Reply to: Closing LTD to go Perm - MVL question

[eek]

Rather than start a new thread I hope it’s ok to add to this one. I did an MVL for my limited company when I went perm back in January 2020. My first distribution was May 2021 and final distribution was in November 2021. Commencement of windowing up was March 2021, notice of final accounts to companies house was Feb 2022. Inland Revenue took ages to allow the company to pay my final distribution (Nov 2021). question I have is, when can I set-up a new limited company and start trading, its all a bit confusing. Any help or guidance is appreciated

Covered elsewhere but Nov 2023 - the TAAR rules are two years.

If the first distribution is the main one you could treat the November 2021 as a dividend and start in March / April 2023 but I’m not there would be a bit of a risk there.

[zero7]

Rather than start a new thread I hope it’s ok to add to this one. I did an MVL for my limited company when I went perm back in January 2020. My first distribution was May 2021 and final distribution was in November 2021. Commencement of windowing up was March 2021, notice of final accounts to companies house was Feb 2022. Inland Revenue took ages to allow the company to pay my final distribution (Nov 2021). question I have is, when can I set-up a new limited company and start trading, its all a bit confusing. Any help or guidance is appreciated

[SomaTech]

The point of a pension is to save while you're young so it has time to grow, giving you large pot when you stop working. The later you start topping up your pension, the worse your pot will be.

If you're already close to the lifetime limit then that's a different matter entirely.

Yeah I contribute a good percentage each month to my pension and have done since I started contracting so have a healthy pension for someone my age, I would think. I'm 25 years away from retirement at the earliest, so having the money just now would be a better option for me.

[Maslins]

What jamesbrown said...but also bear in mind the £40k annual pension cap is for any/all pension contributions. If you're in an employed role, I'd imagine you & your employer will be putting money into a pension there. Whilst you likely could opt out, it's generally daft to do so. If your salary's chunky, the pension could be too. This may therefore greatly reduce what you can actually put in from your Ltd Co without breaching the threshold.

[jamesbrown]

Excuse my lack of knowledge, but is this all completely above board? Can you have a company running with no income, where the director(s) have another full time job, yet get a huge pension contribution from their own company?

I'm about to go down the MVL route and I did ask my accountant about the option you mentioned (minus the divis) but he seemed to think HMRC would look unfavourably on it. I have no idea myself.

There is a distinction between making a pension contribution from available funds and how it is treated as an expenses in relation to tax relief, for which the expense must be wholly and exclusively for business purposes. The latter is hard to argue if there is no ongoing trade. Likewise for salary payments. But if there is no trade, there is no profit, so no CT anyway. Where some care may be needed is carrying back a trading loss. In general, a company can do whatever it wants with its money (that is lawful), but tax relief is a separate thing and efficacy is yet another thing. Bear in mind that you can get tax relief at your marginal rate for personal contributions, for example.

[Snooky]

£2k a year tax free dividends
£40k a year pension contrubtions
after 2 years you have got £11k left which you can simply strike off the company for.

Of take £2k a year, and put £33k a year into pension, leaving £25k to strike off after 2 years.

That way you are more tax efficient than MVL, without the cost, and without TAAR being a thing.

Excuse my lack of knowledge, but is this all completely above board? Can you have a company running with no income, where the director(s) have another full time job, yet get a huge pension contribution from their own company?

I'm about to go down the MVL route and I did ask my accountant about the option you mentioned (minus the divis) but he seemed to think HMRC would look unfavourably on it. I have no idea myself.

[ladymuck]

Thanks for all the feedback all.

Sounds like the MVL is the best way to go at the moment - I'm a fair few years away from retirement to dump it all in a pension

The point of a pension is to save while you're young so it has time to grow, giving you large pot when you stop working. The later you start topping up your pension, the worse your pot will be.

If you're already close to the lifetime limit then that's a different matter entirely.

[SomaTech]

Thanks for all the feedback all.

Sounds like the MVL is the best way to go at the moment - I'm a fair few years away from retirement to dump it all in a pension

[Maslins]

The accountant came back to say the rules around the TAAR legislation and same business activity haven't been specified whether it solely relates to setting up another LTD or whether it includes perm work too so I could be at high risk of HMRC disallowing this.

Is this the case?

HMRC have been clear that going on the payroll of a business you have no personal connection with would not be caught.

http://www.chrismaslin.co.uk/wp-cont...e-requests.pdf

The above link is a slightly odd one...basically it was a standard response HMRC were giving to clearance requests re this at the time. Effectively always refusing to give clearance for the specific case asked about, but giving a general response. I can't recall where I originally found this, so apologies for linking to my own (very old and no longer used) blog, but the link itself is to a PDF of HMRC example letter.

Critical line is the final sentence of first paragraph on second page:
"Condition C will not be met where the individual is employed by an unconnected third party."

As long as the business you work for isn't one you have shares in, or is run by a close relative etc, so is an unrelated third party employing you, you're fine. Obviously the connection rules are to get around convoluted situations where perhaps husband and wife each with a company both liquidate, both set up new compmanies straight away, but work for the spouse's company rather than their own.

[Lance]

I'm looking for some advice on closing my LTD company to go perm.

I emailed my accountant for the best course of action in closing my company to ensure I keep as much as possible.

I'll have around 95k in the company account by the time I close so was thinking it would go down the MVL route.

The accountant came back to say the rules around the TAAR legislation and same business activity haven't been specified whether it solely relates to setting up another LTD or whether it includes perm work too so I could be at high risk of HMRC disallowing this.

Is this the case?

From what I've read on these forums and online, an MVL seems to be the way to go when you've got a good bit over 25k and are moving from contracting to perm.

Using the working example found here - https://www.crunch.co.uk/knowledge-t...nd%20directors - It looks like the difference in around the amount I would have is about 12k, albeit I'd push a good bit into my pension if I was going down the non-MVL route, so it could cost a fair bit choosing the wrong method here

£2k a year tax free dividends
£40k a year pension contrubtions
after 2 years you have got £11k left which you can simply strike off the company for.

Of take £2k a year, and put £33k a year into pension, leaving £25k to strike off after 2 years.

That way you are more tax efficient than MVL, without the cost, and without TAAR being a thing.

[northernladuk]

Yeah I would be looking to stay 2 years+ in this new role, if I take it. It's a move to an architect role from being a contractor doing dev work so I'm seeing it as career progression and maybe when I feel I've got enough experience, jump back into contracting.

My question was more around if my accountant was right, and going perm in the same line of work would breach the TAAR legislation?

No it wouldn't. This page explains the details around it but the key takeaway is

Where there is a genuine non-tax motive for winding up the company, then condition D is not satisfied and the legislation should not apply.

You've explained quite clearly the motivation is not tax related so you are good.

Page is https://www.contractorweekly.com/tax...ke-loud-clear/

[SomaTech]

Only if you intend to stay perm and won't be jumping at the next Outside gig within 2 years. So many people said they'd stay perm and now posting on here how to get round the 2 years. Have to be sure of your decision and implications. You've started right and asking the right people. Just be sure this is long term and not just a stopgap.

Yeah I would be looking to stay 2 years+ in this new role, if I take it. It's a move to an architect role from being a contractor doing dev work so I'm seeing it as career progression and maybe when I feel I've got enough experience, jump back into contracting.

My question was more around if my accountant was right, and going perm in the same line of work would breach the TAAR legislation?

[northernladuk]

From what I've read on these forums and online, an MVL seems to be the way to go when you've got a good bit over 25k and are moving from contracting to perm.

Only if you intend to stay perm and won't be jumping at the next Outside gig within 2 years. So many people said they'd stay perm and now posting on here how to get round the 2 years. Have to be sure of your decision and implications. You've started right and asking the right people. Just be sure this is long term and not just a stopgap.

[RobScott]

I'm looking for some advice on closing my LTD company to go perm.

I emailed my accountant for the best course of action in closing my company to ensure I keep as much as possible.

I'll have around 95k in the company account by the time I close so was thinking it would go down the MVL route.

The accountant came back to say the rules around the TAAR legislation and same business activity haven't been specified whether it solely relates to setting up another LTD or whether it includes perm work too so I could be at high risk of HMRC disallowing this.

Is this the case?

From what I've read on these forums and online, an MVL seems to be the way to go when you've got a good bit over 25k and are moving from contracting to perm.

Using the working example found here - https://www.crunch.co.uk/knowledge-t...nd%20directors - It looks like the difference in around the amount I would have is about 12k, albeit I'd push a good bit into my pension if I was going down the non-MVL route, so it could cost a fair bit choosing the wrong method here

yeah, good link and advice.
''you may have to pay Capital Gains Tax or Income Tax' - great, just pay it and all gets sorted

[WTFH]

Maslins
Are probably the best ones to speak to about it.