Company Strike Off + Capital Gains Tax confusion

[MrsKay]

Hi,

I would appreciate if someone can offer some advice. I apologise for this rather long post.

Our limited company is now in the process of striking off, and Companies House has place notice in the Gazette.

This is a brief chronicles of events:

May 2011 - Ltd Company set up
Apr 2012 - Cease Trading
Nov 2012 - all corporation tax paid
Mar 2013 - application to strike off sent to Companies House. Within the same week, letter received from CH and notice has been placed in the Gazette.
Mar 2013 - Receive letter from Bank : Companies House has notified the bank that the company is going to be struck off and asset will be frozen if bank account is not closed within 3 months
Apr 2013 - distribute cash left in the bank account and send letter to bank to close the account

At the time of closing the bank there were about £40K cash left.
This was divided equally between myself and my husband. Both of us have a full time job and both incomes fall into the higher tax bracket.

I was told by my accountant (whose services I no longer use) the best way to get the cash out is distribute/dispose of the assets and pay Capital Gains Tax.

My questions are:
1) Do I have to apply for Entrepreneur's Relief?
2) I will declare the £20K each in our self assessments as Capital Gains Tax. I understand that the first £10900 are tax free, and the remaining are taxed at 28%, is this correct?
3) Is there anything else I can do to more efficiently manage this company strike off exercise?

Many thanks,
MrsKay

[Nixon Williams]

My questions are:
1) Do I have to apply for Entrepreneur's Relief?
2) I will declare the £20K each in our self assessments as Capital Gains Tax. I understand that the first £10900 are tax free, and the remaining are taxed at 28%, is this correct?
3) Is there anything else I can do to more efficiently manage this company strike off exercise?

1. You do not actually apply for Entrepreneur's Relief, assuming that you qualify then you would claim it on the tax return. A quick look at your dates, I would guess that you do NOT qualify as you did not trade for 12 months!

2. The £10,900 free allowance is for 2013/14, depending when in April you distributed the funds, the gain may relate to 2012/13, in which case the allowance was £10,600. If you do not qualify for ER and you are a higher rate taxpayer, then the CGT rate is 28%.

3. It is really too late to arrange your affairs in a tax efficient manner, this should have been discussed with your accountant before you took any action.

Alan

[MrsKay]

1. You do not actually apply for Entrepreneur's Relief, assuming that you qualify then you would claim it on the tax return. A quick look at your dates, I would guess that you do NOT qualify as you did not trade for 12 months!

2. The £10,900 free allowance is for 2013/14, depending when in April you distributed the funds, the gain may relate to 2012/13, in which case the allowance was £10,600. If you do not qualify for ER and you are a higher rate taxpayer, then the CGT rate is 28%.

3. It is really too late to arrange your affairs in a tax efficient manner, this should have been discussed with your accountant before you took any action.

Alan

Many thanks for your reply, Alan.

Can I be cheeky and ask a further question about "trading date"?
The day I ceased trading, is it the last day of my last contract?
This is the day I use to define "ceased trading".

The company still continues to pay bills until recently.

Many thanks,
MrsKay

[stek]

Company Strike Off + Capital Gains Tax confusion

Paying bills even though you've paid your final CT? That means you haven't ceased trading and will need another accounting period to resolve.

Sounds like a total eff up to me, you got yourself in a world of pain it seems to me!

[northernladuk]

You contract is just income to the company. The company can still be trading even if there is no income.

[ELBBUBKUNPS]

1. You do not actually apply for Entrepreneur's Relief, assuming that you qualify then you would claim it on the tax return. A quick look at your dates, I would guess that you do NOT qualify as you did not trade for 12 months!

2. The £10,900 free allowance is for 2013/14, depending when in April you distributed the funds, the gain may relate to 2012/13, in which case the allowance was £10,600. If you do not qualify for ER and you are a higher rate taxpayer, then the CGT rate is 28%.

3. It is really too late to arrange your affairs in a tax efficient manner, this should have been discussed with your accountant before you took any action.

Alan

Is there a time limit, I heard you need to put you tax return in within 9 months of recieving the capital payment ?

[Nixon Williams]

Many thanks for your reply, Alan.

Can I be cheeky and ask a further question about "trading date"?
The day I ceased trading, is it the last day of my last contract?
This is the day I use to define "ceased trading".

The company still continues to pay bills until recently.

Many thanks,
MrsKay

Whilst it is unlikely that the Revenue will question this in great detail, as the sums are quite small, but I would define the last trading date as when you ceased trading, ie contracting through the company.

It sounds as though the company was dormant after this, pending the eventual closure.

The only bills you should have had whilst dormant would be for taxes and perhaps a few small overheads.

Alan

[Nixon Williams]

Is there a time limit, I heard you need to put you tax return in within 9 months of recieving the capital payment ?

The capital gain would need to be declared on the tax return for the year that it took place.

So if the capital gain took place today, 25th April 2013, this is in the 2013/14 tax year, so the tax return for this year will need to be filed by 31st January 2015.

A capital gain does not accelerate the timescale for submitting your tax return.

Alan

[northernladuk]

Make absolutely sure the bank is empty before the company is struck off. If there is anything left it becomes property of the crown and I believe it is a right bitch to re-open the company to get at the money.

[Andrew@Wisteria]

Hi,

My questions are:
1) Do I have to apply for Entrepreneur's Relief?
2) I will declare the £20K each in our self assessments as Capital Gains Tax. I understand that the first £10900 are tax free, and the remaining are taxed at 28%, is this correct?
3) Is there anything else I can do to more efficiently manage this company strike off exercise?

Many thanks,
MrsKay

Re: point 2) You will be paying CGT on the retained earnings (RE) not the remaining cash in the bank account.

If RE is less than £25k then automatically treated as capital distribution.

If RE is more than >£25 then need to formally liquidate the company and use insolvency practioner - usually costs c.£4k.

Probably best to confirm situation with your accountant.

Andrew