Closing down a Ltd company

[ragman]

I have been an independent contractor for some time now and taken very little from the company in either wages or Dividends.
As a result I have circa £500k of cash in the company. I was orignally planning to close the company and retire using the 10% CGT option but I understand that has now gone as a option.
I am trying to work out the most efficient way to to extract this from the company. I don't need to take the money all in one lump (i.e. I could take out £50k a year).
The company has only 2 directors. Each has savings so no need for a specific income.
Any suggestions?
Can I just take dividends over the next few years even if the company isnt trading? I can keep the company going with a small income. Will that help?
Any advice welcome.

[northernladuk]

I would certainly be asking a qualified accountant first for those sums of money.

Post on this recently... Well July 2012...

http://forums.contractoruk.com/accou...d-company.html

Interesting post about the steps and a couple of gotchas to watch when closing it..

http://forums.contractoruk.com/accou...d-company.html

And a load of posts from here about MVL if that is the answer..

https://www.google.co.uk/search?q=MV...hrome&ie=UTF-8

[BolshieBastard]

I have been an independent contractor for some time now and taken very little from the company in either wages or Dividends.
As a result I have circa £500k of cash in the company. I was orignally planning to close the company and retire using the 10% CGT option but I understand that has now gone as a option.
I am trying to work out the most efficient way to to extract this from the company. I don't need to take the money all in one lump (i.e. I could take out £50k a year).
The company has only 2 directors. Each has savings so no need for a specific income.
Any suggestions?
Can I just take dividends over the next few years even if the company isnt trading? I can keep the company going with a small income. Will that help?
Any advice welcome.

Talk to an accountant!

[northernladuk]

Talk to an accountant!

I would guess if he has been taking less than his total allowance all these years he hasn't got one, or not a very good one

[Wanderer]

I have been an independent contractor for some time now and taken very little from the company in either wages or Dividends.

You (and your other shareholders if there are any) should have been taking divis right up to the higher rate limit because there would be no further tax to pay on them.... If you haven't done that then it's probably too late now and you are going to be hit with a big tax bill when you take your money.

As a result I have circa £500k of cash in the company. I was orignally planning to close the company and retire using the 10% CGT option but I understand that has now gone as a option.

You could keep the company running and extract salary and dividends up to the higher rate limit every year and probably not have to pay any further tax.

You can also do a Members Voluntary Liquidation and pay the 10% CGT.

May I respectfully suggest that you invest some of your company's money in some professional advice.

[Maslins]

I have been an independent contractor for some time now and taken very little from the company in either wages or Dividends.
As a result I have circa £500k of cash in the company. I was orignally planning to close the company and retire using the 10% CGT option but I understand that has now gone as a option.
I am trying to work out the most efficient way to to extract this from the company. I don't need to take the money all in one lump (i.e. I could take out £50k a year).
The company has only 2 directors. Each has savings so no need for a specific income.
Any suggestions?
Can I just take dividends over the next few years even if the company isnt trading? I can keep the company going with a small income. Will that help?
Any advice welcome.

The 10% CGT via entrepreneurs relief is still available, but on that balance you'd need to go through a formal liquidation, whereas up until a year ago you could have applied for ESC C16 and got the company struck off (a cheaper process).

Alternatively you could pay out dividends over a number of years. These may/may not be taxed on you personally depending upon other personal income you may have. Also bear in mind this would mean quite a few years of still having to prepare statutory accounts, corporation tax returns etc.

[Craig at Nixon Williams]

I have been an independent contractor for some time now and taken very little from the company in either wages or Dividends.
As a result I have circa £500k of cash in the company. I was orignally planning to close the company and retire using the 10% CGT option but I understand that has now gone as a option.
I am trying to work out the most efficient way to to extract this from the company. I don't need to take the money all in one lump (i.e. I could take out £50k a year).
The company has only 2 directors. Each has savings so no need for a specific income.
Any suggestions?
Can I just take dividends over the next few years even if the company isnt trading? I can keep the company going with a small income. Will that help?
Any advice welcome.

Although ESC C16 doesn't exist any more (it was replaced about a year ago by a statutory instrument), you can still have funds from a company in liquidation treated as capital under two circumstances:
1. The funds are under £25k (clearly not applicable in this example); or
2. You appoint a liquidator to wind up the company (known as an MVL).

If the gain made on disposal of the company qualifys for Entrepreneus Relief then it will be taxed at 10% (assuming that you have not have lifetime gains in excess of £10m).

In order to qualify the following must have applied for a minimum period of 12 months immediately prior to disposal:
1. You must be an officer or employee of the company.
2. You must have at least 5% of the issued share capital of the company with at least 5% of the voting rights.
3. The company must be a trading company (as opposed to being classed as a closed investment holding company).

With such a large amount of cash on your balance sheet, you may have trouble in satifying the third criteria because you seem to be holding far more cash than the average working capital requirement of an independant consultancy business, if HMRC were to deem this to have been retained for investment purposes then they could attempt to argue that the company is not a true trading company.

You make a good point about drawing an income from the company over a sustained period of time - you could take annual dividends from the company up to the higher rate threshold for each shareholder (currently £42,475 gross), and if you have no other form of income this would be free of additional tax. This would be suitable if you are retiring and so do not expect to have an income in the future - if the dividends that you take from the company do go into the higher rate tax band then they will be taxed at 25% effectively.

Hope this helps!

Craig

[jamesbrown]

you may have trouble in satifying the third criteria because you seem to be holding far more cash than the average working capital requirement of an independant consultancy business, if HMRC were to deem this to have been retained for investment purposes then they could attempt to argue that the company is not a true trading company.

What are the chances of HMRC arguing that successfully if the OP has continued to trade and the majority of income has come from trade rather than investments? It seems to me that retaining money in the company is a perfectly reasonable pension strategy. To whom do HMRC argue this in the event of disagreement, i.e. who arbitrates?

[quackhandle]

I have to ask, what the feck did you live on?

qh

[Maslins]

What are the chances of HMRC arguing that successfully if the OP has continued to trade and the majority of income has come from trade rather than investments? It seems to me that retaining money in the company is a perfectly reasonable pension strategy. To whom do HMRC argue this in the event of disagreement, i.e. who arbitrates?

Good question and nobody really knows. As far as I'm aware there hasn't been a case that's gone to court on this to help provide boundaries.

If HMRC did challenge it, it would be the personal tax return they'd challenge, saying you didn't qualify for entrepreneurs relief as the company had become an investment one. Whether that would stand up in court I have no idea.

Worth stressing that this isn't a new thing post ESC C16, all the old ESC C16 cases since entrepreneurs relief has been in play will have had the same possible bone of contention. I personally don't think HMRC are likely to take this point (when the company had made all the money from what was clearly trading like you suggest)...but that's just my opinion, until it goes to a court and a judge gives their opinion (which would then be binding) nobody knows.