Reply to: MVL and ER - Substantial Cash in the company

[Drei]

I think the phrase you are looking for is

Only the Little People Pay Taxes - The Atlantic

You know what I mean, us poor tulips do, not the %11 that control %90 of the world economy.

Funny enough, I was looking at the US tax code, and the more you earn the less you pay, compared to UK.
Tax Brackets & Rates for Each Income Level (2019-2020)

I would love to be on £150k a year salary and pay %24 tax... hell yeah. Actually, you might pay less then %24 due to each bracket, didn't work it out fully but it would be more like %17 tax on £150k.

Plus everything is so much cheaper, so your buying power is greater, leaving you with a lot more cash in your pocket, better quality of life. And before you mention the NHS, with %17 tax I would happily pay another %10 to have the best healthcare in the world take care of me when I need it. Then again, medicare in the US is cheaper than our NHS contribution on couples and families. Only time it isn't, is if you are single (I think), unemployed or have a low paying job

[northernladuk]

Only poor people pay taxes after all.

I think the phrase you are looking for is

Only the Little People Pay Taxes - The Atlantic

[Drei]

I am sorry but if you don't care what happens to or in the UK and leave the country, especially with Brexit... why not take everything and go? Don't even close the company, just let it be and resign as Director. It will probably be years before they look into it. I have seen a few companies out there selling their business that have not paid corp tax, vat etc for 3+ years.

Sorry to state the most stupid thing but if I left the country I wouldn't look back, unless you plan to come back and depending where you go to? I will assume that if you need a visa in the UK, you are not from EU? Even more reasons not to care.


Can you not open a company in whichever country you go to then invoice yourself %80-%100 of the sum you are sitting on, or "invest" it there to "expand" your business? Open an offshore account somewhere in Panama or whatever?

It all depends on what the "substantial" sum is, some think £100k is a lot, others would say you need to be in the over £500k or closer to 1 mill or even over that. If you do have that much cash just go talk to a tax advisor, might be worth doing so in the country you go to as well see what they say, you could transfer the money there (investment, salary, dividend etc) then see what taxes liabilities you have to pay there.

If Google, Amazon and what not do it, I am sure you can find a way too. Only poor people pay taxes after all.


P.S. I am not in any way encouraging people not to pay their dues, but if the UK turned on you, ie you are being kicked out, of had some personal reasons or whatever, who cares about morals. After all you want to take as much with you and pay as little as possible. Go find someone that can do that for your, plenty of rich people do it, plenty of criminals do it. I don't know how and most people on this forum won't either... but if there is a will there is a way.

[WordIsBond]

Thanks for the info above guys - I'm in a similar situation - although not emigrating.

Husband and wife company (both working for the company - in reality, not just for tax reasons - we met at work!) and been doing the usual smallish salary, biggish dividends, leave rest in company approach. Wife is stopping (doing her PhD and recently got funding) and I'm about to take up a PAYE position in a 3rd party company - which should be for a couple of years at least.
As such our situation has changed, and it makes sense to wind up the company.

We're a bit concerned about "moneyboxing" - which I assume our 'defense' is that we were keeping the money there to be able to continue paying salaries if no more work came in (which is hasn't for several months/ a year or so). Do we even have to have a 'defense'?

Three things that are holding us back from MVL right now:
1. We have some business savings (about £80k) in fixed deposits which are locked up til October 2020; majority is in instant savings accounts (about £200k)
2. We may have one final invoice for some work just before I start the PAYE job -- (i.e. they can't employ me until a change of ownership, so will contract in until then) - how soon after that invoice can/should we MVL? (alternatively could put it through another avenue - see below)
3. I also have another close company (just me) that has investments in a few startups and some cash - it employed me several years ago, but not for 3-4 years, and has not invoiced/traded in that time but cannot be wound up because of those investments. Does just having that company cause an issue?

My ideal would be to MVL the trading co as soon as possible after the final invoice.

Only other option I guess is to just hold the money there for the foreseeable future... won't even be able to distribute it without paying lots of tax. Wait for the day that we retire/lose-jobs/emigrate and start it back up then?

What kind of penalty would you pay to withdraw the fixed term savings early? Because it could be a pittance compared to what you lose if the option to MVL is removed in the Autumn Budget Statement. FWIW.

[richjdavies]

Thanks for the info above guys - I'm in a similar situation - although not emigrating.

Husband and wife company (both working for the company - in reality, not just for tax reasons - we met at work!) and been doing the usual smallish salary, biggish dividends, leave rest in company approach. Wife is stopping (doing her PhD and recently got funding) and I'm about to take up a PAYE position in a 3rd party company - which should be for a couple of years at least.
As such our situation has changed, and it makes sense to wind up the company.

We're a bit concerned about "moneyboxing" - which I assume our 'defense' is that we were keeping the money there to be able to continue paying salaries if no more work came in (which is hasn't for several months/ a year or so). Do we even have to have a 'defense'?

Three things that are holding us back from MVL right now:
1. We have some business savings (about £80k) in fixed deposits which are locked up til October 2020; majority is in instant savings accounts (about £200k)
2. We may have one final invoice for some work just before I start the PAYE job -- (i.e. they can't employ me until a change of ownership, so will contract in until then) - how soon after that invoice can/should we MVL? (alternatively could put it through another avenue - see below)
3. I also have another close company (just me) that has investments in a few startups and some cash - it employed me several years ago, but not for 3-4 years, and has not invoiced/traded in that time but cannot be wound up because of those investments. Does just having that company cause an issue?

My ideal would be to MVL the trading co as soon as possible after the final invoice.

Only other option I guess is to just hold the money there for the foreseeable future... won't even be able to distribute it without paying lots of tax. Wait for the day that we retire/lose-jobs/emigrate and start it back up then?

[WordIsBond]

It's by no means certain that a different country would view an MVL as capital gains, rather than dividend, anyway. Every country will have its own rules as to what constitutes capital gains.

OP, if there is any possibility of returning to the UK in the coming years, it may be worth just doing MVL. Otherwise, you could get clobbered on return. If you claim ER you pay love 10% for peace of mind that there's never a problem.

If you really think there's no possibility of returning, I personally would wait until residency is established overseas, then just take dividends (after confirming there really is no tax on dividends). And then I'd take 45% of that amount and put it into savings. You really ought to be able to live on 55% of it for five years, even if you don't have any other income. And at the end, you can then use the 45%, too.

But that way, if you find for some reason you really must come back, at least you have the money to pay the tax if you get hit with it.

[awll25]

What about capital gains tax in a new country?

Are you 100% clear on tax residency rules in a new country?

If you leave in a few month, there is a high chance you will become tax resident of a new country (possibly backdated to the start of tax year) before first capital distribution takes place.

Then you will be taxed on capital gains in both UK and a new country.

Given the amount of money - search professional tax advice in both UK and a new country ASAP.

There is no capital gains tax in the new country.

[Kugel]

The country I’m going to has no dividend tax I believe.

What about capital gains tax in a new country?

Are you 100% clear on tax residency rules in a new country?

If you leave in a few month, there is a high chance you will become tax resident of a new country (possibly backdated to the start of tax year) before first capital distribution takes place.

Then you will be taxed on capital gains in both UK and a new country.

Given the amount of money - search professional tax advice in both UK and a new country ASAP.

[jamesbrown]

On the non resident route, My understanding is U.K. source income must pay U.K. taxes, even for non-residents. So if I were to be a non-resident of the U.K., any dividend received from my company will still need to be taxed in the U.K.

Nope. Not once you are non-resident, but notwithstanding the temporary non-residence rules (if you are temporary non-resident, you will be taxed on the full amount in the tax year you return). In other words, it cannot be a tax dodge.

[awll25]

Agree with most of what jamesbrown has said in this thread.

If you are indeed going to a country where there's zero tax on dividends (do triple check this as you misunderstanding things here could be a very expensive mistake to make), then potentially you could forget the MVL, just take all as dividends once you're confident your tax residency is the new place. You do also need to ensure you don't return to the UK for >5 years.

Otherwise, an MVL likely could be a good option for you. Whilst I agree the deliberate investments aren't going to help your case with regards to ER, it sounds like it's only ~10% of your assets, and income from it has been trivial. Also I'm assuming there's been negligible expenditure directly related to it, nor have you spent that much time on the investment side (relative to trading). Therefore on balance you're likely to still pass the majority of the 20% tests.

The reality is pretty much every single ex contracting company going through MVL Online will have had a cash balance well in excess of their working capital needs. Ie even if just sitting in a deposit account, it could be considered an investment asset rather than a trading one. However, that still means whilst maybe one of the 20% tests is failed, the others are almost always still passed with flying colours. See here for further info on that.

On the non resident route, My understanding is U.K. source income must pay U.K. taxes, even for non-residents. So if I were to be a non-resident of the U.K., any dividend received from my company will still need to be taxed in the U.K.

[Maslins]

Maslins/Chris, what about the large amount of funds in his case? Would that be subject to or the cause of additional scrutiny from HMRC?

I guess HMRC will likely look a bit more closely at personal tax returns with £800k receipts than those with £80k...but in itself it shouldn't pose a problem. Remember the lifetime cap for ER is currently £10m, so even ~£800k (which would be very much at the larger end of what we get involved with) still is arguably small fry in the grand scheme of ER.

[jamesbrown]

Just be careful on dates, dividends will still be taxable in the UK in a split year, so you need to make sure you declare them in a year you are fully non-resident in the UK.

Right, need to be super careful with this and with the temporary non-residence rules if going down this route. As Chris notes above, any mistake here could be expensive.

[ChimpMaster]

Maslins/Chris, what about the large amount of funds in his case? Would that be subject to or the cause of additional scrutiny from HMRC?

[craigy1874]

Just be careful on dates, dividends will still be taxable in the UK in a split year, so you need to make sure you declare them in a year you are fully non-resident in the UK.

[Maslins]

Agree with most of what jamesbrown has said in this thread.

If you are indeed going to a country where there's zero tax on dividends (do triple check this as you misunderstanding things here could be a very expensive mistake to make), then potentially you could forget the MVL, just take all as dividends once you're confident your tax residency is the new place. You do also need to ensure you don't return to the UK for >5 years.

Otherwise, an MVL likely could be a good option for you. Whilst I agree the deliberate investments aren't going to help your case with regards to ER, it sounds like it's only ~10% of your assets, and income from it has been trivial. Also I'm assuming there's been negligible expenditure directly related to it, nor have you spent that much time on the investment side (relative to trading). Therefore on balance you're likely to still pass the majority of the 20% tests.

The reality is pretty much every single ex contracting company going through MVL Online will have had a cash balance well in excess of their working capital needs. Ie even if just sitting in a deposit account, it could be considered an investment asset rather than a trading one. However, that still means whilst maybe one of the 20% tests is failed, the others are almost always still passed with flying colours. See here for further info on that.