Strike off after short period of trading

[Elliott]

I opened my limited company in Autumn last year, but due to IR35 changes, and after receiving a good offer to join my client as a permanent employee, I have decided to close the company.

I'm in conversations with my accountant, who has advised to follow the "strike off" process. I would like to double check in this forum a couple of questions, which I also asked my accountant, but I'd rather have confirmation somewhere else, if that makes sense:

- I understand that if my retained profits are below 25K I would pay CGT only. Does that apply in my situation, where I just raised five invoices in less than half year since the company was created?
- What date can be considered the trading cessation date? The date I raised my last invoice or the date that invoice will be paid (it hasn't been paid yet)? I'm asking this because I have a bit more money than 25K as retained profits, and I'd need to reduce it a bit to go below the threshold before starting the closing process (I'm thinking about paying dividends or giving to charity)

I hope my questions are valuable for other people. I've been investigating on the internet and struggled to find a good answer anywhere.

[ladymuck]

Why don't you trust your accountant?

[Elliott]

He has made a couple of mistakes during the time we've worked together. I know I could find another one, but at this stage I wouldn't have any reason to trust the new one more than my current one...

In this particular case I guess he's right, but I thought this forum could be a good place to ask. Also, I didn't find a proper answer for my two questions anywhere on the internet, so I think an answer here will be useful in the future for other people.

[malvolio]

Money is money as far as the trading year is concerned - from initial company opening to the end of the 12th month after (with CT due after another 9 months) or until the company is closed (with CT payable before closure), whichever comes first. Where and when the money came from is not really relevant, other than for VAT assuming you are VAT registered.

Getting below the £25k threshold needs a few calculations to make sure it won't cost more than the taxes you will save. Hate to say it but only you or your accountant can do that one for you. It's worth remembering that an accountant will ask "What answer do you want to get to?" when asking for what-if scenarios, so frame your question very clearly.

How you go under the threshold is up to you as a director. Dividend or Charitable donation are equally valid - subject to the calculation above...

[Elliott]

Money is money as far as the trading year is concerned - from initial company opening to the end of the 12th month after (with CT due after another 9 months) or until the company is closed (with CT payable before closure), whichever comes first. Where and when the money came from is not really relevant, other than for VAT assuming you are VAT registered.

Getting below the £25k threshold needs a few calculations to make sure it won't cost more than the taxes you will save. Hate to say it but only you or your accountant can do that one for you. It's worth remembering that an accountant will ask "What answer do you want to get to?" when asking for what-if scenarios, so frame your question very clearly.

How you go under the threshold is up to you as a director. Dividend or Charitable donation are equally valid - subject to the calculation above...

Thanks. That makes sense. I'm just a bit confused about information provided by different sources. In some places I read cessation date is "when last invoice is raised or expensed incurred", while other places say that it's "when the last invoice is paid". Apparently HMRC does not like if you pay dividends after that date of cessation to go below the 25K threshold, but I don't know if that date has happened in my case or not (I'm still waiting for two invoices to get paid, I still continue paying accounting fees while waiting for that, etc...). I want to be very careful before taking any action I can regret at the moment.

[ladymuck]

This may / may not help!

Cessation of trading date | AccountingWEB

'Ceasing to carry on trade' seems to be open to interpretation, as most HMRC guidance is. The last comment on the link above is to accrue for any upcoming expenses in the final accounts if they haven't yet been incurred.

[Hobosapien]

Companies House will require at least 3 months of no business activity before a strike off is allowed, so you need to include the payment part of any trading when determining when that activity ceases. Your accountant will draw up the final accounts to a date after that activity ceases so you can pay any relevant taxes as part of the close down process.

If you have PAYE set up you may be able to easily get under the £25k threshold for not needing a liquidation process by 'salary sacrificing' a lump sum into a suitable pension pot. Your accountant should be able to give you other options and how much tax that will incur based on your situation now and in the current tax year when you go permie, so you can assess the best way forward to avoid any higher tax brackets if possible.