Hypothetical MVL and Dividend scenario

[Maslins]

One additional thing to query is would dividends actually be allowed ? My , albeit limited, understanding is that dividends need to be explicitly declared. If there was a liquidation, these wouldn't be be available. Unless missing something

Distributions would be formally declared by the liquidator...it's just that you starting a new company soon after could mean the personal tax impact of those distributions is to treat them as dividends rather than CGT.

[northernladuk]

If your company year end is different to personal tax year isn't that going to cause problems if the timings fall wrong?

[ahspooner]

One additional thing to query is would dividends actually be allowed ? My , albeit limited, understanding is that dividends need to be explicitly declared. If there was a liquidation, these wouldn't be be available. Unless missing something

[ahspooner]

This exactly, it's just about knowing all of the options and implications of every option. As you've rightly said it would be a crazy option to intentionally do this.

Doubtful. What would he gain by going MVL now if he intends to turn it all into dividends in November? How dumb would that be?

So he's just wanting to know if he's burned his bridges in going MVL, or if he could go back to working through a Ltd by converting it all to divs.

As Gollum would have said, the hobbit (that's you) has a nasty suspicious mind.

[WordIsBond]

The OP's hypothetical situation is very exact and very hypothetical. He wouldn't be asking this based on an idea he's had and a plan is forming?

Doubtful. What would he gain by going MVL now if he intends to turn it all into dividends in November? How dumb would that be?

So he's just wanting to know if he's burned his bridges in going MVL, or if he could go back to working through a Ltd by converting it all to divs.

As Gollum would have said, the hobbit (that's you) has a nasty suspicious mind.

[northernladuk]

The OP's hypothetical situation is very exact and very hypothetical. He wouldn't be asking this based on an idea he's had and a plan is forming?

[WordIsBond]

You might be able to still attempt to claim the CGT/ER in your proposed situation...but I'd be 50:50 on whether that would succeed.

My guess is that 6 months would be challenged by HMRC, but 18 months probably wouldn't be -- again, if it were a genuine redundancy. You can't predict against a redundancy 18 months in advance. Best not get fired with cause and then start a new Ltd anytime in the 24 months, though.

Of course, if you are made redundant after 6 months there's no guarantee you can find a contract that will allow you to use a PSC.

[Maslins]

Let's say I went MVL and the distributions arrived in April/May, and then for whatever reason I was fired/made redundant in November time.

Could I then recreate a new limited company and trade via that, on the condition that I claimed the distributions from the MVL as dividends on my self assessment, rather than Entrepreneurs Relief /Capitals Gains? I'm assuming TAAR wouldn't apply then, as there was no tax advantage gained. I know this wouldn't be tax efficient in the slightest, but it's purely looking at this from a contingency/worst case scenario perspective.

Yes, that would be fine. As you suggest, wouldn't be very tax efficient. You'd have paid for an MVL and got the same tax treatment you'd have got if either you struck the company off or kept it running.

You might be able to still attempt to claim the CGT/ER in your proposed situation...but I'd be 50:50 on whether that would succeed. Ie your argument might be that you genuinely thought the permanent role would be permanent (or at least years rather than months). If it was a genuine redundancy/firing, rather than your choice (and you didn't deliberately do anything with the view to getting yourself fired), then that could potentially support that your intentions were to remain a permie for much longer. If in turn you could then demonstrate that the best opportunity for you was a contract one, you'd be attempting to argue that each step of the way you made the decision that you thought made the most sense, and only circumstances later lead to the conclusion that perhaps liquidating was (in hindsight) not the best option. Some would say this was tenuous, and see it as black and white that restarting within 2 years = automatically caught. I don't think it's that simple...but equally I wouldn't be putting a big bet on you winning any such claim.

However, if you were fine to declare as dividends anyway, you'd have got no personal tax benefit, so unless there's something else significant we're not aware of, nothing for HMRC to challenge.

[ahspooner]

Hi,

I was coming at this from a situation that was out of my control perspective , and not the initial intent, but I hear what youre saying .

In this scenario then it would be a case of umbrella company in the short term I guess.

[northernladuk]

Isn't fudging your books to get the most tax efficient case with no business justification exactly what TAAR is trying to shut down? Just saying like.

[ahspooner]

Hi,

Just a hypothetical scenario.

Let's say I went MVL and the distributions arrived in April/May, and then for whatever reason I was fired/made redundant in November time.

Could I then recreate a new limited company and trade via that, on the condition that I claimed the distributions from the MVL as dividends on my self assessment, rather than Entrepreneurs Relief /Capitals Gains? I'm assuming TAAR wouldn't apply then, as there was no tax advantage gained. I know this wouldn't be tax efficient in the slightest, but it's purely looking at this from a contingency/worst case scenario perspective.