Reply to: Best process for closing down LTD

[WTFH]

I think you are missing the point. If the company is forced to close for reasons outside of its control and there are sufficient funds to pay redundancies and creditors, why shouldn't the redundancy payments be offset against the CT bill as they would be for any other company?

And what reasons will you make up that are “outside your control”?

[JohntheBike]

If the company directors make the company insolvent without clearing their debts, the directors are responsible. E.g. if you claim to work 3 days a month, but have your wife as a full time employee, then shut the company down while trying to get us tax payers to find your fraud, you’ll not get very far.

I think you are missing the point. If the company is forced to close for reasons outside of its control and there are sufficient funds to pay redundancies and creditors, why shouldn't the redundancy payments be offset against the CT bill as they would be for any other company?

[WTFH]

Clearly this issue needs to be expanded further.

I would assume that statutory redundancy is payed by the state if the employer's company is insolvent and has no funds to pay the redundancy. First, is this the case? Also, if a person receives any redundancy from their employer who is not insolvent, is there a statutory element of this paid by the state?

Reading this case, I don't see the judgement is related to the fact that it was statutory redundancy being claimed. It seems to be related to the fact that the demise of the company was outside the control of the director/employees of the company and as such they were entitled to redundancy payments. Would the judgement, i.e. entitlement to redundancy, have been any different if there had been funds in the company sufficient to pay the redundancies and any creditors?



I've been employed by MyCo for over 23 years, so clearly these issues would need to be explored, if I am presented with an April 2020 situation which is to my detriment.

If the company directors make the company insolvent without clearing their debts, the directors are responsible. E.g. if you claim to work 3 days a month, but have your wife as a full time employee, then shut the company down while trying to get us tax payers to find your fraud, you’ll not get very far.

[JohntheBike]

That case is statutory redundancy, which is only a non-trivial sum if you've been employed somewhere a while. IMO entirely different kettle of fish to ex gratia payments (the up to £30k tax free). When I'm saying the situations are very different it's because of that.

Clearly this issue needs to be expanded further.

I would assume that statutory redundancy is payed by the state if the employer's company is insolvent and has no funds to pay the redundancy. First, is this the case? Also, if a person receives any redundancy from their employer who is not insolvent, is there a statutory element of this paid by the state?

Reading this case, I don't see the judgement is related to the fact that it was statutory redundancy being claimed. It seems to be related to the fact that the demise of the company was outside the control of the director/employees of the company and as such they were entitled to redundancy payments. Would the judgement, i.e. entitlement to redundancy, have been any different if there had been funds in the company sufficient to pay the redundancies and any creditors?

which is only a non-trivial sum if you've been employed somewhere a while.

I've been employed by MyCo for over 23 years, so clearly these issues would need to be explored, if I am presented with an April 2020 situation which is to my detriment.

[Maslins]

That case is statutory redundancy, which is only a non-trivial sum if you've been employed somewhere a while. IMO entirely different kettle of fish to ex gratia payments (the up to £30k tax free). When I'm saying the situations are very different it's because of that.

[JohntheBike]

Hmmm...if you're thinking that the average contractor can say "my client insisted I went PAYE" as a valid reason for paying themselves £30k redundancy, claiming it's personal tax free whilst also getting CT relief, then I think you'll be disappointed. That might not be remotely what you're thinking, but I imagine some people reading this thread will take it that way.

well, the case that I linked to would suggest this.

Granted, individual circumstances would be taken into account, and I my case any possible redundancy payout would not be remotely of the order you suggest. However, I'd be willing to challenge HMRC over the issue, if they could not point to case law which supported their position. Given that so far, the only case law I've been made aware of is not in HMRC's favour, they may just allow it in order to prevent any case being raised in the FTT. This is how HMRC needs to be handled.

A similar strategy works well in the Small Claims Court. If you are already in a detrimental position, then suing in the SCC costs very little and the cost of defending to the respondent is often more expensive than settling the claim. So inevitably, as I've experienced, they settle without prejudice. BTW, I recently secured a CCJ against an agent of HMRC this way in the SCC.

[Maslins]

clearly in your haste to mock me, you fail to see the significance of this case brought in June 2013 which does clarify the issue somewhat, i.e. if the company is forced to close as a result of external issues, then director employees will be entitled to redundancy payments.

Hmmm...if you're thinking that the average contractor can say "my client insisted I went PAYE" as a valid reason for paying themselves £30k redundancy, claiming it's personal tax free whilst also getting CT relief, then I think you'll be disappointed. That might not be remotely what you're thinking, but I imagine some people reading this thread will take it that way.

[JohntheBike]

If we only had someone on the forums that had been to court about this 20 years ago to help you.

clearly in your haste to mock me, you fail to see the significance of this case brought in June 2013 which does clarify the issue somewhat, i.e. if the company is forced to close as a result of external issues, then director employees will be entitled to redundancy payments.

[northernladuk]

If we only had someone on the forums that had been to court about this 20 years ago to help you.

[JohntheBike]

Short answer is "no", I don't see that contractors can claim £30k tax free redundancy from their company (assuming that's what you're considering).

this is why given the mixed opinions I asked if there was any case law that could be referred to, which there is.

The crucial difference from your link is that the controlling director decides to close the company down. The case law lists the situation where outside issues forced the closure of the company. I think this is at the heart of the issue.

[Maslins]

Short answer is "no", I don't see that contractors can claim £30k tax free redundancy from their company (assuming that's what you're considering).

[JohntheBike]

The only tax case that comes to mind was a few years back being The secretary of state for business, innovation and skills vs Knight. In that case, she was MS and sole shareholder claiming redundancy as she'd foregone her wages for a couple of years to try and keep the company afloat. It went through UK EAT and she was successful in her claim.

Your accountant is best placed to advise you on your specific case and circumstance. We don't know if you have a contract of employment, implied contract, what your role is in the company etc etc. They'll know the specifics and if they advised you can, then assume you can?...

Thanks for the response. I guess we both have had implied contracts as we have been employees of MyCo as well as directors since setting up in 1996. I guess as you say it will come down to our specific circumstances and it will depend on HMRC's view at the end of the day. I was just wondering whether or not there had been some recent case law which in effect prevented redundancy being paid. It seems the only case law might be in favour of redundancy being allowed.

Secretary of State for Business, Innovation and Skills v Knight UKEAT/0073/13/RN

I think the crucial statement is -

"the respondent had not brought the contract to an end"

which until I'd seen this judgement was my contention. If the company had ceased trading as a result of issues not under the control of the directors, then any employees of that company, even if they were also directors, should be awarded redundancy payments. I guess the case might be stronger if there were no payout from HMG funds for the redundancies, i.e. the payments were made from company assets, or at least shown as book entries when the company were to be closed down.

[Craig@Clarity]

I know there is conflicting opinion on the issue of redundancy payments when closing down a company, but has there been any recent definitive case law which clarifies the issue? My accountant is advising that my wife and I would be entitled to redundancy payments as we have paid PAYE since setting up the company and the minimum wage for some time.

The only tax case that comes to mind was a few years back being The secretary of state for business, innovation and skills vs Knight. In that case, she was MS and sole shareholder claiming redundancy as she'd foregone her wages for a couple of years to try and keep the company afloat. It went through UK EAT and she was successful in her claim.

Your accountant is best placed to advise you on your specific case and circumstance. We don't know if you have a contract of employment, implied contract, what your role is in the company etc etc. They'll know the specifics and if they advised you can, then assume you can?...

[JohntheBike]

Closing process should be straight forward. Profit being less than £25k, as Chris says, no need for the MVL route. You'd have to wait for your debtors to come in. Once they have paid your company, you'd then need to close the company bank account, transfer the money to yourself. Out of these funds, you'll need to pay for any bills such as corporation tax, PAYE, VAT etc. The accountant should then prepare a final set of accounts for you which will need to be submitted to HMRC. Once HMRC have agreed the final CT bill and you've paid it, you can then submit the striking off for at Companies House. Whilst this is all going on, your accountant should be deregistering you for VAT and PAYE.

How much you get charged by the accountant for doing the job, only they can say. My standard advice would be to always hang on to your company for a few months before going down the closure route just in case you don't like your perm job. That way, you still have a vehicle to jump straight back into should it not work out for you as an employee.

I know there is conflicting opinion on the issue of redundancy payments when closing down a company, but has there been any recent definitive case law which clarifies the issue? My accountant is advising that my wife and I would be entitled to redundancy payments as we have paid PAYE since setting up the company and the minimum wage for some time.

[blueislander]

Yes, if any personal tax has been overpaid, it'll ultimately come back to you personally (never to your accountant!). It'll be entirely up to you whether to retain the services of an accountant once your company has closed and all tax returns have been submitted but probably unnecessary. You'll need them to complete your company closure if you go ahead with it. As it falls into the current tax year, we'd assume you will get them to complete your 2019-20 personal tax return too. If everything is done and dusted for you in this tax year, you can write in the additional information box on your tax return to say that all your income for future tax years is through PAYE and taxed at source. HMRC will then confirm that you don't need to complete any more tax returns unless your circumstances change.

Superb thank you