Shuting Businesses To Claim Entrepreneur Tax Relief - Then reopen And Then

[Moscow Mule]

I filled in the forms, got the relief, moved on. Now contracting under another business as I wanted to rebrand and relieve myself of the existing partner relationships etc etc etc.

No comeback, no problem. And that's a few years back.

That is my experience, fwiw!!

You wouldn't have got entrepreneurs relief then - that's what the letter is about.

Entrepreneurs relief is given on the 18% rate of CGT when closing your business - it's intended to protect folk who've run their business for their whole lives from the removal of taper relief.

[BrilloPad]

Do you mean by closing the Co down, or is there another way to take money out as capital gains whilst keeping the Co running?

Closing down the company.

[Old Greg]

Nope, it isn't. (well, technically its in breach of the HMRC tax exemption rules, but on this one rare occasion, HMRC rules and legal amount to the same thing)

To get the tax relief, HMRC require you to write a letter confirming, amongst other things, that the business has ceased trading and that there is no prospect of the director(s) continuing in that trade. If you write this letter, but then set up a new company and continue trading, then they can 'ave you.

My accountant has advised it's perfectly OK to shut down and reopen, and has in fact advised me to do it. I mentioned the above, and he said he keeps hearing about this kind of thing from Internet forums, but that nobodoy ever has a problem. He is from one of the well recognised accountancy names that we all know and love.

[XLMonkey]

My accountant has advised it's perfectly OK to shut down and reopen, and has in fact advised me to do it. I mentioned the above, and he said he keeps hearing about this kind of thing from Internet forums, but that nobodoy ever has a problem. He is from one of the well recognised accountancy names that we all know and love.

Hmm, my accountant advised the opposite. I think I might need to change....!

[PhilAtBFCA]

Esc16

Hi all,

ESC16 is the concession whereby HMRC can agree to the shareholders funds being distributed as capital gain rather than dividend income. Full details on the circumstances under which you get the prior agreement of HMRC are here

The tax rate on capital gains will be 18% after the tax free band in the year, but entrepreneurs relief willl apply on gains up to £1M in the lifetime of the entrpreneur ( not per company), and so the effective rate is 10%.

The ESC16 is under review at the moment as HMRC are aware of its abuse.

Under the terms of the issue of the ESC16 you do not, as an entrepreneur, say that you wont set up another company ever again, so you can see how this situation could be used, HMRC could however attack a serial entreprenuer if indeed that serial entrepreneur was just reforming companies succesively only to "avoid" tax. Whether that attack would succeed would be a matter for the courts, its a case of "do you want to be that person ?".

Phil

[ratewhore]

You wouldn't have got entrepreneurs relief then - that's what the letter is about.

You're quite right. Good point. Well made.

[MrRobin]

It was announced today that Entrepreneur's relief on capital gains tax would be doubled. To me and my maths this means the effective rate would now be 2% which makes closing down the company to extract the extra cash sitting around very attractive.

Has there been any more experience amongst forum members or accountants who read this board about how this works for contractors with limited companies?

[Olly]

It was announced today that Entrepreneur's relief on capital gains tax would be doubled. To me and my maths this means the effective rate would now be 2% which makes closing down the company to extract the extra cash sitting around very attractive.

Has there been any more experience amongst forum members or accountants who read this board about how this works for contractors with limited companies?

Er I thought the budget said you can now get relief on up to 2 million not one?

[MrRobin]

Er I thought the budget said you can now get relief on up to 2 million not one?

Oh! I see... OK thanks. The BBC summary was ambiguous.

Ta.

[Fred Bloggs]

I recall that SJD Accounting used to promote running a Ltd Company where you took minimum wage, drew dividends below the 40% threshold and then every few years wrapped the company up and made capital distribution from the Ltd Co. SJD had a pdf download on their website that illustrated the % retention that could be acheived given different levels of turnover. SJD used to promote this as the most tax efficient way of running a Ltd Co. I looked into this way of working about 7 years ago when I was first setting out on my contracting career. I emailed SJD as I was concerned about doing this repeatedly and, fair enough, Simon D duly answered by saying that they'd never had an issue from HMRC with contractors doing this.

It would be interesting to Know if SJD still promote this method of working and if not, why not.