Tax Efficient Way to close Ltd

[RajaStyle]

Not entirely sure why you were advised to extend the company year end by 3 months though.

They're saying the company has to have 3 clear months of no trading before it can be closed down ... hence if my last week is next week of invoicing they need to extend the end of year for 3 months to do 1 set of accounts .... this is what i'm being told anyway. Is that right ?

[Hobosapien]

If your Ltd's end of year is next week you don't need to prepare and submit the accounts straight away, you usually have 9 months after year end to get them prepared.

So you can see what happens in the next few months and if closing the company have the accountant prepare one final set of accounts if no activity beyond year end other than that related to closing the ltd. Main thing is to ensure no activity beyond the year end to keep it simple, though then maybe the accountant is right in changing the year end for a few months to cover any activity that overspills.

[craigy1874]

It really depends on what you are going to be doing next.

If you are going to setup another company to trade through and will be carrying on the same or a similar trade then Entrepreneur's Relief would not be available.

If you are retiring or working in a different way then you may be able to claim entrepreneur's relief but this would need further discussion. It would also be relevant to discuss the shareholding of the business as this may impact the relevance of any particular treatment.

I'd disagree with this. I would suggest ER is still available on capital distributions under £25k and the targeted anti avoidance (2 year rule) does not apply. It only applies to MVLs.

So I would go for close down via capital distribution and claim ER, no matter what your future plans.

[craigy1874]

They're saying the company has to have 3 clear months of no trading before it can be closed down ... hence if my last week is next week of invoicing they need to extend the end of year for 3 months to do 1 set of accounts .... this is what i'm being told anyway. Is that right ?

You can't apply to strike off the company until it has ceased trading for 3 months. There is absolutely no requirement to extend the accounting period by 3 months to do this.

Some accountants can come up with weird and wonderful things!

[webberg]

Correct me if I'm wrong, but it sounds like you are planning on changing the way you work and think that the PSC is no longer going to be needed?

Therefore you want to remove the cash and have the PSC removed from the register, or at least made dormant in order to not incur cost in keeping it going?

The above comments are all correct in their own way.

You can simply stop using the PSC and sometime after 5th April 2019, arrange for the funds to be removed via a dividend or a capital distribution from a liquidation. This sounds like it would be a solvent liquidation which makes life easier.

Given the relatively low value of company funds, you could probably do most of this yourself. Otherwise to pay a specialist would be perhaps £2k to £3k. You would also need the company accounts and tax returns etc to be up to date that the time the company is liquidated.

Removing the cash from the company and receiving it yourself, means it is taxable on you. That tax might be based on dividend rates or on capital gains rates, depending on how it's paid.

Bot of these routes have tax rules around them as HMRC seeks to deny relief to these situations where the motive is tax. You would be advised to get some advice here as the rules can be complex.

Generally however, the better exit route is via a distribution of the company assets to the shareholders which is a capital gain transaction. This can attract Entrepreneurs Relief the effect of which is to tax the gain (gross gain less annual relief) at 10%.

You need to accept that closing the PSC and taking the cash will attract a tax bill. It will attract a fees bill, although you can do a lot of this yourself.

There are schemes that claim to remove you without a tax bill. Usually such schemes have a high fees bill, often splitting the alleged tax saving with you. Avoid them. None have guarantees of working and all of them will be investigated. By the time that happens, those offering the scheme may well have gone.

Sounds to me like the professionals above are all talking sense. If you have no faith in your present accountant, you can go elsewhere - it's your choice.

Sounds to me like the non professionals above are also talking sense and urging you to research and be cautious.

[Maslins]

RajaStyle, your post of 17:46 yesterday you say you'll be setting up doing the same thing again? And your first company hasn't even been trading a year? Why are you looking to close company 1 so soon and start company 2? Or have I misunderstood? All sounds a bit iffy to me.

[MrButton]

I'd disagree with this. I would suggest ER is still available on capital distributions under £25k and the targeted anti avoidance (2 year rule) does not apply. It only applies to MVLs.

So I would go for close down via capital distribution and claim ER, no matter what your future plans.

Interesting post!

At £25k the difference isn't huge but still good to know.

[Craig@Clarity]

They're saying the company has to have 3 clear months of no trading before it can be closed down ... hence if my last week is next week of invoicing they need to extend the end of year for 3 months to do 1 set of accounts .... this is what i'm being told anyway. Is that right ?

Why are you closing to simply start a new company doing exactly the same thing?

[Hobosapien]

In the past closing one Ltd with the strong possibility of opening another Ltd in the near future was a strategy to draw a line under the Ltd that may be exposed to future IR35 investigation.

No idea if this is still, or ever was, a valid approach.

[Craig@Clarity]

I'd disagree with this. I would suggest ER is still available on capital distributions under £25k and the targeted anti avoidance (2 year rule) does not apply. It only applies to MVLs.

So I would go for close down via capital distribution and claim ER, no matter what your future plans.

Hmmm....Why wouldn't TAAR apply in this case?