ESC16 & reopenig company

[northernladuk]

Which brings me onto my next question, I saw that someone mentioned that firms that allow your limited to go via voluntary insolvency cost around £3k for the entire procedure. Does the insolvency company contact your accountant or does the insolvency company effective become the accountant of your limited company ?

When my current contract is over, I'll be looking for a company which deals with limited company insolvency, anyone got any recommendations ? At the moment I am with SJD Accountancy London and when I called them up about it I got someone with an Indian accent stating that 'they have to comply with money laundering rules and regulations etc' and fobbed me off - which is fair enough if you don't know, don't know but....

Also if you partake insolvency (voluntary) how does this affect the limited company director's credit rating ? this is important as the industry I work in looks at credit scores etc. for employment.

If you could answer the above questions it would be much appreciated.

This will be my last I.T. gig ever so the company I am starting up after I close my existing one will no be used for IT contracting services.

Scott.

Liquidations by Directors

I believe putting your company in to liquidation has no personal affect on the director unless he hasn't complied to certain acts mention in the link above. Note, this is for 'proper' insolvency situations.

Am I right in thinking in the case of ESC or Liquidation situations getting investigated, the money withdrawn would be treated as PAYE if it comes down to the worst case? It can't be a dividend so if not PAYE what would it be classed as?

[THEPUMA]

Liquidations by Directors

I believe putting your company in to liquidation has no personal affect on the director unless he hasn't complied to certain acts mention in the link above. Note, this is for 'proper' insolvency situations.

Am I right in thinking in the case of ESC or Liquidation situations getting investigated, the money withdrawn would be treated as PAYE if it comes down to the worst case? It can't be a dividend so if not PAYE what would it be classed as?

A dividend.

So if it takes you over £150K income for the year, the tax at the margin would be 36% as opposed to 10%.

[northernladuk]

A dividend.

So if it takes you over £150K income for the year, the tax at the margin would be 36% as opposed to 10%.

Really?? That would mean they would be condoning either a) a dividend voucher being backdated or b) a dividend that has not been agreed by the board?

Or have I completely missed the mark here and it is distributed as a dividend when trasferred as part of the ESC/liquidation?

[THEPUMA]

Really?? That would mean they would be condoning either a) a dividend voucher being backdated or b) a dividend that has not been agreed by the board?

Or have I completely missed the mark here and it is distributed as a dividend when trasferred as part of the ESC/liquidation?

When you close using ESC C16, it is technically a dividend. It is just a dividend which is, by concession, taxed as a capital gain. But if it transpires that you weren't eligible for capital treatment, it would be taxed as a dividend.

[northernladuk]

When you close using ESC C16, it is technically a dividend. It is just a dividend which is, by concession, taxed as a capital gain. But if it transpires that you weren't eligible for capital treatment, it would be taxed as a dividend.

Ahh, interesting. Thanks for that.

[waccoe]

Why doesn't this make sense?

When you close using ESC C16, it is technically a dividend. It is just a dividend which is, by concession, taxed as a capital gain. But if it transpires that you weren't eligible for capital treatment, it would be taxed as a dividend.

This is indeed interesting. So if you're thinking of taking a large dividend, which would take you over the 40% threshold anyway, what's the downside in just using an ESC C16, and hoping for the best?. If the worst that can happen is you get taxed on it as if it was a dividend, why wouldn't everyone taking a large dividend just use an ESC C16? Admittedly there'd be some expense in arranging it all, and opening a new company, but as I said before, I haven't heard of a single case, where anyone has had to pay back the tax. You'd obviously need a large sum to make it worthwhile.

As for the changes to ESC C16 coming in on 1/3/12. From my quick google, a simple liquidation procedure would cost between 2-3.5K, with no other HMRC checking on whether the liquidation was valid. Can anyone correct my simple sums, and show me why this doesn't make sense?

Assuming there's 100K capital in the account to make the sums easier, and no other capital gains, and basic rate tax applies. CGT allowance is 10,600 x2 for myself and the other half, who is a 50% director.

100K - 3,000 for costs for liquidation = 97,000
97,000 - (2 x 10,600) = 75,800 for CGT
75,800 @ 18% tax = 13,644 (approx 14K)

So net would be 100K - 3K - 14K would give 83K.

[THEPUMA]

This is indeed interesting. So if you're thinking of taking a large dividend, which would take you over the 40% threshold anyway, what's the downside in just using an ESC C16, and hoping for the best?. If the worst that can happen is you get taxed on it as if it was a dividend, why wouldn't everyone taking a large dividend just use an ESC C16? Admittedly there'd be some expense in arranging it all, and opening a new company, but as I said before, I haven't heard of a single case, where anyone has had to pay back the tax. You'd obviously need a large sum to make it worthwhile.

As for the changes to ESC C16 coming in on 1/3/12. From my quick google, a simple liquidation procedure would cost between 2-3.5K, with no other HMRC checking on whether the liquidation was valid. Can anyone correct my simple sums, and show me why this doesn't make sense?

Assuming there's 100K capital in the account to make the sums easier, and no other capital gains, and basic rate tax applies. CGT allowance is 10,600 x2 for myself and the other half, who is a 50% director.

100K - 3,000 for costs for liquidation = 97,000
97,000 - (2 x 10,600) = 75,800 for CGT
75,800 @ 18% tax = 13,644 (approx 14K)

So net would be 100K - 3K - 14K would give 83K.

The flaws are twofold. Firstly, the CGT rate would normally be 10%.

Secondly, it doesn't work. Most people are not prepared to base their tax planning on the "it doesn't work but they probably won't look at it" principle. Some are. Harry Redknapp for example allegedly.

[northernladuk]

what's the downside in just using an ESC C16, and hoping for the best?.

You kinda of answered your own question. If this is how you run a business you don't deserve one IMO.

[waccoe]

You kinda of answered your own question. If this is how you run a business you don't deserve one IMO.

That was kinda tounge in cheek, I certainly don't base my business on hoping I don't get caught by HMRC, but I do know plenty of people who do. As I said further up the thread, I'm pretty much risk adverse.

[northernladuk]

That was kinda tounge in cheek, I certainly don't base my business on hoping I don't get caught by HMRC, but I do know plenty of people who do. As I said further up the thread, I'm pretty much risk adverse.

You did say that but you have badgered on and on about this which doesn't back up your claims.