Closing Ltd Company

[johnnycasino]

Hi

How is the retained profit in a limited company taxed when it is closed? I presume a director would pay some sort of capital gains tax but is there a tax free portion one could withdraw? What would the tax rate be on the remaining portion?

Thanks

[Gonzo]

Hi

How is the retained profit in a limited company taxed when it is closed? I presume a director would pay some sort of capital gains tax but is there a tax free portion one could withdraw? What would the tax rate be on the remaining portion?

Thanks

This is what an accountant is for.

In a nutshell though, provided that Extra Statutory Concession 16 (search for ESC16) is applied, and you will need permission from HMRC to do that, then all cash and assets can be transferred to the shareholder(s) and will be treated as a capital gain.

You can apply for entrepreneurs' relief if that is appropriate which would mean the capital gains tax will be 10% (or 18% if entrepreneurs' relief is not claimed). The actual calculation is a little more complicated, the capital gain is multiplied by 5/9 if entrepreneurs' relief is applied and the result counts towards the capital gains for the tax year.

There is an annual exempt allowance for capital gains tax - the first £9,600 of total gains in the 2008/2009 year is not counted. You may have other capital gains in the year of course and the annual exempt allowance applies to the total.

[PhilAtBFCA]

johnnycasino

This article explains all about ESC16, it is good for many circumstances but you need to check if its a good fit for you.

Phil

[johnnycasino]

Thanks guys for the help, much appreciated !

[ChimpMaster]

johnnycasino

This article explains all about ESC16, it is good for many circumstances but you need to check if its a good fit for you.

Phil

Phil - interesting article.

What's your view on leaving large reserves in the Co, built up over several years, and then applying for ESC16? Do you think HMRC would scrutinise the request in more detail if you have a large amount of cash in the account?

And Phoenix companies - is this just a scare tactic term or would HMRC chase you down for doing this?

[PhilAtBFCA]

TazMaN


Building up reserves is certainly possibly in your company, and then applying for ESC16 and using entrepreneurs relief certainly works.

One of the dangers in building up reserves is if you get hit by an IR35 investigation that does not go your way, then your company has the funds to pay. Although there is nothing certain about this, that may make your company an attractive target for HMRC as if they go for a company with no funds to pay then they have to jump through more hoops to get any paye due.

Phoenix Companies - There is nothing under the ESC16 arrangement that says you cannot be a serial entrepreneur adn exit each business by closing down. However if your only reason to close down companies was becuase you were using ESC16 route, then HMRC may seek to recover tax on your capital distributions for whatever reason they could find.

ESC16 is under review at the momment for the very reason that HMRC seems to think that it has been "abused" in this manner.

Phil

Phil