Closing down LTD company - just over £25k in retained profits

[Paralytic]

A good accountant will be able to advise you on the most tax efficient way but in my opinion pensions and dividend, combination of both could be a good option.

Why not pension payment so that retained funds < £25K and the a strike-off so that the £25K is via CGT with a £12,300 allowance?

[JHamp82]

A good accountant will be able to advise you on the most tax efficient way but in my opinion pensions and dividend, combination of both could be a good option.

[gmann89]

Another option would be to consider something like a chunky pension contribution, that (even after possible CT relief) would take your retained profits below £25k. Hopefully you can carry the loss created by that pension contribution back, to recoup some CT. If you then end up <£25k, great, cheap and cheerful strike off.

Thanks very much for your detailed response. I could quite easily do a contribution to my SIPP instead if it removes the risk of paying dividend tax on the whole lot. Presumably as my company has not earnt money this tax year there will be no CT to recoup because it won't pay any in the first place? Is that right or am I barking up the wrong tree?

I find it ridiculous that I can't just get a straight answer from my own accountant on this and have such little faith in their responses. My friend who is with them started trying to wind his company up almost 2 years ago and it still isn't done.

[Maslins]

Legally if your company has already ceased trading and you're finalising how to deal with remaining funds now, you'd be on shaky ground attempting to argue some is dividends and some is capital upon closure. You can't just pick and choose. Anything taken out now should be considered taken as part of winding up, so if it's >£25k and you strike off, it'd all be taxed as dividends. From a practical perspective you may well get away with claiming some was dividends...but given the timings you quote if challenged I think you'd struggle.

Another option would be to consider something like a chunky pension contribution, that (even after possible CT relief) would take your retained profits below £25k. Hopefully you can carry the loss created by that pension contribution back, to recoup some CT. If you then end up <£25k, great, cheap and cheerful strike off.

Otherwise an MVL is the main option where you've got >£25k at the end of a company's life and you want CGT treatment.

I think you should be safe on the BADR side of things, as if the company was paying you a salary for >2 years it would seem easy to argue it was trading for >2 years.

[gmann89]

go for it.
All sounds good.
It's called BADR not ER. And you do it on the SATR.
For the small amount of money (£3k tax or £1.5k tax) you're talking just fill in the BADR box. If they think it's wrong it's not going to cost the earth.

Thanks Lance.

[Lance]

go for it.
All sounds good.
It's called BADR not ER. And you do it on the SATR.
For the small amount of money (£3k tax or £1.5k tax) you're talking just fill in the BADR box. If they think it's wrong it's not going to cost the earth.

[gmann89]

I have attempted to do my own research on this but just had a few queries. I have also asked my accountant but their response didn't sound right to me.

I have about £29k left in my LTD company account.

My thought process on what I should do:
1) Pay myself dividends to get the retained profits below £25k
2) Apply for informal strike off
3) take the rest of the money as capital distribution on closure
4) Hopefully pay 10% capital gains tax on the amount above the CGT threshold using entrepreneur's relief (I will be a higher rate tax payer this year most likely)

Does this sound reasonable and correct?

Regarding entrepreneur's relief; do you think I would qualify based on the below:
- I am the sole director of the LTD company (no other employees)
- The company was fully active and paying my salary from July 2017-March 2020
- The last time the company took in money through trading was July last year. Note; the company is still active on Companies House.
- Since July last year I have been working in a permanent role. The last time I paid myself dividends was July 2020. The last time the company took in money was July 2020.

There just some nuances in the rules around 24 months leading to closure of company so I was wondering if I need to act fast to get this tax relief.

Thank you