Closing down my company

[JamApple]

Can I just check your terminology as it is a common mistake on here.



Is it really dormant or are you not using it? To make a company dorman you need to do some things and can't use it again. Most people just don't use their company and think it's dormant but it's not. Which is it for you?



You don't really re-open a company when coming out of dormancy.



No you can't. Just the fact you state til you've drawn out the funds indicates you are getting the benefit from your wifes divis which isn't right. But that aside, adding your wife to a dormant company just to extract dividends is a perfect example of aggressive tax avoidance. There is absolutely no business reason to do this. It's purely a tax wheeze so it won't wash.

Why are you assuming that you'll never get an Outside role again?

The amount of people I know from my 10+ years of contracting who simply closed their LTD's down as soon as the changes came in, shows me that IR35 reform probably needed to happen.

I think that's a moot point. I've always seen my self as working as a contractor (as being lawfully outside ir35).

Even in my current 'inside ir35' role I would argue should be classed as 'outside' since i don't get any perks of a permie and still taking all the same risks of being a contractor. There's too many other reasons to list but don't want to bore you guys.

As you know the way the market has moved most companies just put out a blanket ban on ir35 roles. For me specifically, I need a job to pay my bills, i'm not rich by any means so i can't refuse the inside roles being put forward to me. I'm also not in any situation to negotiate with the clients to ask them to re-assess the roles as there are plenty of contractors out there who they can just pick!

I think to assume that because I accepted an inside ir35 role or that I envisage not being able to get one in the near future is not an admission that I worked as a disguised employee in the past.

[ladymuck]

Thanks, for the input. my corp tax is 6K.

Hope you don't mind if I picked your brain but what would you do in my case with the company? - maybe i should have mentioned that I'm looking to purchase a property so would like to take out as much cash to help with a property deposit.

So you've £33k in the bank and, I assume, no other assets. Your CT is £6k and you have no other liabilities to settle. So, you'll have £27k to distribute. Have you considered a pension top up to bring to that under the £25k threshold? Then you can close down without going down the formal liquidation route. You'll have to do the sums to see which option works out best value.

[JamApple]

So you've £33k in the bank and, I assume, no other assets. Your CT is £6k and you have no other liabilities to settle. So, you'll have £27k to distribute. Have you considered a pension top up to bring to that under the £25k threshold? Then you can close down without going down the formal liquidation route. You'll have to do the sums to see which option works out best value.

Ahh I see. So in this case, I would just take out the remaining amount as dividends and just close the company?

[jamesbrown]

You're looking for a simple strike off via Companies House. When you transfer the remaining assets under £25k (prior to strike off), you can treat it as a capital distribution (subject to a reduced rate of CGT and your standard annual CGT tax-free allowance), rather than income.

[JamApple]

You're looking for a simple strike off via Companies House. When you transfer the remaining assets under £25k (prior to strike off), you can treat it as a capital distribution (subject to a reduced rate of CGT and your standard annual CGT tax-free allowance), rather than income.

Thanks for this, I'll ask my accountant about this to see what he says

[JHamp82]

In my opinion it may be best to take some dividends to bring retained profits below 25k and then take remainders as capital distribution (assuming you are within the basic rate bracket), however, if you can take more in dividends and stay in the basic rate bracket then it may be better to do this as you will only pay 7.5% tax on dividends as compared to 10% BADR after the 12k~ exempt amount.

Thanks.

[JamApple]

In my opinion it may be best to take some dividends to bring retained profits below 25k and then take remainders as capital distribution (assuming you are within the basic rate bracket), however, if you can take more in dividends and stay in the basic rate bracket then it may be better to do this as you will only pay 7.5% tax on dividends as compared to 10% BADR after the 12k~ exempt amount.

Thanks.

Thanks for the suggestion. I think that I should be within the basic rate bracket since I've not taken in any dividends since the start of this tax year. So I could take upto 37k.

[TheCyclingProgrammer]

Thanks for the suggestion. I think that I should be within the basic rate bracket since I've not taken in any dividends since the start of this tax year. So I could take upto 37k.

You have no other earnings?

[JamApple]

You have no other earnings?

Yeah I do, I'm currently working as a contractor in a PAYE role.

[hobnob]

I think I see the confusion here. You (JamApple) are assuming that you calculate the tax brackets separately for PAYE and dividends. Unfortunately, it doesn't work that way: it's a shared band for both.

More precisely, you work out PAYE first. Knock off the standard allowance (£12,700 in FY 2021/2022), then the next £37,500 is basic rate. See how much of the basic rate band is left (if any) after all your PAYE salary is deducted.

Then look at dividends. The first £2,000 is tax free. After that, you continue with the band above, either basic rate (7.5%) or higher rate (32.5%).

For example, suppose that your total PAYE income is £40,000. That gets split between £12,700 (allowance) and £27,300 (basic rate). You would then have £10,200 left in the basic rate band. So, you could take £12,200 of dividends (£2,000 allowance + £10,200 at basic rate) but if you go above that then you'll be paying higher rate. You definitely can't take £37k of dividends at basic rate!

NB I'm ignoring anything that's tax deductible (e.g. professional memberships) or gift aid donations in the figures above, but it's worth including them in your SATR if they're relevant. I'm also ignoring savings interest, on the basis that the first £500 is tax free.