Entrepreneurs Relief

[richy_rich]

Hi,

Just reading last month's PCG magazine and there was a question regarding ER and the answer was surprising...

"To qualify for ER, the company must meet certain conditions, one of which is that it's non business assets must not be substantial"

"Accumulated reserves such as cash in the company account are treated as non-business assets and HMRC interprets substantial as 20% or more of companys assets.

So if you are a one man band IT consultant and have your nest egg of 100k sitting in your company bank account and were hoping to claim ER and close down your company then it appears that you may have to think again... (CG64090 is the HMRC reference).

Anyone been down this road as I would be interested to hear your comments.

Cheers,

RR.

[DeludedAussie]

Hi,

Just reading last month's PCG magazine and there was a question regarding ER and the answer was surprising...

"To qualify for ER, the company must meet certain conditions, one of which is that it's non business assets must not be substantial"

"Accumulated reserves such as cash in the company account are treated as non-business assets and HMRC interprets substantial as 20% or more of companys assets.

So if you are a one man band IT consultant and have your nest egg of 100k sitting in your company bank account and were hoping to claim ER and close down your company then it appears that you may have to think again... (CG64090 is the HMRC reference).

Anyone been down this road as I would be interested to hear your comments.

Cheers,

RR.

I would also be interested in this if anyone can share their views

[MrRobin]

Bump...

Any of the resident accountants care to chip in? Your clients must ask about this fairly regularly, Shirley?

[malvolio]

To qualify for ER, which is meant to assist and encourage business growth, they want to be sure you are trying to grow the business, not its assets. Having a pile of money in the bank doing nothing is not a good sign; it should be being re-invested or used to source the capital assets the business needs to grow.

[Clare@InTouch]

If the company has substantial cash assets then HMRC could argue that it's not a trading company and therefore not entitled to ER. It depends on how much money you have accumulated, and whether you could argue it's for trading purposes. It has to be reviewed on a case by case basis.

If you have a large amount of money sitting in the company and you want to cease trading it's one of the matters that should be discussed with your accountant. If you're retiring entirely and won't have other income then you have option of leaving the company open and drip feeding dividends out over a few tax years and paying no tax at all - a better result than ER anyway.