Reply to: How to Close Down My Ltd

[WTFH]

What about if I had not taken a dividend for longer than i normally would have, so in effect I had delayed paying a dividend simply because I did not know what the rules were.

What do you mean by "longer than I normally would have"?
Are we talking previous tax year? After the year end accounts have been submitted?
Or is it just about timing and amount for this tax year?

You're being a bit too vague to give a reasonable answer.

[Snooky]

I had delayed paying a dividend simply because I did not know what the rules were

Not knowing what the rules are isn't an excuse a company director can really use. If HMRC see that they might get all curious about what other aspects of company or personal taxation you didn't know the rules of....

[Maslins]

Depends what you're happy justifying if pushed. "I only realised late that it didn't suit my tax situation too well" isn't a valid reason IMHO.

In your shoes I think something like a late pension contribution would be more readily justified IMHO. If you have a pension set up, and not yet done final CT return etc, may be worth considering.

[MikhailCompo]

The theory is that there's two separate things, which should be based around facts rather than personal choice:
- distributed funds whilst the company was trading, which will be taxable as dividends.
- distributed funds taken in anticipation of/as part of company closure, which will be taxable as capital gains (subject to £25k cap for strike offs).

Whether you'd get caught is of course (as always) another matter, but legally you'd be on shaky ground if you had (say) £30k retained profit, ceased trading a month earlier, take £6k today and call it a dividend, then take £24k tomorrow calling it withdrawal as part of winding up.

(yeah appreciate that's not a citation, I never was one for remembering specific bits of the tax legislation...but FWIW I back up craigy1874 on this)

What about if I had not taken a dividend for longer than i normally would have, so in effect I had delayed paying a dividend simply because I did not know what the rules were.

So now I am better informed, if i take a divdend today for say 5k and close my business in probably March ish, would that be a real problem for me?

What i am trying to say is i think i am roughly on the threshold, so i dont want to pay for a liquidator unecessarily. It boils down to what my tax burden is at present (delayed year end accounts being processed v soon by accountant), as well as the value of a few assets. I dont want to get to March and find i have like £26k, that seems like the a worst case to me.

[craigy1874]

The theory is that there's two separate things, which should be based around facts rather than personal choice:
- distributed funds whilst the company was trading, which will be taxable as dividends.
- distributed funds taken in anticipation of/as part of company closure, which will be taxable as capital gains (subject to £25k cap for strike offs).

Whether you'd get caught is of course (as always) another matter, but legally you'd be on shaky ground if you had (say) £30k retained profit, ceased trading a month earlier, take £6k today and call it a dividend, then take £24k tomorrow calling it withdrawal as part of winding up.

(yeah appreciate that's not a citation, I never was one for remembering specific bits of the tax legislation...but FWIW I back up craigy1874 on this)

Thanks for replying to that Maslins and for backing me up

[wattaj]

The theory is that there's two separate things, which should be based around facts rather than personal choice:
- distributed funds whilst the company was trading, which will be taxable as dividends.
- distributed funds taken in anticipation of/as part of company closure, which will be taxable as capital gains (subject to £25k cap for strike offs).

Whether you'd get caught is of course (as always) another matter, but legally you'd be on shaky ground if you had (say) £30k retained profit, ceased trading a month earlier, take £6k today and call it a dividend, then take £24k tomorrow calling it withdrawal as part of winding up.

(yeah appreciate that's not a citation, I never was one for remembering specific bits of the tax legislation...but FWIW I back up craigy1874 on this)

Thanks, I appreciate the clarification. Timing is clearly an important consideration. Noted.

[Maslins]

Citation?

The theory is that there's two separate things, which should be based around facts rather than personal choice:
- distributed funds whilst the company was trading, which will be taxable as dividends.
- distributed funds taken in anticipation of/as part of company closure, which will be taxable as capital gains (subject to £25k cap for strike offs).

Whether you'd get caught is of course (as always) another matter, but legally you'd be on shaky ground if you had (say) £30k retained profit, ceased trading a month earlier, take £6k today and call it a dividend, then take £24k tomorrow calling it withdrawal as part of winding up.

(yeah appreciate that's not a citation, I never was one for remembering specific bits of the tax legislation...but FWIW I back up craigy1874 on this)

[wattaj]

Pretty sure you can't just declare dividends to get assets below £25k then use a capital distribution.

Citation?

[craigy1874]

2) You should be considering what fair market value is for each asset at cessation. If at their current age they're worth £tens, definitely ok to consider them scrapped. If they're still worth £thousands, I'd suggest not. If it's £low hundreds you can probably get away with it (ie not that unreasonable to consider scrapped).

I'm part owner of MVL Online, you should be able to find them and their fees easily enough from Google.

Pretty sure you can't just declare dividends to get assets below £25k then use a capital distribution.

[Maslins]

2) I got the laptop in April but some types of IT kit appear to be written off after a year and other things three years judging by my accountants software. What/where are the rules on writing off assets?
3) Significantly nearer 26k!!!
4) Doh!

Thanks, really helpful. How much do you change for company closures?

2) You should be considering what fair market value is for each asset at cessation. If at their current age they're worth £tens, definitely ok to consider them scrapped. If they're still worth £thousands, I'd suggest not. If it's £low hundreds you can probably get away with it (ie not that unreasonable to consider scrapped).

I'm part owner of MVL Online, you should be able to find them and their fees easily enough from Google.

[MikhailCompo]

1) Yes. It would be the company's final net asset position that's critical. This will include all assets, so fixed ones (like the things you mention), as well as cash at bank, and any possible debtors, but then deducting any liabilities.
2) Yes...but would need to be reasonable. Eg if you bought a £2k laptop a month ago which you want to keep privately going forwards, then writing it off at this stage would not be reasonable.
3) Yes, though that will have personal tax consequences. If you're at £26k net assets, this may well be a good idea. If you're at £100k net assets, it probably isn't.
4) Short answer - don't do it.

2) I got the laptop in April but some types of IT kit appear to be written off after a year and other things three years judging by my accountants software. What/where are the rules on writing off assets?
3) Significantly nearer 26k!!!
4) Doh!

Thanks, really helpful. How much do you change for company closures?

[Maslins]

I have been told that if i am over 25k then i must appoint and pay for a liquidator

1) Does this threshold include assets? (I bought a printer, a scanner, laptop and a high spec PC last year)
2) Is there a way to write off assets value?
3) Can I simply pay a large dividend to bring me under the 25k threshold?
4) ...Is it a bad idea to buy a decent office chair (£500 ish) right before I close the business?! Mine is shagged and i should have replaced it ages ago.

1) Yes. It would be the company's final net asset position that's critical. This will include all assets, so fixed ones (like the things you mention), as well as cash at bank, and any possible debtors, but then deducting any liabilities.
2) Yes...but would need to be reasonable. Eg if you bought a £2k laptop a month ago which you want to keep privately going forwards, then writing it off at this stage would not be reasonable.
3) Yes, though that will have personal tax consequences. If you're at £26k net assets, this may well be a good idea. If you're at £100k net assets, it probably isn't.
4) Short answer - don't do it.

[Fred Bloggs]

Because of phoenixing rules. If you contract again within 2 years then HMRC can claim you are just using CGT as didguised renumeration. It used to be quite a good thing, close limited and re-open every 3 years or so.

What BP says +1. In fact regarding the wrap up and start again every three years model, some of us can still remember when SJD's website used to advertise/promote that as a tax efficient benefit of incorporation. They had the diferent scenarios illustrated in their website blurb. How times have changed.

[BrilloPad]

Why do you say 2 years. Is that a financial consideration regarding my company or tax/entrepreneurs relief related?

Because of phoenixing rules. If you contract again within 2 years then HMRC can claim you are just using CGT as didguised renumeration. It used to be quite a good thing, close limited and re-open every 3 years or so.

[MikhailCompo]

As long as you are going permie for more than 2 years

Why do you say 2 years. Is that a financial consideration regarding my company or tax/entrepreneurs relief related?