Been working through own company, but no current work

[ajury]

I've been contracting for a few years, but now found myself with no current work. There is still cash in the company, so I am continuing to pay myself a monthly salary. I'm just wondering if this is my best option, or whether I can 'park' the company and at least get my NI stamp paid each month.

[Greg@CapitalCity]

Happy to help but I don't quite understand this. So what gross monthly salary are you paying yourself at the moment?

[Danielsjdaccountancy]

I've been contracting for a few years, but now found myself with no current work. There is still cash in the company, so I am continuing to pay myself a monthly salary. I'm just wondering if this is my best option, or whether I can 'park' the company and at least get my NI stamp paid each month.

If there is no work on the horizon, why not consider closing it to release the capital in the business, that way pay lower capital gains taxes and utilising you annual allowance of £10,600?

[Craig@Clarity]

I've been contracting for a few years, but now found myself with no current work. There is still cash in the company, so I am continuing to pay myself a monthly salary. I'm just wondering if this is my best option, or whether I can 'park' the company and at least get my NI stamp paid each month.

Hi Ajury,

You've got a couple of options available to you:

1. "Park" the company so that it's effectively "non-trading". Doing this, you can either continue to pay a salary to yourself or not. Understandably, if you wish to keep up your NI stamps, there is no issue with paying yourself a wage whilst the company doesn't have a contract in place. Consider maximising your basic rate allowance too with dividends. If you think you're going to be on the bench for longer than 12 months, think about your VAT status in the company. If you're on flat rate VAT then you may want to come off it in order to claim back any ongoing VAT non expenses. The reason I mention whether you're planning to be out of contract for 12 months is because you can't re-register for the flat rate scheme for 12 months once you come off it.

2. Wind the company up releasing any remaining profit in the company.

[Jeystone]

Hi Ajury,

2. Wind the company up releasing any remaining profit in the company.

and how much would the remaining capital be taxed? what prevents you from starting and closing limited companies this way?

[Craig@Clarity]

and how much would the remaining capital be taxed? what prevents you from starting and closing limited companies this way?

All depends on the contractors circumstance. If they are closing the company down for commercial reasons i.e. no more contracts and therefore, no requirement for the company any more, then they could be eligible for entrepreneurs relief which would mean they can distribute the profit in the company as capital and pay capital gains tax on the remaining profit at effectively 10% personally.

If they were simply closing one down and opening another up, there is unlikely to be an concession granted by HMRC to allow the contract to distribute the remaining profit as capital. Instead, they would have to treat the distribution as dividends.

[Jeystone]

All depends on the contractors circumstance. If they are closing the company down for commercial reasons i.e. no more contracts and therefore, no requirement for the company any more, then they could be eligible for entrepreneurs relief which would mean they can distribute the profit in the company as capital and pay capital gains tax on the remaining profit at effectively 10% personally.

If they were simply closing one down and opening another up, there is unlikely to be an concession granted by HMRC to allow the contract to distribute the remaining profit as capital. Instead, they would have to treat the distribution as dividends.

wouldn't this be a great way to "avoid" tax? open and close a limited company a year?

[Craig@Clarity]

wouldn't this be a great way to "avoid" tax? open and close a limited company a year?

There are tax avoidance measures in place to stop people doing that though.