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Entrepreneur’s relief

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    Entrepreneur’s relief

    I have asked my accountant about this, as I'm 3 months away from finishing my current 2 year contract and I'm also about to move house around the same time. It's been suggested to me that this is an ideal time to close company down and take advantage of Entrepreneur’s relief to get the money out, and possibly have a month or two off to sit in front of the TV watching the World Cup. My Accountant has stated the following:

    "If HMRC felt the business was not discontinued but merely transferred to another company you could not get the relief. Therefore there would need to be a reasonable length of time before you start trading through the new company."

    I trust my accountant very much, but I'm unsure if they are being a little cautious with advice. I work in IT and would start a new company doing exactly the same thing. Is this at all risky ? How much time off should I leave before starting up again ? I could always go umbrella for a year if I got another contract very soon I suppose. Has anyone had experience of doing this before ? Has anybody been refused the 10% relief and had to pay the full CG Tax ?

    thanks
    Nick

    #2
    But the question Hector will ask is "What is the business reason for this action?". In your case there isn't one, it's all about personal gain. So I'd go with the accountant's advice.
    Blog? What blog...?

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      #3
      Getting CGT treatment at all (ie ignoring entrepreneur relief) is only available (ignoring expensive liquidations) as a concession from HMRC. This concession is often granted, but one of the main provisos is basically that you're not going to do the same thing again.

      Sounds like you're clearly planning to (albeit with a 2 month break), therefore IMHO not only would you not get entrepreneur relief, but you'd be taxed on all funds left in the company as a dividend (effective rate 25% if higher rate taxpayer) rather than CGT (18/10% depending upon E.R.).

      Can you not just chill for two months, continue to draw dividends from the existing company (assuming there's excess cash/profits otherwise you wouldn't be asking this question in the first place), then start up again (with the same company) in a couple of months?

      Not quite as tax efficient but far less likely to be challenged.

      Comment


        #4
        Just to reiterate what Maslin says, there are two elements to this that are being mixed up.

        First, closing down your company and withdrawing any leftover cash as a capital distribution instead of an income distribution. This can be done by asking HMRC to allow Extra Statutory Concession 16 (ESC16) to apply.

        They allowed this for me round about one year ago but unlike you, I had no intention of trading again. I am sure I have seen one accountant on here suggest that it is an area that HMRC are looking at because they think it is being abused.

        If you are taking the money out as capital then you can apply for entrepreneur's relief, subject to a lifetime limit, when you calculate the CGT due on your tax return.

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