Reply to: Members Voluntary Liquidation

[pr1]

Apologies for resurrecting an old thread but I've just been forwarded the following which I a direct lift from the firm's website

"At XXX, we are always on the look out for opportunities for company directors to close their current company and start a new one, Why? Because of tax saving opportunities of course, which HM Government have made available to you, in the right circumstances, since 2008. How does it work?

If you close down your current company and start a new one, the funds that are left in the company after it ceases to trade and after all third party liabilities have been allowed for are available to the shareholder(s). These funds are treated in effect as the proceeds from the disposal of your shares. They do not need to be regarded as dividends when they are extracted from the company.

Take an example, assume that you have taken all that you can from the company without paying any higher rate tax, and that after 2 years, there are £50000 of funds sitting in the company, yours for the taking, but how do you do this? If you took them as dividends, the tax on £50000 would be £16000 and more. If you instead close down the company, the proceeds are currently received as a capital gain under “Entrepreneurs Relief”. Normally, when you have a capital gain, the first £11000 (currently) of gain is tax-free and you pay tax at 18% or 28% dependant on whether you are a higher rate taxpayer on your other earnings for the year. Under Entrepreneurs relief, the rate of tax is 10%. Therefore, the capital gains tax you pay would be about £4000, a saving of £12000, a no brainer! All totally above board, and you are fully keeping your head below the “Revenue parapet”. We have closed down over 500 companies this way and saved the shareholders of the order of £4-5 million."

i bet jimmy carr's approach email was just as upbeat

[Alan @ BroomeAffinity]

@Alan I know a few firms who recommend that, indeed have done for over a decade (so nothing to do with ESC C16 changes). My understanding is it's less about the benefit of CGT treatment on close down, more about minimising exposure to IR35. Obviously a questionable tactic...but theory is it means HMRC can only ever go back a couple of years with any IR35 claim, so risk is reduced.

Apologies for resurrecting an old thread but I've just been forwarded the following which I a direct lift from the firm's website

"At XXX, we are always on the look out for opportunities for company directors to close their current company and start a new one, Why? Because of tax saving opportunities of course, which HM Government have made available to you, in the right circumstances, since 2008. How does it work?

If you close down your current company and start a new one, the funds that are left in the company after it ceases to trade and after all third party liabilities have been allowed for are available to the shareholder(s). These funds are treated in effect as the proceeds from the disposal of your shares. They do not need to be regarded as dividends when they are extracted from the company.

Take an example, assume that you have taken all that you can from the company without paying any higher rate tax, and that after 2 years, there are £50000 of funds sitting in the company, yours for the taking, but how do you do this? If you took them as dividends, the tax on £50000 would be £16000 and more. If you instead close down the company, the proceeds are currently received as a capital gain under “Entrepreneurs Relief”. Normally, when you have a capital gain, the first £11000 (currently) of gain is tax-free and you pay tax at 18% or 28% dependant on whether you are a higher rate taxpayer on your other earnings for the year. Under Entrepreneurs relief, the rate of tax is 10%. Therefore, the capital gains tax you pay would be about £4000, a saving of £12000, a no brainer! All totally above board, and you are fully keeping your head below the “Revenue parapet”. We have closed down over 500 companies this way and saved the shareholders of the order of £4-5 million."

[Maslins]

I know of contractors that do this.

Yup, and a few who do it to keep off the radar for IR35 too (you'll never be too juicy a target if there's only 1-2 years worth).

[Sausage Surprise]

Is "I am trying to evade the two year rule" not valid?

I know of contractors that do this.

[Maslins]

Nothing to stop you doing that but you're not stopping contracting so ER can't be claimed.

I think if HMRC were to argue that whilst the company may have been closed the underlying business continued to trade, then ER wouldn't be relevant as the distributions would be taxed as dividends rather than via CGT.

[Alan @ BroomeAffinity]

What about closing the company for personal reasons i.e. you've split up with the wife who happens to a 40% shareholder and you want to sever all ties (just in case).

Nothing to stop you doing that but you're not stopping contracting so ER can't be claimed.

[BrilloPad]

I'm retiring and not going to start again.
I'm stopping this business but will start something completely different.
I'm going permie.

Is "I am trying to evade the two year rule" not valid?

[TheFaQQer]

Hmm..
Any suggestions for a valid reason then?

I'm retiring and not going to start again.
I'm stopping this business but will start something completely different.
I'm going permie.

[Maslins]

What about closing the company for personal reasons i.e. you've split up with the wife who happens to a 40% shareholder and you want to sever all ties (just in case).

As has been said before, this is all untested, so I don't think any of us can give much more than a personal opinion. However I think what you've suggested would be sound.

Yes, hypothetically your wife could transfer her 40% shareholding to you, but if you're splitting up, it's not hard to imagine that she might not be particularly inclined to make your life easy. A liquidation is a reasonable way of getting a third party involved to ensure finality on the company, and to an extent, ensure shareholders are treated fairly.

However, if shortly after the liquidation you reconciled with your wife, made her a 40% shareholder in the new company, then you repeated the situation a couple of years later.....!

[jamesbrown]

Hmm..
Any suggestions for a valid reason then?

That you're going to stop contracting and have no immediate intention of continuing in substantively the same vein at any time in the future?

[Sausage Surprise]

Then you can't claim ER.

IANAA.

Hmm..
Any suggestions for a valid reason then?

[TheFaQQer]

What about closing the company for personal reasons i.e. you've split up with the wife who happens to a 40% shareholder and you want to sever all ties (just in case).

Then you can't claim ER.

IANAA.

[Sausage Surprise]

Can you answer following the question honestly with "yes"?

I am intending to close down those company and start a new one for commercial reasons rather than gain a tax advantage?

What about closing the company for personal reasons i.e. you've split up with the wife who happens to a 40% shareholder and you want to sever all ties (just in case).

[alphadog]

... it's untested in the courts...

If I was a cowboy, I would say go for it.

You probably have a better chance of being struck by lightening twice than having HMRC go after you as the first ever case of someone being accused of gaining a tax advantage via a MVL.

But I'm not a cowboy, so it's up to you.

[Maslins]

@the OP my view is in line with others I'm afraid. Is there any non-tax motivated reason for the closure?

@Alan I know a few firms who recommend that, indeed have done for over a decade (so nothing to do with ESC C16 changes). My understanding is it's less about the benefit of CGT treatment on close down, more about minimising exposure to IR35. Obviously a questionable tactic...but theory is it means HMRC can only ever go back a couple of years with any IR35 claim, so risk is reduced.