'Entrepreneurs Relief' for limited company what is the best strategy to apply for it?

**Waldorf** · 24 January 2011, 20:39

Originally posted by sbakoola View Post

I'm with one of the big IT accountants so I will ask them if they do it but they don't tell you everything so this is why I have asked these questions about Entrepreneurs Relief.

Then ask your accountant, that is what you are paying them for.

The last time I closed a company it was in the days before ER, I had no problem my accountant sorted it all for me, it took a lot less than 1 year, from memory from stopping trading to closing the account etc, it was about 2 months.

I remember my accountant was very strict about closing the company bank account before I applied to have the company closed at Companies House.

**ChimpMaster** · 24 January 2011, 21:24

Remember, you can't just close the company down and then open another one to continue your contracting. The whole point of ER is that it's only supposed to be used when you are ceasing to trade in that business.

I guess theoretically you could close the company, then join an umbrella for 6 months or so, and then open another Ltd company again.

**sbakoola** · 24 January 2011, 21:28

Originally posted by ChimpMaster View Post

Remember, you can't just close the company down and then open another one to continue your contracting. The whole point of ER is that it's only supposed to be used when you are ceasing to trade in that business.

I guess theoretically you could close the company, then join an umbrella for 6 months or so, and then open another Ltd company again.

that sounds crazy to me...

**Gonzo** · 25 January 2011, 07:34

Originally posted by sbakoola View Post

3) Have you ever undergoine an 'Entrepreneurs Relief' procedure for an IT Consultancy ? did it run smoothly ? what are the pitfalls ? i.e. if you don't file something they freeze your company bank account without warning.

There isn't an 'Entrepreneurs Relief' procedure as such.

The relief is something that you claim in your personal tax return when filing for the year in which you took the capital gain.

You (or your accountant) will need to write to HMRC asking for their permission to close the company without the formal winding up procedure, this concession is ESC16, but I don't think that they tend to say no unless you do this a lot.

**Clare@InTouch** · 25 January 2011, 08:42

Originally posted by sbakoola View Post

I am considering applying for 'Entrepreneurs Relief', my limited company is 2 years old and I've got around 90k in it right now. I heard that if you qualify (via HMRC) you can shut down the company (and after all outstaning VAT, income tax and Corporation tax is paid) you can then take the remaining amount in your company bank account at 10% capital gains tax, not bad I thought.

I heard that the entire procedure takes around 1 year and there is a lifetime limit of around £5 million, by the time I shut down I should have around £150k in the account after tax.

My questions to you all are:

1) If I decide to go for Entrepreneurs Relief and then discover via HMRC that my company does not qualify for the 10% capital gains tax (i.e. the higher rate) can I back out of proceeding with the E.R. and just carry on trading as normal ?

2) I haven't read all the rules regarding how one qualifies for the 10% capital gains tax on all company account money left after tax but I did understand that the longer you leave it and the more money you accumulate the harder it is to convince HMRC that you qualifiy for the low 10% tax, its something to do with trading income vs what is left in the account I think, not sure, could someone clarify this for me ?

3) Have you ever undergoine an 'Entrepreneurs Relief' procedure for an IT Consultancy ? did it run smoothly ? what are the pitfalls ? i.e. if you don't file something they freeze your company bank account without warning.

I'm with one of the big IT accountants so I will ask them if they do it but they don't tell you everything so this is why I have asked these questions about Entrepreneurs Relief.

thanks in advance.

1) When you decide to close a company your accountant will write to HMRC to request ESC C16. Part of this procedure is you signing a declaration to say you're actually ceasing to trade (ie not about to open a new company diong exactly the same thing). If the ESC is agreed then the accounts are prepared with any final monies being shown as a Capital Distribution. The accounts are filed with HMRC and Companies House, taxes paid, and then the company is struck off.

ER is done through your tax return. By the time it gets to that stage the company should be struck off, so no, you cannot go back and carry on trading.

2) There is the theory that if you have large amounts of cash then HMRC may view the company as an investment company, rather than a trading company. In that case ER would not apply.

3) I have overseen the closure process for many clients, and it's usually absolutely fine as long as the process is followed. The company bank account has to be closed before the final accounts are prepared, so that's not an issue at all in respect of the ER. However, if for any reason you don't close it before the company is struck off then your bank account will be frozen and any monies passed to The Crown under Bona Vacantia. You can get most of them back, but it's a potentially long process. This is why it's vital to get proper advice when closing a company, and to close the account when your accountant tells you to.

I'd suggest you talk it all through with your accountant. They know you personal circumstances in full and can advise on anything I wouldn't be aware of.

There are also some possible changes in the pipeline for ESC C16, although it's still being debated at the moment.

**castoff101** · 25 January 2011, 18:44

Originally posted by Clare@InTouch View Post

2) There is the theory that if you have large amounts of cash then HMRC may view the company as an investment company, rather than a trading company. In that case ER would not apply.

Could you clarify what you mean by a large sum?

My understanding is that there is a life time limit of x pounds, surely anything up to that can be taken without any issues?

Thanks

**badger7579** · 25 January 2011, 19:49

interesting read
<snip>

**sbakoola** · 26 January 2011, 06:48

With regards to "Entrepreneurs Relief" ... anyone know the minimum time limit between you shutting down the limited company (and ceasing trading in IT) and then starting up a new Limited company doing the same thing ? is it 6 months / 1 year ? would you have to go via an umbrella in the interim (not v. tax efficient but could Companies House not allow you to set up a Limited Company for trading in IT contracting forever ???!??).

Also what happens if you apply for ESC C16 and HMRC say no you cannot get the 10% tax on Capital gains, can you then back peddle and not proceed with the application ? (I bet in this case there is scope for administration error where someone in HMRC applies to Companies House regardless and your Company is applied to be struck off without your knowledge thus having your assets frozen !).

**Clare@InTouch** · 26 January 2011, 08:37

Originally posted by castoff101 View Post

Could you clarify what you mean by a large sum?

My understanding is that there is a life time limit of x pounds, surely anything up to that can be taken without any issues?

Thanks

There's a maximum lifetime limit on the amount of Entrepreneurs' Relief you can claim on qualifying gains:

the first £1 million from 6 April 2008 to 5 April 2010
the first £2 million from 6 April 2010 to 22 June 2010
the first £5 million from 23 June 2010

Entrepreneurs' Relief | Business Link

The issue is that if your company is deemed to be an investment company then it may not qualify for ER in the first place as it won't meet the definition of a trading company.

HM Revenue & Customs: Capital Gains Tax reliefs for business assets

'Entrepreneurs Relief' for limited company what is the best strategy to apply for it?