Reply to: Closing down my company

[JamApple]

Most one-person-band companies will have paid up share capital of £1 for 1 share. TCP is just having a giggle.

Lol after my reply, I was thinking that it must have been some sort of miniscule payment what was made which I've long forgotten about

[ladymuck]

Most one-person-band companies will have paid up share capital of £1 for 1 share. TCP is just having a giggle.

[JamApple]

Don’t forget the subtract any original capital paid up for your shares when calculating your gain. Every little helps.

Thanks. Hmmm not sure what this means, can you elaborate please? Is this some sort of payment I must have made when I first setup the company and the share structure?

In any case I've spoken to my accountant and essentially we are going to pay off the CT, then take out 2k dividends to get the balance to 25k then apply the ER treatment. There's also the capital gains tax free allowance aswell which I'm allowed to use. Which I think is around 12.3k

[TheCyclingProgrammer]

Don’t forget the subtract any original capital paid up for your shares when calculating your gain. Every little helps.

[jamesbrown]

Yeah, no harm in asking. Sounds like you did your own research too. Yes, the CGT allowance is completely separate.

[JamApple]

I think you’re on the right track. It was a good question about your other income, though, and a good explanation from hobnob.

Yeah the threads received some very good responses, hopefully it will help others who are in a similar situation. I did have a read before on previous similar threads but couldn't really find the explanation I was looking for for my situation - or maybe I was just being too stupid

[JamApple]

I was just doing some reading on this site: (What’s the Capital Distribution on Winding Up a Company? - Company Debt) and have a question on the capital distribution



I'm pretty sure that the 'tax free' allowance as highlighted above is separate from the joint tax brackets for PAYE and dividends (as explained by hobnob) - is this the case?

[jamesbrown]

I think you’re on the right track. It was a good question about your other income, though, and a good explanation from hobnob.

[JamApple]

I think I see the confusion here. You (JamApple) are assuming that you calculate the tax brackets separately for PAYE and dividends. Unfortunately, it doesn't work that way: it's a shared band for both.

More precisely, you work out PAYE first. Knock off the standard allowance (£12,700 in FY 2021/2022), then the next £37,500 is basic rate. See how much of the basic rate band is left (if any) after all your PAYE salary is deducted.

Then look at dividends. The first £2,000 is tax free. After that, you continue with the band above, either basic rate (7.5%) or higher rate (32.5%).

For example, suppose that your total PAYE income is £40,000. That gets split between £12,700 (allowance) and £27,300 (basic rate). You would then have £10,200 left in the basic rate band. So, you could take £12,200 of dividends (£2,000 allowance + £10,200 at basic rate) but if you go above that then you'll be paying higher rate. You definitely can't take £37k of dividends at basic rate!

NB I'm ignoring anything that's tax deductible (e.g. professional memberships) or gift aid donations in the figures above, but it's worth including them in your SATR if they're relevant. I'm also ignoring savings interest, on the basis that the first £500 is tax free.

Ahh that makes sense! Thanks for the explanation. I'm on a PAYE rate of 580 so my personal allowance is gone like the wind.

I'm thinking that for me, once i have paid off my liabilities I will have, 27K left. If i can take out 2k Dividends (tax free) then apply the BADR on the rest which includes around 12k tax free and the rest charged is charged at around 10%

[hobnob]

I think I see the confusion here. You (JamApple) are assuming that you calculate the tax brackets separately for PAYE and dividends. Unfortunately, it doesn't work that way: it's a shared band for both.

More precisely, you work out PAYE first. Knock off the standard allowance (£12,700 in FY 2021/2022), then the next £37,500 is basic rate. See how much of the basic rate band is left (if any) after all your PAYE salary is deducted.

Then look at dividends. The first £2,000 is tax free. After that, you continue with the band above, either basic rate (7.5%) or higher rate (32.5%).

For example, suppose that your total PAYE income is £40,000. That gets split between £12,700 (allowance) and £27,300 (basic rate). You would then have £10,200 left in the basic rate band. So, you could take £12,200 of dividends (£2,000 allowance + £10,200 at basic rate) but if you go above that then you'll be paying higher rate. You definitely can't take £37k of dividends at basic rate!

NB I'm ignoring anything that's tax deductible (e.g. professional memberships) or gift aid donations in the figures above, but it's worth including them in your SATR if they're relevant. I'm also ignoring savings interest, on the basis that the first £500 is tax free.

[JamApple]

You have no other earnings?

Yeah I do, I'm currently working as a contractor in a PAYE role.

[TheCyclingProgrammer]

Thanks for the suggestion. I think that I should be within the basic rate bracket since I've not taken in any dividends since the start of this tax year. So I could take upto 37k.

You have no other earnings?

[JamApple]

In my opinion it may be best to take some dividends to bring retained profits below 25k and then take remainders as capital distribution (assuming you are within the basic rate bracket), however, if you can take more in dividends and stay in the basic rate bracket then it may be better to do this as you will only pay 7.5% tax on dividends as compared to 10% BADR after the 12k~ exempt amount.

Thanks.

Thanks for the suggestion. I think that I should be within the basic rate bracket since I've not taken in any dividends since the start of this tax year. So I could take upto 37k.

[JHamp82]

In my opinion it may be best to take some dividends to bring retained profits below 25k and then take remainders as capital distribution (assuming you are within the basic rate bracket), however, if you can take more in dividends and stay in the basic rate bracket then it may be better to do this as you will only pay 7.5% tax on dividends as compared to 10% BADR after the 12k~ exempt amount.

Thanks.

[JamApple]

You're looking for a simple strike off via Companies House. When you transfer the remaining assets under £25k (prior to strike off), you can treat it as a capital distribution (subject to a reduced rate of CGT and your standard annual CGT tax-free allowance), rather than income.

Thanks for this, I'll ask my accountant about this to see what he says