Closing company cost effectively

[Martin at NixonWilliams]

Have a bit of a dilemma; I've been perm for a while and never closed down the company. Currently paying £114/month for nothing; company has zero turnover/income. There's a few tens of thousands sitting around in the company and from all the reading I've done, it looks like I'll get hit at the higher tax rate if I decide to take it out as a result of my perm income.

All in all, net of all CT paid, fees, and now this additional income tax, the contracting work I did looks like it's yielding me around 50% of what was an extraordinarily low rate to begin with... seems all not worth it.

Is there really no better way to close the company and withdraw what's rightfully earned without having to give it all away!!

You will only pay higher rate tax if you withdraw the funds as dividends.

If you qualify for entrepreneurs relief you could withdraw the funds as capital, paying tax at just 10%. The first £11,000 would also be tax free assuming you have no other capital gains in the year.

Your accountant should be able to review your circumstances and advise you of the best way of extracting the funds.

I hope this helps.

Martin

[Martin at NixonWilliams]

Why not max out your pension contribution from your perm salary then take dividend up to the 40% bracket?

Whilst this is sometimes a good idea, I suspect it would take a very large contribution to make this work.

For example, on an £80,000 salary a net contribution of £30,500 would be required just to bring the higher rate threshold in line with the salary. You would therefore need to contribute more than this amount to withdraw the funds from the company tax free.