How often do you close your company down?

[bf2]

How often do you long-termers close the company down and take the money out, before starting a new one?

Every year?
Every couple of years?
Once you have accumulated 200k or more in it?
Never?

Thanks.

[northernladuk]

Give us a clue why are asking? Are you asking about getting the money out cheaply? Avoid IR35 etc?

It makes a difference to the answer as ESC16 has disappeared and now you have to liquidate which is expensive so the frequency of shutting businesses down will change due to this and so on...

Anything specific you are after?

[bf2]

"Are you asking about getting the money out cheaply?"

Yes, that. Not IR35.

[northernladuk]

"Are you asking about getting the money out cheaply?"

Yes, that. Not IR35.

Well ESC16 was withdrawn in March/April (forget that date) so only a smallish set amount can be pulled out cheap, the rest is taxed more. It also seems to cost you between £3500 to £5000 to liquidate your company which is the only way now. From what I remember it isn't worth doing below £30k or something lke that. Do a search for 'liquidation' or something similar and you will find the threads discussing it.

Would be better to look at your situation and ask what is best for you rather than asking what everyone else does when the legislation has changed. Any answers from before March will no longer help as they were done using a different system.

[Clare@InTouch]

Well ESC16 was withdrawn in March/April (forget that date) so only a smallish set amount can be pulled out cheap, the rest is taxed more. It also seems to cost you between £3500 to £5000 to liquidate your company which is the only way now. From what I remember it isn't worth doing below £30k or something lke that. Do a search for 'liquidation' or something similar and you will find the threads discussing it.

Would be better to look at your situation and ask what is best for you rather than asking what everyone else does when the legislation has changed. Any answers from before March will no longer help as they were done using a different system.

You're looking at over £50k really for it to be worthwhile, otherwise the tax you save is outweighed by the professional fees.

If HMRC see you closing your company every couple years and getting a lot of money out at a low tax rate, therefore indicating you're closing for purely taxation reasons, they are like to challenge it and deny the preferential tax treatment.

[bf2]

OK, my situation is this:

I've got about 100k in the company account, after paying myself the salary and divi within the thresholds.
Wife working full time and is a higher rate tax payer (just). Home mortgage is due to be cleared in another 10 months.
Don't *need* the money in the company account as such, but worried about inflation and the whole financial mess of the world.

[ASB]

If HMRC see you closing your company every couple years and getting a lot of money out at a low tax rate, therefore indicating you're closing for purely taxation reasons, they are like to challenge it and deny the preferential tax treatment.

Clare,

On what basis could they actually do that? Certainly under the old ESC16 they would be able to. However, the corporate is an individual entity. Full MVL will result in capital distributions assessed accordingly.

This surely would be the worst position possible (whether it would be tax efficient in this case I don't know).

Entrepreneurs Relief is the only additional (and substantial) benefit. However in this case there is no documented description requiring the individual not to carry on in the same line of business.

HMRC may well try and deny ER but I don't really see on what grounds.

[Clare@InTouch]

Clare,

On what basis could they actually do that? Certainly under the old ESC16 they would be able to. However, the corporate is an individual entity. Full MVL will result in capital distributions assessed accordingly.

This surely would be the worst position possible (whether it would be tax efficient in this case I don't know).

Entrepreneurs Relief is the only additional (and substantial) benefit. However in this case there is no documented description requiring the individual not to carry on in the same line of business.

HMRC may well try and deny ER but I don't really see on what grounds.

Many tax reliefs have a caveat that state they are available unless the sole or main purpose of the arrangement is to avoid tax or obtain tax relief. Obviously most arrangements are partly to avoid tax, but they have a sound commercial element too. It's the same logic that the new General Anti-Avoidance Rule is/will be based on. HM Revenue & Customs

I've read something about the anti-avoidance rules on securities possibly being an issue, I'll see if I can find the exact legislation....

[d000hg]

Well ESC16 was withdrawn in March/April (forget that date) so only a smallish set amount can be pulled out cheap, the rest is taxed more. It also seems to cost you between £3500 to £5000 to liquidate your company which is the only way now. From what I remember it isn't worth doing below £30k or something lke that. Do a search for 'liquidation' or something similar and you will find the threads discussing it.

So what's the best solution for someone who just wants to stop trading - they go permie, retire, etc - rather than repeatedly closing companies to get the cash out? Does this mean all of us face a fee of a few grand when we retire?

[Clare@InTouch]

Here you go, this explains it quite well:

For those unfamiliar with this subject, perhaps I should start with a very short description of the purpose of the current rules, which allow HMRC to ‘counteract’ a tax advantage obtained by a taxpayer in consequence of:

a transaction in securities; or
the combined effect of two or more transactions in securities; or
the combined effect of one or more transactions in securities and the liquidation of a company.
The term ‘transaction in securities’ has a very wide meaning including transactions of whatever description relating to securities (including their purchase, sale or exchange, issue or securing the issue of new securities, etc.).

The term ‘securities’ is also widely defined. The TiS rules will not apply if conditions A and B in ITA 2007 s 685 are met.

Condition A is that the transaction or transactions are effected for genuine commercial reasons, or in the ordinary course of making or managing investments.

Condition B is that enabling Income Tax advantages to be obtained is not the main object or one of the main objects of the transaction or transactions.


In broad terms, under the proposed new TiS provisions a person is potentially caught if the following conditions are satisfied (proposed new s 683):

the person is a party to one or more transactions in securities; and
certain defined circumstances are present; i.e., if conditions A or B (sound familiar?) are in point, and there is no ‘fundamental change of ownership’ (see below); and
a main purpose of the person being a party to the transaction(s) is to obtain an ‘Income Tax advantage’, as defined (the ‘purpose test’, or what is sometimes referred to as the ‘motive defence’, ‘escape clause’ or ‘commercial let-out’, in s 685); and
the person obtains an Income Tax advantage.

Transactions in Securities - New and Improved?


As far as I know, HMRC haven't used this in practice. That's not to say they wouldn't though, especially now that the ESC C16 restriction on phoenix companies is no longer providing the same deterrent. I have to admit I've not researched in detail, but I think it's enough just to advise caution - just because ESC C16 is gone, you shouldn't just assume phoenixing is suddenly risk free.