Switching from contractor to permanent worker and back again

[TemporaryPermanent]

I have a limited company which I have contracted through for 9 years, which has a few Ks sitting in it.

Due to various circumstances, including the poor state of the market in my sphere, I have decided to go permanent, and have just today received a permanent contract.

I fully intend to move back to contracting work at a suitable moment in 1+ years.

Now, my question is this:

Should I close my limited company and take all the cash? Then start a new company when I return to contracting. My initial thought is that this will actually cost more time and money than keeping it open. Is it possible to pay myself a regular dividend from the Ltd even though it will have no current income? Any thoughts?

[EternalOptimist]

I have a limited company which I have contracted through for 9 years, which has a few Ks sitting in it.

Due to various circumstances, including the poor state of the market in my sphere, I have decided to go permanent, and have just today received a permanent contract.

I fully intend to move back to contracting work at a suitable moment in 1+ years.

Now, my question is this:

Should I close my limited company and take all the cash? Then start a new company when I return to contracting. My initial thought is that this will actually cost more time and money than keeping it open. Is it possible to pay myself a regular dividend from the Ltd even though it will have no current income? Any thoughts?

the biggest problem would be accountants fees.
keeping a dormant company ticking over is quite cheap, but dont you still have to file accounts ?

[TemporaryPermanent]

I do my own accounting, so no problem with accounting fees.

[administrator]

Have moved this from General as it will disappear there and we are more likely to get a professional reply here. I am not too sure as have never moved back from Ltd to perm but I expect it will depend on your circumstances and I am sure the call to "talk to your accountant" is likely to be voiced

Things likely to affect the decision are how much do you have left in the business and how much is your perm role worth?

[MarillionFan]

I do my own accounting, so no problem with accounting fees.

I was always under the impression you needed a chartered accountant to ratify your accounts each year

[gingerjedi]

I did it year before last, paid half fees with Nixon Williams to keep it ticking over.

It was only for 5 months and I had every intention of jacking it in come tax year end until I was forced back into contracting.

[TemporaryPermanent]

I think I must be living in a different world?

A software contractor who has set up his own limited company DOES NOT need a chartered accountant!

My 15 year old niece could do my accounts. Accounts these days are easy to do for a small company. Try going to the HMRC website - and get the tools do it all online.

So nobody has an answer to my actual question then?

Edit - thanks Jedi for your response.

[Wanderer]

Should I close my limited company and take all the cash? Then start a new company when I return to contracting. My initial thought is that this will actually cost more time and money than keeping it open. Is it possible to pay myself a regular dividend from the Ltd even though it will have no current income? Any thoughts?

Can you pay the money out of the company without getting hit with higher rate tax? If so then go ahead and pay the dividends - there is no point waiting.

If it would hit higher rate tax then consider retaining it in the company for a rainy day or put it in a pension.

If you shut down the company you used to be able to do an ESC-C16 and take the money as a capital distribution but they changed things so it's not worth while if you have < about £30k to distribute.

Have a talk to your accountant, I'm sure they will do you a deal to do the non-trading company's accounts for a fairly small fee.

[Clare@InTouch]

I think I must be living in a different world?

A software contractor who has set up his own limited company DOES NOT need a chartered accountant!

My 15 year old niece could do my accounts. Accounts these days are easy to do for a small company. Try going to the HMRC website - and get the tools do it all online.

So nobody has an answer to my actual question then?

Edit - thanks Jedi for your response.

Keeping a non-trading company ticking over is not expensive, all you have to do are usual filings - nil VAT returns, nil PAYE returns, accounts, annual return.

Whether or not that's preferable to closing entirely depends on how much money you have there, and how much tax you stand to mitigate. If you have less than £25,000, and you've been trading for at least a year, you can close and take the final money as a capital distribution (this used to be ESC C16, but that no longer exists). This has the benefit of being treated as a capital gain, on which you can get Entrepreneur's Relief to take the overall tax down to 10% - plus you get your annual CGT allowance.

If you have more than £25,000 you'd need a formal liquidation, and that will cost a few thousand. Whether or not it's worth it will depend on far over £25,000 you are, because on lower amounts the professional fees will outweigh the tax saved.

You also need to consider your income in the current tax year. If your perm salary is less than £42,000 there may be some scope to take a basic rate dividend before closing.

Of course you could also decide to leave the company open for a year with a view to taking a whole year off in future, in which case the retained profits could be paid out as basic rate dividends then too. This is cheaper tax-wise than a capital gain, providing the dividends remain basic rate (so no other income in that tax year).

[JamJarST]

I have a limited company which I have contracted through for 9 years, which has a few Ks sitting in it.

Due to various circumstances, including the poor state of the market in my sphere, I have decided to go permanent, and have just today received a permanent contract.

I fully intend to move back to contracting work at a suitable moment in 1+ years.

Now, my question is this:

Should I close my limited company and take all the cash? Then start a new company when I return to contracting. My initial thought is that this will actually cost more time and money than keeping it open. Is it possible to pay myself a regular dividend from the Ltd even though it will have no current income? Any thoughts?

Does your new employere know you are only going to stay for a year?