Reply to: What to do with retained earnings

[SimonMac]

Do you have any other shareholders? Might look a bit sus adding them now but if for example your spouse is already a shareholder it opens up a few other avenues

[css_jay99]

It isn't really about SIC, these are self-assigned.

The problem really only arises w/r to the TAAR/capital distributions in this context. So if you go down that route, you'd better not do anything similar, as a trade, within two years unless you want the capital distribution reclassified. Here, "similar" here means quite vaguely similar too, not exactly the same. Working through an umbrella has been clarified as fine.

Understood. Stay permie/umbrella for at least 2yrs

[jamesbrown]

It isn't really about SIC, these are self-assigned.

You can open as many companies as you want, at the same time or consecutively (assuming it isn't some kind of avoidance sham).

You can also open one company that does many different things.

This is just business.

The problem really only arises w/r to the TAAR/capital distributions in this context. So if you go down that route, you'd better not do anything similar, as a trade, within two years unless you want the capital distribution reclassified. Here, "similar" here means quite vaguely similar too, not exactly the same. Working through an umbrella has been clarified as fine.

[css_jay99]

Do you mean by that you'd like to get all the money out of one Ltd, close it down, open up a new Ltd with an SIC different to the current one, then use it to do similar to what you do today?
That wouldn't be a good idea.

oh no, not close down, Add another flexible SIC code to current one

It isn't entirely clear what you're asking, but I refer you to WTFH's post above. There is no circumventing the TAAR as it applies to capital distributions w/r to you or a connected person being involved with "the same or a similar trade or activity", because it is drafted wisely to your shenanigans.

Sorry, the question was not related MVL/TAAR/distributing dividends. It's likely I will go permanent, an old interview may bear fruit. I also have the opportunity for the odd bit of work from old client which can still go through the Ltd Co which won't be more than 3-4 days a month but will eventually tail off in about a year. I have other ideas about generating a small amount of income (using retained earnings) but not worthy of setting up a separate entity. I've seen 2 scenarios where a contractor's wife used the same company for graphic design work and another wife for importing clothing. Income from those secondary business were less. I never bothered to ask if they used specific sic codes or not.

[jamesbrown]

On subject of non trading, how much leeway do I have regarding additional SIC codes not relating to Contracting that will allow me to continue trading? I would like to continue (some form of ) trade with the ltd company. I have other ideas that could generate income ..... or result in a loss.

It isn't entirely clear what you're asking, but I refer you to WTFH's post above. There is no circumventing the TAAR as it applies to capital distributions w/r to you or a connected person being involved with "the same or a similar trade or activity", because it is drafted wisely to your shenanigans.

[WTFH]

On subject of non trading, how much leeway do I have regarding additional SIC codes not relating to Contracting that will allow me to continue trading? I would like to continue (some form of ) trade with the ltd company. I have other ideas that could generate income ..... or result in a loss.

Do you mean by that you'd like to get all the money out of one Ltd, close it down, open up a new Ltd with an SIC different to the current one, then use it to do similar to what you do today?
That wouldn't be a good idea.

[css_jay99]

I'm afraid HMRC have already cottoned on to that plan and clobbered it. Perhaps Google "TAAR liquidation"/similar, and read what comes up. In short, you'd need to wait at least 2 years between liquidating Oldco and starting Newco, otherwise you'd lose the tax benefits.

Thanks for the info, it does make for interesting read.

Also bear in mind that you cannot keep your company around indefinitely in a non-trading state and still qualify for a capital distribution on closure.

Best option is probably to issue yourself dividends until you're sub £25k and then perform a simple strike-off (DS-01), which will also qualify for a capital distribution and BADR, mostly likely, but no TAAR to worry about.

On subject of non trading, how much leeway do I have regarding additional SIC codes not relating to Contracting that will allow me to continue trading? I would like to continue (some form of ) trade with the ltd company. I have other ideas that could generate income ..... or result in a loss.

[jamesbrown]

Misinformed. Started an inside IR35 role 4 months ago and considering that most roles I am seeing are Inside, I have been contemplating going permie for the right amount but not so sure I won't get the itch to go back contracting within 2 years.

Sounds like I would really need to commit to a permie role or umbrella for 2yrs for MVL to be an option.

Also bear in mind that you cannot keep your company around indefinitely in a non-trading state and still qualify for a capital distribution on closure.

Best option is probably to issue yourself dividends until you're sub £25k and then perform a simple strike-off (DS-01), which will also qualify for a capital distribution and BADR, mostly likely, but no TAAR to worry about.

[css_jay99]

stop slapping your face

[css_jay99]

You're either trolling or woefully misinformed but, either way, your plan won't work. It's called phoenixing and, yes, there is legislation that prevents it. If you continue the same or a similar trade or activity within two years of receiving any capital distribution (regardless of whether you additionally received BADR), then that distribution is liable to being reclassified as a dividend distribution (plus any penalties and interest owed).

Misinformed. Started an inside IR35 role 4 months ago and considering that most roles I am seeing are Inside, I have been contemplating going permie for the right amount but not so sure I won't get the itch to go back contracting within 2 years.

Sounds like I would really need to commit to a permie role or umbrella for 2yrs for MVL to be an option.

[Maslins]

I have been thinking at MVL (thanks to cuk) as a way to get hold of retained earnings from Ltd Co. and starting afresh with a new company.

Under MVL and ER/BADR, will I only be pay a maximum of 10% tax on the capital distribution or it's still dependent on other PAYE income in the tax year?

I'm afraid HMRC have already cottoned on to that plan and clobbered it. Perhaps Google "TAAR liquidation"/similar, and read what comes up. In short, you'd need to wait at least 2 years between liquidating Oldco and starting Newco, otherwise you'd lose the tax benefits.

Parking that aside and looking at your 2nd para in isolation, PAYE/other earnings are irrelevant for CGT calculations. Ie so doesn't matter if you're earning £20k/year or £200k/year in your day job, if you have a capital gain that qualifies for BADR, it'd just suffer 10% tax.

[northernladuk]

I have been thinking at MVL (thanks to cuk) as a way to get hold of retained earnings from Ltd Co. and starting afresh with a new company.

Under MVL and ER/BADR, will I only be pay a maximum of 10% tax on the capital distribution or it's still dependent on other PAYE income in the tax year?

[jamesbrown]

I have been thinking at MVL (thanks to cuk) as a way to get hold of retained earnings from Ltd Co. and starting afresh with a new company.

Under MVL and ER/BADR, will I only be pay a maximum of 10% tax on the capital distribution or it's still dependent on other PAYE income in the tax year?

You're either trolling or woefully misinformed but, either way, your plan won't work. It's called phoenixing and, yes, there is legislation that prevents it. If you continue the same or a similar trade or activity within two years of receiving any capital distribution (regardless of whether you additionally received BADR), then that distribution is liable to being reclassified as a dividend distribution (plus any penalties and interest owed).

[css_jay99]

I have been thinking at MVL (thanks to cuk) as a way to get hold of retained earnings from Ltd Co. and starting afresh with a new company.

Under MVL and ER/BADR, will I only be pay a maximum of 10% tax on the capital distribution or it's still dependent on other PAYE income in the tax year?

[Lance]

Thanks adubya/eek,

By way of an update. I have pretty much topped up pension contributions at work to £40K. This has allowed me to increase the dividend from the company to around £20K. OK, I''ll be paying 7.5% tax on a large chunk of that (8.75% from 2022/3) but it seems the most hassle free/cost effective way to release the funds. I should be able to run the retained earnings dry in 5 or 6 years ceteris paribus.

Appreciation for everyone's wisdom!

5 or 6 years? With inflation going up?
You sure that's a good idea? Could easily cost you more in lost value than tax.

Just MVL and take the money as capital (20% on £87k) isn't terrible, and represents a taxable rate of c. 16%.

Or run it down by £40 today, £40k in April, into a SIP pension, then wind it up without any tax to pay.
Note that you'll exceed the pension limit so will get reduced tax relief on that. So ask an IFA for advice.