Hi All,
Long time lurker, first time poster. I want to share my experience about closing down my Ltd company focussing on tax liability information and stance i received from my accountants before / after and would love to hear your advice/views on the matter.
About a year ago I contacted my accountants asking if MVL was the best way to close down my ltd company as I was gearing up to move into Permie land. They looked at my current state of accounts and suggested that it was. NOTE, there has been no change in legistlation regarding from the time of advice up until now.
One of their replies was as follows:
I proceeded with the MVL and when it came to the same accounting firm preparing my SA, I was told that my capital gains was 20% and not 10% as I wasn't eligible for ER and was landed with a tax payment and liability double to what I was told I would pay. This, it turns out is correct as I wasn't trading for 2 full years, as required BUT was not know to me up until my SA was prepared.
When I raised this back to them and attached the original email about 10%, they started saying things like:
and
I challenged this and said at no point during the original advise was I told that the 10% would only be applicable if I was eligible and that missing piece of information did not allow me to make an informed decision. Their reply was:
followed up in another email with this:
And finally after challenging them on the frustration of receiving incorrect/inconclusive tax advise as well as their total lack of accountability, i received this:
Thank you for reading this far.
Long time lurker, first time poster. I want to share my experience about closing down my Ltd company focussing on tax liability information and stance i received from my accountants before / after and would love to hear your advice/views on the matter.
About a year ago I contacted my accountants asking if MVL was the best way to close down my ltd company as I was gearing up to move into Permie land. They looked at my current state of accounts and suggested that it was. NOTE, there has been no change in legistlation regarding from the time of advice up until now.
One of their replies was as follows:
Then once these have been filed, you would need to engage the liquidators who will claim the entrepreneurs relief and liquidate your company for you. They will advise you on when to withdraw the profits and close your business bank account down. Liquidating the company means you only pay 10% personal tax on all the profits in the company, regardless of your other income from outside of the company such as rental income or permanent employment income.
When I raised this back to them and attached the original email about 10%, they started saying things like:
Thanks for your email, I can see from our advice that it was agreed that the best option and most tax efficient route for closing the company, as and when you did, due to you going into employment as a higher rate salary was to close the company through the MVL option.
This meant that any final profits could be distributed as a capital gain, instead as a dividend. If this was paid as a capital distribution this would then be taxed as follows:
10% if you were eligible and met the criteria for entrepreneurs relief or a basic rate tax payer
20% if you were not eligible and were a higher rate tax payer
This meant that any final profits could be distributed as a capital gain, instead as a dividend. If this was paid as a capital distribution this would then be taxed as follows:
10% if you were eligible and met the criteria for entrepreneurs relief or a basic rate tax payer
20% if you were not eligible and were a higher rate tax payer
and
The rules around claiming entrepreneurs relief have changed over the last few years, the total lifetime allowance dropped from 10m to 1m, and also the time in which you had to hold the shares in a trading company increased from 1 year to 2 years of consecutive trading and then the latest was a new restriction was imposed that you could not claim the relief if you were back to opening another company in the same trade within a 2 year period of closing as well.
I challenged this and said at no point during the original advise was I told that the 10% would only be applicable if I was eligible and that missing piece of information did not allow me to make an informed decision. Their reply was:
In regards to the entrepreneurs relief, my apologies if this was not clearer at the time. I can confirm as always, it is only if the relief is available at the time, as the Chancellor can come along and sometimes make changes within year as well.
followed up in another email with this:
In regards to providing the tax advice at the time, it’s always hard without the crystal ball as the chancellor could always throw new in the mix. This was the case a couple of years ago, when he changed the rules from 1 year of trading to 2 years of trading, the same again when he changed it from 10m to 1m. These changes are normally announced at the budget, and sometimes will apply from that date, which is normally mid-way through a tax year.
We always try to advise clients of all the options in terms of making note of any relief that may be available, but this then has to be assessed fully when we come to complete the self assessment tax return, so we can review the full tax year historically along with any sources of other income, and changes which may have been made as well.
I can only apologise that you are frustrated that you were not eligible for entrepreneurs relief, as the company had not traded full for 2 years before you went back into permanent employment. However closing the company wold still have been the most tax efficient way to extract the funds, through the MVL process and claiming this just under normal capital gains rules; as opposed to keeping the company dormant and then taking dividends from the business at higher rates.
We always try to advise clients of all the options in terms of making note of any relief that may be available, but this then has to be assessed fully when we come to complete the self assessment tax return, so we can review the full tax year historically along with any sources of other income, and changes which may have been made as well.
I can only apologise that you are frustrated that you were not eligible for entrepreneurs relief, as the company had not traded full for 2 years before you went back into permanent employment. However closing the company wold still have been the most tax efficient way to extract the funds, through the MVL process and claiming this just under normal capital gains rules; as opposed to keeping the company dormant and then taking dividends from the business at higher rates.
And finally after challenging them on the frustration of receiving incorrect/inconclusive tax advise as well as their total lack of accountability, i received this:
I do believe that I have apologised as per the previous emails, to apologise that it was not clear from the previous correspondence that you would not personally be eligible for ER at the time. However, as mentioned I do believe that you have still received the most tax efficient distribution of the final funds by closing the company, whilst you had gone into permanent employment and the business would have been dormant, therefore would have been ineligible for the relief unless you then started to trade again for another two years.
Thank you for reading this far.
Comment