MVL advice

[DrBungle]

Hi,

I've been back in the world of permie for 3 years now, and still have a reasonable amount of funds in my limited company, my view was to leave the company open in the event that I had to go back to contracting. Now I've rather annoyingly only just found out about the 3-year rule in regards to MVL, although Im getting mixed advice from my accountant. One member of the accountants are saying that the rule applies to 3 years since cessation of trade i.e. when I last invoiced, the other is saying that the 3-year rule doesn't apply as I'm still in a trading status with HMRC. Has anyone else been in a similar situation?

Also if it transpires that the rule is in fact 3 years since trade ceased, could I just do a short term contract i.e. a week, month etc thereby resetting the trading status?

Thanks in advance

[Maslins]

As you've heard, it depends on when your company ceased/ceases to trade. To some extent this can be open to debate. Eg was the last sales invoice you sent always meant to be the final one (as trade had ceased), or did you leave the company ticking over, still trading, just temporarily without any sales.

There was recently a case a bit like this, see here. Have to admit personally I was surprised by the judge's view on this, but it went in the taxpayer's favour. Do take a bit of care, as often specifics unique to a case can be significant, but it certainly suggests it's not as black and white as all is lost just by virtue of >3 years passing since last invoice.

[DrBungle]

Thank you for confirming this, much appreciated. In your opinion would starting a short term contract i.e. several weeks be sufficient to reset the 3 year counter? Just looking at all options in regards to this. In assuming that would be sufficient as the business would in effect be back in a trading status again.

As you've heard, it depends on when your company ceased/ceases to trade. To some extent this can be open to debate. Eg was the last sales invoice you sent always meant to be the final one (as trade had ceased), or did you leave the company ticking over, still trading, just temporarily without any sales.

There was recently a case a bit like this, see here. Have to admit personally I was surprised by the judge's view on this, but it went in the taxpayer's favour. Do take a bit of care, as often specifics unique to a case can be significant, but it certainly suggests it's not as black and white as all is lost just by virtue of >3 years passing since last invoice.

[AR Tax]

Thank you for confirming this, much appreciated. In your opinion would starting a short term contract i.e. several weeks be sufficient to reset the 3 year counter? Just looking at all options in regards to this. In assuming that would be sufficient as the business would in effect be back in a trading status again.

You need 2 years trading ending no later than 3 years at the time you dispose of the shares (i.e. go into strike off or liquidation): Capital Gains Tax: Entrepreneurs’ Relief: minimum qualifying period extension - GOV.UK

In other words, assuming your company has been dormant/non-trading for the last 3 years it wouldn't qualify for entrepreneur's relief just from doing a 1 month contract.

There is a good article here regarding the difference between a temporary suspension of trade (which is OK for ER) and a cessation of trade (e.g. dormancy/non-trading which is bad for ER) which will be applicable to you: Pottering around: Trading and Entrepreneurs' Relief – BKL London & Cambridge, UK

It is also worth noting that the Conservatives in their manifesto wrote: "We also have to recognise that some measures haven’t fully delivered on their objectives. So we will review and reform Entrepreneur’s Relief."

Therefore it is not clear what the Conservatives will do with ER going forward. As a complete guess, maybe they will launch a consultation on whether ER should only be claimable on the sale of shares in a going concern to an unconnected 3rd party (rather than for liquidations/strike offs)? They will probably do a consultation sometime this year and probably announce their results in the October 2020 budget. In this case, capital gains from distributions would be taxed at 20% rather than 10%.

[ahspooner]

Even if you have gone past the 3 year rule, my understanding is that you'd still be eligible for Capital Gains Tax at 20%, it's just the entrepreneurs relieft at 10% that might lose out on. So not as bad as paying the dividend rates.

Maybe one of the nice accountancy people of the forum might be able to confirm this?

[BABABlackSheep]

Thought this was a good article on this..

What are the Tax Implications of Closing Your Limited Company? | Crunch