Applying for taper relief before April

[THEPUMA]

And if they don't grant the concession then if has to be treated as a dividend and you have to pay the dividend tax instead - is that right? Also, what about the date issue? If it IS classed as the concession, but they respond after 05.04.08 then should the amount be subject to additional tax (because presumably the amount you distributed pre 05.04.08 had taper relief applied)?

If they don't grant the concession and you were unable to successfully appeal this then yes it would be taxed as a dividend.

If they grant the concession retrosepctively, I don't think that would affect the tax treatment. In these circumstances I would specifically state in my application for the concession that it was in respect of a distribution that had already been made.

[Ruprect]

If they don't grant the concession and you were unable to successfully appeal this then yes it would be taxed as a dividend.

If they grant the concession retrosepctively, I don't think that would affect the tax treatment. In these circumstances I would specifically state in my application for the concession that it was in respect of a distribution that had already been made.

Interesting... so your application would essentially say "In respect to the closure of company x ltd the retained profit was distributed as a capital gain with taper relief - hope this is OK" ?!

[THEPUMA]

words to that effect yes

[Ruprect]

words to that effect yes

lol - Ok thanks! btw are you an accountant?

[THEPUMA]

sure am

[mace]

Somebodys telling me porkies

I've just got off the phone to my accountant asking him why he hadn't informed me of this cracking wheeze to minimise tax before. He tells me:-

1. In order to extract money from your company via a capital rather than an income distribution you have to fill out an ESC C16 and send it to the Revenue. If they agree then you can proceed.

2. However, the ESC C16 requires you to confirm that you will not immediately re-commence trading in a similar line of business.

i.e. you can only close down a company once. You can't close it down every 3 years (prior to April 2008) and get full capital gains taper relief, you can only get this relief with the 1st company you close down. You could, of course, lie but that would be breaking the law.

Decided to leave it all in the hands of the accountant. Expensive fees, though, so another reason not to close company every year.


Some more info here (which covers the exact legislation which prevents so-called phoenix companies from avoiding tax):-

http://www.poweraccountax.co.uk/data...%20company.pdf

[Ruprect]

Phone SJD and see what they say

[mace]

If that's what SJD are recommending then they'll be in serious trouble if one of their clients gets investigated by HMRC and the tax relief they acquired when closing down a previous company falls foul of the law. That would definitely be a professional misconduct charge.

[Lewis]

After April 2008:-

Paying out in dividends would cost me and the company:-
40% of £80k = £32k per year.

If on the other hand I closed my company every year, the calculation would be:-

20% of £80k (corporation tax) + 18% of £54800 (CGT on retained profit – CGT allowance after corporation tax) = £16k + £9864 = £25684

A saving of £6316 per year

If it costs £600 in fees and a bit of hassle closing your company down each year, you might make £6316 - 600 = £5716 per year (if HMRC decide you can take as capital gains) or lose £600 per year (if they decide you can only take it as divis. Obviously the 1st time they decide this you stop taking this approach from then on or appoint your wife/relative as a sole director). If you also make your wife a director, you could chance your arm that they'll not investigate and double the CGT allowance making even more savings. I think the HMRC could easily become a victim of unforeseen consequences.

Plus each new company gets a 1% discount on Flat Rate VAT which is another few grand

[Lockhouse]

If you also make your wife a director, you could chance your arm that they'll not investigate and double the CGT allowance making even more savings. I think the HMRC could easily become a victim of unforeseen consequences.

My missus is already a director but owns no shares. I might try transferring her 50% of the shares after I pay my last dividend (to avoid income splitting) but before the company is closed down so I can use her CGT allowance as well. It's not illegal (yet). They can investigate all they like, but I'll have done nothing wrong. Like you say, unintended consequences will come back and haunt them.