Reply to: MVL alternative?

[rascal]

It's hard to read your posts when in one you mention "salary" on its own, then next post you refer to salary, expenses, pension and dividends as all being part and parcel of the same thing.

No, it's not really. You just seem to have difficulty following the thread of the conversation.

My first post was in reply to this question:

Is there a legal reason why I cannot run the business for several more years and continue to pay myself salary, dividends (*capped at base-rate) and expense pension contributions while having no turnover?

In response to that I described the advice I was given by my accountant when I found myself in a similar situation.

And when the accountant said to you about you having stopped trading, did you explicitly correct them and say no, you were looking for new work?

No, because I didn't presume to know more about what stopping trading meant than my trained and qualified accountant, and their definition of stopping trading was when there was no more revenue being generated.

[WTFH]

I think you have read too much between the lines of my post. I never asked the accountant the question you implied.

It's hard to read your posts when in one you mention "salary" on its own, then next post you refer to salary, expenses, pension and dividends as all being part and parcel of the same thing.

It was the accountant who described the company as having "stopped trading" when it is not generating any income i.e without a contract.

"Ceased trading" was never mentioned and requires a formal decision to wind down the company.

And when the accountant said to you about you having stopped trading, did you explicitly correct them and say no, you were looking for new work?

[Lance]

"Ceased trading" was never mentioned and requires a formal decision to wind down the company.

No it doesn't.

cessation of trade is not the same as, nor does it require, the company to be wound up (it's up not down).

Details are important as these words have legal meaning and definitions.

[rascal]

That's what I mean - HE talked about his company stopping trading (i.e. ceasing trading) and HE says that's the same as not having a contract.

A company ceases trading when it makes the formal decision to. My concern is that he has asked his accountant using the term "stopped" or "ceased" trading, when he just means he's not got a contract.

I think you have read too much between the lines of my post. I never asked the accountant the question you implied.

It was the accountant who described the company as having "stopped trading" when it is not generating any income i.e without a contract.

"Ceased trading" was never mentioned and requires a formal decision to wind down the company.

[WTFH]

@WTFH are you sure that a company ceases trading when it doesn't have a contract.

Surely to actually cease trading requires a formal decision...

That's what I mean - HE talked about his company stopping trading (i.e. ceasing trading) and HE says that's the same as not having a contract.

A company ceases trading when it makes the formal decision to. My concern is that he has asked his accountant using the term "stopped" or "ceased" trading, when he just means he's not got a contract.

[Lance]

@WTFH are you sure that a company ceases trading when it doesn't have a contract.

Surely to actually cease trading requires a formal decision...

This ^^^^^
and there are rules around that decision and what HMRC consider to be reasonable.

[eek]

@WTFH are you sure that a company ceases trading when it doesn't have a contract.

Surely to actually cease trading requires a formal decision...

[WTFH]

OOK, you went from this:

People here are always saying speak to your accountant.
Well, my accountant said I shouldn't be drawing a salary if the company isn't trading i.e. company has no revenue due to me being out of contract.
I'll be interested to see what the comments in this thread have to say about it.

To this:

There are no unusual circumstances. The company had ample retained profit to pay salary and dividends, but the accountant advised most expenses are only allowed if they relate to trading, and the company stops trading from the point it stops generating income.

They also advised that an employer pension contribution could not exceed operating profit in the year the contribution was made, otherwise the excess would be disallowed for corporation tax.

So if the OP was using the same accountant as myself, they would presumably be advised that they should not take a salary, would not be able to make employer pension contributions (as there would be no operating profit), but could continue taking dividends (which come from retained profit).

Spot the difference?
Salary is not the same as salary + dividends + pension + expenses.

Now, do you know the difference between a company that has ceased trading and one where it does not currently have an active contract?
If the company has ceased trading, then it should not be incurring any expenses apart from those required to keep it ticking over - e.g. accountant, etc.
If the company is just "between contracts", then it can continue to incur expenses related to it getting business, and continue to pay salaries, etc. BUT, an accountant who can see the company's books may advise for reducing outgoings particularly if they feel there are not enough funds to pay VAT & CT bills, etc.

So, sometimes the accountant answers the question you asked but that wasn't the question you meant, and sometimes the advice you get on an internet forum is based on the limited information and words you post.

[northernladuk]

No actually - they work for a well-known firm of accountants specializing in IT contractors.

The point I'm wishing to make is that simply asking your accountant doesn't always get you the best advice. There seems to be a lot of room for "interpretation" of the accounting standards, whereas I think it should be fairly clear-cut what you can and can't do in any particular situation.

I'd like to know if the advice regarding expenses is actually true, as I would have liked to continue taking a salary and buying some pieces of equipment, like a new laptop.

I think buying pieces of equipment such as a laptop for a business you are running down is a bit on the iffy side. Yes you might need a laptop to carry out your basic directors duties but that's a bit thin
and it's not going to look great if you are buying business equipment when you are not actually doing any more business. Don't let the tax tail wag the dog. It's not free at the end of the day, just discounted.

I do think the salary is justfiable as your duties as a director don't go away and it's only 9k a year. Sounds fine to me that.

But, as a rule of thumb, if you are approaching a situation that is a bit wooly with no clear answer, don't take the piss.

[northernladuk]

It wasn't pointless - it would have allowed him to extract the money for himself and then he could have used it to lend a new (second) company money to purchases the BTL properties he continually is trying to extract money out of.

If he had done things sensible in the first place all the income from those properties would be tax free (up to the point the original loans from him to the company had been repaid).

However, he didn't do that so is now testing any hare brained scheme he can come up with to see if it will work - and the last one has a humdinger that he missed for he isn't as bright as he thinks he is.

Yes indeed but what I meant his advice on wishing he'd taken MVL was pointless as his situation is completely different. I maybe should have said irrelevant. But +1 to the rest.

[rascal]

Wow. Local accountant?
Have you asked for a second opinion from someone else in the same practise?

No actually - they work for a well-known firm of accountants specializing in IT contractors.

The point I'm wishing to make is that simply asking your accountant doesn't always get you the best advice. There seems to be a lot of room for "interpretation" of the accounting standards, whereas I think it should be fairly clear-cut what you can and can't do in any particular situation.

I'd like to know if the advice regarding expenses is actually true, as I would have liked to continue taking a salary and buying some pieces of equipment, like a new laptop.

[eek]

Wow. Local accountant?
Have you asked for a second opinion from someone else in the same practise?

I'd be changing accountant...

[Lance]

There are no unusual circumstances. The company had ample retained profit to pay salary and dividends, but the accountant advised most expenses are only allowed if they relate to trading, and the company stops trading from the point it stops generating income.

They also advised that an employer pension contribution could not exceed operating profit in the year the contribution was made, otherwise the excess would be disallowed for corporation tax.

So if the OP was using the same accountant as myself, they would presumably be advised that they should not take a salary, would not be able to make employer pension contributions (as there would be no operating profit), but could continue taking dividends (which come from retained profit).

Wow. Local accountant?
Have you asked for a second opinion from someone else in the same practise?

[rascal]

Or you need to provide the relevant details that he used to provide that advice.

There are no unusual circumstances. The company had ample retained profit to pay salary and dividends, but the accountant advised most expenses are only allowed if they relate to trading, and the company stops trading from the point it stops generating income.

They also advised that an employer pension contribution could not exceed operating profit in the year the contribution was made, otherwise the excess would be disallowed for corporation tax.

So if the OP was using the same accountant as myself, they would presumably be advised that they should not take a salary, would not be able to make employer pension contributions (as there would be no operating profit), but could continue taking dividends (which come from retained profit).

[Lance]

MVL alternative?

People here are always saying speak to your accountant.
Well, my accountant said I shouldn't be drawing a salary if the company isn't trading i.e. company has no revenue due to me being out of contract.
I'll be interested to see what the comments in this thread have to say about it.

It depends on whether the company is solvent and can afford the salary. If it is, and it can, then it should (assuming no other salary).

Sounds like you need a new accountant. Or you need to provide the relevant details that he used to provide that advice.

Paying a salary makes the company trading in any case. So what makes you think it’s not trading? Just having no revenue right now is not the same as “not trading”. For a start I only invoice every 4 weeks and that doesn’t make me not trading for the 3 intervening weeks.