPV) or some form of online trading.

All depends on the requirements of the individual but worthwhile considering if the intention is to continue to do something else rather than close it and take ER.

[Sky Rocket]

I'd be interested in responses to this also, I did ask my accountant, and whilst she was of the opinion that whilst I could change the classification, she also said I could not use any of the current profit to fund the new company. So I have assumed the answer to be no.

[Darren at Fox-Bartfield]

I'd be interested in responses to this also, I did ask my accountant, and whilst she was of the opinion that whilst I could change the classification, she also said I could not use any of the current profit to fund the new company. So I have assumed the answer to be no.

Did you tell your accountant that this would be the main and only trade of the company as well as remaining in the same structure?

[Sky Rocket]

Did you tell your accountant that this would be the main and only trade of the company as well as remaining in the same structure?

I had just been talking to her about the most efficient way to wind it up and then thought about using it for doing something completely different ie. not related to its current classification at all. Like I said, she said I could change the classification, but could not use existing profits to fund new venture Was that wrong?

[jamesbrown]

Bear in mind that ER, specifically, is intended to provide an individual with relief on a capital distribution from a "trading company" or the "holding company of a trading group". If your company becomes something other than a trading company, such as a property investment company, then you will not be eligible for ER on a future capital distribution.

[ChimpMaster]

Bear in mind that ER, specifically, is intended to provide an individual with relief on a capital distribution from a "trading company" or the "holding company of a trading group". If your company becomes something other than a trading company, such as a property investment company, then you will not be eligible for ER on a future capital distribution.

That's a good point. If you become an investment company of any type then ER might no longer be an option in the future.

Still, residential and commercial letting is better serviced through an incorporated structure (esp. if you're a higher tax rate payer). And of course it's a long term plan perhaps with the motivation of handing down to the kids in the future via share allocation.

So my question was about:
Finish up contracting, with surplus profit left in the Ltd.
Change SIC code to 68209 (or whatever else).
Use existing funds in Ltd to buy out mortgages on personally held properties and transfer those properties into Ltd.
Re-mortgage those same properties within the company to release funds to buy out other personally held property. Rinse and repeat.
Once up and running, extract profit as salary+dividends.

[Maslins]

You can change your SIC code whenever you like.

I don't see any reason why you can't use historic accumulated funds from trade X to use for future activity Y.

There are various rules around use of losses for corporation tax purposes, which I doubt are relevant here...but if you made a loss in trade X that was carried forward, you then changed to trade Y, you wouldn't be able to offset losses from X against profits from Y.

As jamesbrown says, you'd likely be hurting your chances of getting entrepreneurs relief on eventual withdrawal of the company's funds. If you're planning on the company investing in property for the long term, perhaps this is no big deal. Alternatively there might be an argument to liquidate/whatever, take the 10% hit, then either invest personally, or possibly via a new Ltd Co where the funds put in are a hefty loan from you (hence you can withdraw later without suffering personal tax).

[Darren at Fox-Bartfield]

SPV

Agree with @Maslins, good idea to sit down and work out the figures with a pen/paper/spreadsheet. Not forgetting the stamp duty implications as well as potentially triggering a CGT event. There may be a way around the CGT event with clearance from HMRC but potentially it could be triggered.