Closing Contractor Limited Company

[tyut4669]

I am in middle of contract and my company has been running for 3 years now. This was my first company. I would like to close my company and open another to continue with the same contract and also possibly do a little of totally different kind of business. That was my first company and there had been some accounting mistakes happened. For most part, I do not owe any more tax to HMRC. But accounts had been bit of mess.Now I understand accounts lot better and would like to make a clean start not in any intention to close down the company again.

I heard from number of people that this is absolutely fine and nothing illegal or unlawful while doing this. But, nevertheless, there are so many of the roumours you can not be sure of.

Can someone comment on my queries please.

1. Is this anything wrong? Illegal, unlawful etc
2. Has anyone has done this or is this a common practice?
3. Obviously at the time of switch over, there would be two companies open on my name. And, does that cause any additional risk while closing the company?

[Craig@Clarity]

There's nothing illegal about it but it does limit your options with what you can do with the retained profit in the first company (dividends rather than cap. dist). There's nothing wrong with having 2 companies under your name. Assumed that the first one would cease trading and the second would start. Think about the timing of it and have consideration for VAT thresholds and flat rate (if applicable).

[northernladuk]

or do you mean apply for Entrepeneurs Relief so you can get what money is left out of the company cheaply which can potentially be a different kettle of fish?

[tyut4669]

No. I mean to close it and take all the money left as dividends.

[Danielsjdaccountancy]

Closing it midway through a contract is not best practice. Waiting till the end of the contract would be better but still not ideal.
If you ventured into your other line of work after the contract finished it would give you more justification to close should HMRC ask any questions.
Otherwise they’ll just point the finger at looking for Entrepreneurs relief.

[Danielsjdaccountancy]

No. I mean to close it and take all the money left as dividends.

I still think they'd ask the question why?

[tyut4669]

I still think they'd ask the question why?

I have already described my situation at the front of the thread. Can you elaborate on what would happen if I can not justify? Some of the advantages that I get is make a clean start, Get much better name probably well branded, and get into different markets (only involves 2% to 3% turnover though).

[Craig@Clarity]

I still think they'd ask the question why?

If the OP is simply going to pay dividends from the first company then HMRC aren't going to ask questions. It is only going to be an issue if the OP applies for ESC C16.

[northernladuk]

My thoughts were that closing a company and re-opening a new one just to clear it up and be nice and tidy is not business justification. You should know enough about your finances to clean it up and continue to run it cleanly. Closing it down just because you don't like the look of the spreadsheet for a period is silly. It is a company not a scrapbook that you can swap if one gets a bit tatty.

If your accounts are a mess closing one company and starting another doesn't make the problem go away. if anything it points a big bad finger at you trying to hide something and sweep it under the carpet.

As has been mentioned changing company during contract is very messy as the contract is with your old company so have to re-do contracts, banking etc etc.

All this because it was a bit of a mess seems a bit over the top so I think myself and the other OP's still think this smells fishy even though you have stated not.

[tyut4669]

Some of the accounting errors that happened:

1. More expenses drawn in the first year - which I am paying back to the business with interest now
2. Heavily used director loan for the past couple of years and kept filling it back with dividands. And, I have back the interest charged now. Made sure that end of the accounting year, it came down to 0 though.
3. Did not take the salary in the form of salary. Just used a mix of withdrawals, random amounts of salary withdrawn. End of the year it all matched up fine though.
4. Did not submit P11D all these years though some of the expenses should have been
5. In the second year, P35 NI figure is 900, where as i have paid 2000 to HMRC and the actual figure is 1300. How funny?

No bashing for all these. Obviously none was intentionally. All i can say is, I had a very helpful accountant.

Well.. things like these. I hear it loud and clear to not do it middle of contract. Will follow that one.

Yes, it sounds fishy but i am trying to balance the probabbilities on carrying the uncertainity with me or close it and reduce the period of uncertainity to probably an year?

Appreciate your time and comments.