Applying for taper relief before April

[Ruprect]

Spoke to the accountant on the company closure issue. He said that it generally takes 4 weeks to prepare final accounts due to waiting for all the final bills etc, so if I close at the end of dec I'd be applying at the end of jan for the CT taper allowance.

Question: Can't I apply for the allowance as soon as I cease trading? i.e send the letter on the last day of the contract, then let the accnt faff about with the preparation of final accounts?

he then said that HMRC take between 6 week and 6 months to assess, so I wouldn't be guaranteed the taper relief. I'm not convinced.

Question: Wouldn't HMRC would be bound by pre april 6 2008 rules if the application was received before then?

Even then the application is going in under ESC16, so its regarding distribution of assets as a capital gain rather than a divi (i.e. regardless of whether there is taper relief or not)

I think the accountant is just trying to subtly dissuade me from doing it.

Your thoughts?

[mace]

As it happens I'm closing my company at the moment. My accountant told me the steps were:-

1. Write to bank to close account and move funds to personal account (~ 3 weeks)

2. Accountant prepares end of year accounts and forms for HMRC (~3 weeks)

3. HMRC will confirm about 2 months after that.

He reckoned, it would take about 3.5 to 4 months to shut down.

I'm still questioning the supposed benefits of the CGT taper relief, however. If you see my post on the other thread by TazMan, by my calculations if you close your company every 3 years, then you'd only benefit by retaining year 1's profits, year 2's profits would taxed the same as if you paid it out in divis and year 3 would cost you substantially more in tax.

[Ruprect]

Not sure how you figure the Y1, Y2, Y3 figures thing - why should the tax be any different? the taper relief is granted on the share holding (regardless of value) isn't it? I'm not sure why you think the year by year profits in a company holding would make any difference to the tax you pay.

Also, thanks for responding, but you didn't answer the qn: can I send the letter applying for the concession as soon as I finish the contract?

[mace]

True

I'm not an accountant, so hadn't thought of it that way. I see were you guys are coming from now.

For those who don't understand the CGT taper relief, if I'm understanding correctly, the taper relief applies from when you first bought the shares. So when you start up the company, shares are created in the company at that point. Keeping retained profit each year is similar to boosting the share price. The capital gain will be the difference between the retained profit when you sell and the nominal value paid for the shares at company startup (normally £100).

Therefore, prior to April 2008, assuming you close the company every 3 years and make £80k in profits before tax each year

Paying out in dividends would cost you and the company):-
40% of £80k = £32k per year. £96k in total from £240k profits

Retaining profits and closing company at end of year 3 would have cost:-
20% of £240k (corporation tax) + 25% of 40% of £192k (CGT on retained profit after corporation tax) = £48k+£19.2k = £67.2k
This means that you could save £28.8k in taxes (£9.6k per year)

After April 2008, it will be:-
20% of £240k (corporation tax) + 18% of £192k (CGT on retained profit after corporation tax) = £48k + £34.56k = £82.56k
This means that you will save £13.64k in taxes (£4.547k per year)

I've had 4 accountants since I've been running a limited company. None of them have pointed out the above before

[Ruprect]

That's pretty much it I believe (give or take a percent or two on your CT)

[dude69]

Looks like it might take a LONG time.

After the company has ceased trading for three months, a Companies House form 652a should be completed and forwarded to Companies House, together with a cheque for £10 for their dissolution fee.

Companies House will then advertise the company in the London Gazette and following a period of up to nine months, the company will be dissolved, following which it ceases to exist.

Bit inconvenient if anyone wants to wind up in March to use taper relief before April......

[mace]

Ah well, I'll console myself with the knowledge that property prices and stocks which I invested my money in have risen by more than the interest I would have got leaving the money in the bank. What I've lost in higher taxes, I've gained in higher returns.

From April 2008, what exactly would stop somebody shutting down his business EVERY year to reduce their tax bill? The only comment I've heard is that the HMRC wouldn't like it. Indeed they might not but there'd be nothing illegal in doing that. The longer you leave the retained profit in the bank, the greater the chance there is that you could have got better returns by removing it and investing it in higher returning investments.

Also if you close your business EVERY year, you'll benefit from the £9200 CGT allowance EVERY year and be keeping HMRC staff busy to boot

[Ruprect]

Looks like it might take a LONG time.

After the company has ceased trading for three months, a Companies House form 652a should be completed and forwarded to Companies House, together with a cheque for £10 for their dissolution fee.

Companies House will then advertise the company in the London Gazette and following a period of up to nine months, the company will be dissolved, following which it ceases to exist.

Bit inconvenient if anyone wants to wind up in March to use taper relief before April......

Yeah, but the final distribution of funds occurs before Companies House dissolves the company.

you just need the OK from HMRC that the funds distribution is by CG not divi.

[max]

I'm not an accountant, so hadn't thought of it that way. I see were you guys are coming from now.

For those who don't understand the CGT taper relief, if I'm understanding correctly, the taper relief applies from when you first bought the shares. So when you start up the company, shares are created in the company at that point. Keeping retained profit each year is similar to boosting the share price. The capital gain will be the difference between the retained profit when you sell and the nominal value paid for the shares at company startup (normally £100).

Therefore, prior to April 2008, assuming you close the company every 3 years and make £80k in profits before tax each year

Paying out in dividends would cost you and the company):-
40% of £80k = £32k per year. £96k in total from £240k profits

Retaining profits and closing company at end of year 3 would have cost:-
20% of £240k (corporation tax) + 25% of 40% of £192k (CGT on retained profit after corporation tax) = £48k+£19.2k = £67.2k
This means that you could save £28.8k in taxes (£9.6k per year)

After April 2008, it will be:-
20% of £240k (corporation tax) + 18% of £192k (CGT on retained profit after corporation tax) = £48k + £34.56k = £82.56k
This means that you will save £13.64k in taxes (£4.547k per year)

I've had 4 accountants since I've been running a limited company. None of them have pointed out the above before

Add in your annual cgt allowance..currently 9200, that brings it down to £63,520 total tax to pay so you're saving is £6347 per year.

[Ruprect]

Add in your annual cgt allowance..currently 9200, that brings it down to £63,520 total tax to pay so you're saving is £6347 per year.

That is only a one off though, so you'd only get it on the total of retained profit, not on the yearly retained profit (not sure whether you've done this or not in your calculations).