Reply to: closing with 2 years?

[NotAllThere]

From another place, Egos says this.

[welshman213]

No, you pay tax ON £25k, but you get about £9k annual CGT allowance, leaving £16k * 40% = £6.4k tax. After April this would be £7,380 (£50k - 9k = £41k; £41k * 18% = £7.38k).

Cheers Dude, If this is the case, that is not anywhere near as bad as i thought it would be.

[dude69]

Ok, so if after 18 months I decide to close and cease trading, assuming I have £50k in the company account, are we assuming that I will have to pay £25k tax?

No, you pay tax ON £25k, but you get about £9k annual CGT allowance, leaving £16k * 40% = £6.4k tax. After April this would be £7,380 (£50k - 9k = £41k; £41k * 18% = £7.38k).

[welshman213]

On these couple of points, re travel and subsistence expenditure, it is not possible to claim this if this is the only contract you anticipate having through your company, so in practise, once you've accepted a permanent jof offer, I think it would be prudent to stop claiming travel. You could, I suppose, argue that the permanent role is not permanent and that you are going to keep the company offer for future temporary contracts but that is probably pushing your luck.

Regarding the optimum time to liquidate, you say that you've been going 18 months. Therefore, you will currently get the first £18,400 per shareholder tax free (assuming you've not used your CGT annual exemption elsewhere) and the balance will be subject to 20% CGT (assuming you are a higher rate taxpayer).

If the 2 year anniversary of commencement of trade arises on or before 05/04/08, it will be best to make a capital distribution between that date and 05/04/08.

If it arises on or after 06/04/08 and you make the capital distribution on or after 06/04/08, you will get the first £9,200 (in today's money) per shareholder tax-free and the balance will be subject to 18% CGT.

In these circumstances, you would be better off distributing before 06/04/08 if your retained profits total £101,200 or less (assuming you are the sole shareholder or £202,400 or less if there are 2 shareholders. This ignores the fact that if it is paid after 05/04/08 the CGT will be deferred for a year.

Cheers,

Just a bit of a shame as the 2 year mark would be July,
Looks like best to close before the April mark, as I dont think I will get near the 2 year.
Still undecided on the Permie role, have to make my mind up soon, need to find out if I turn it down, will they renew or is it time for a new gig.

Cheers All

John

[THEPUMA]

On these couple of points, re travel and subsistence expenditure, it is not possible to claim this if this is the only contract you anticipate having through your company, so in practise, once you've accepted a permanent jof offer, I think it would be prudent to stop claiming travel. You could, I suppose, argue that the permanent role is not permanent and that you are going to keep the company offer for future temporary contracts but that is probably pushing your luck.

Regarding the optimum time to liquidate, you say that you've been going 18 months. Therefore, you will currently get the first £18,400 per shareholder tax free (assuming you've not used your CGT annual exemption elsewhere) and the balance will be subject to 20% CGT (assuming you are a higher rate taxpayer).

If the 2 year anniversary of commencement of trade arises on or before 05/04/08, it will be best to make a capital distribution between that date and 05/04/08.

If it arises on or after 06/04/08 and you make the capital distribution on or after 06/04/08, you will get the first £9,200 (in today's money) per shareholder tax-free and the balance will be subject to 18% CGT.

In these circumstances, you would be better off distributing before 06/04/08 if your retained profits total £101,200 or less (assuming you are the sole shareholder or £202,400 or less if there are 2 shareholders. This ignores the fact that if it is paid after 05/04/08 the CGT will be deferred for a year.

[moorfield]

Why not just keep your company open/dormant until you realise that permiedom wasn't for you after all ?

[NotAllThere]

Cheers.

But...the "temporary workplace", "two year rule" and expenses etc aren't linked to your employer, contract or specific site are they?

You could contract to 10 different clients over a period of several years all within the Square Mile, via a brolly and multiple Ltd's you own and this would not count as a temporary workplace as the location has not changed.

A case of HMRC having their cake and eating it?

My understanding is that if you switch employer with each contract, you cannot claim travel and expenses, even if the locations are widely variant. This would apply also if you switch brollies each gig. This is because it is viewed that the employment is not at a temporary location by definition. Same as when permies switch jobs, even if it is only for six months.

I'm sure this point was raised quite a while ago.

[welshman213]

As regards to the taper relief option - the % applied depends on how long the company has actually been trading, not how long you leave it open. So if your Ltd has been trading 18 months and then you decide to go permie, you qualify for 50% relief. Even if you don't wind the Ltd down until > 2 years, if you haven't been trading for those additional 6 months then still only 50% applies.

It's a good time to take advantage of taper relief now seeing as it'll be withdrawn next April (it is April isn't it?).

Ok, so if after 18 months I decide to close and cease trading, assuming I have £50k in the company account, are we assuming that I will have to pay £25k tax?

[dodge1664]

there's some speculation in the press that the Govt may back down a little on CGT, the upshot being that as much as £100,000 may be exempt from the tax

http://www.telegraph.co.uk/money/mai...1/cncgt231.xml

It seems that they're determined to make it a one-off tax break though.

[ChimpMaster]

As regards to the taper relief option - the % applied depends on how long the company has actually been trading, not how long you leave it open. So if your Ltd has been trading 18 months and then you decide to go permie, you qualify for 50% relief. Even if you don't wind the Ltd down until > 2 years, if you haven't been trading for those additional 6 months then still only 50% applies.

It's a good time to take advantage of taper relief now seeing as it'll be withdrawn next April (it is April isn't it?).

[Crossroads]

Because the IR say so. It's not considered a temporary workplace.

Cheers.

But...the "temporary workplace", "two year rule" and expenses etc aren't linked to your employer, contract or specific site are they?

You could contract to 10 different clients over a period of several years all within the Square Mile, via a brolly and multiple Ltd's you own and this would not count as a temporary workplace as the location has not changed.

A case of HMRC having their cake and eating it?

[welshman213]

Thanks guys,

Think they maybe not a financial viable as I first thought then.
And yes it would be only 1 contract, did do 1 days else where, but that was just invoiced.
Ho Hum, back to the drawing board.

Cheers

John

[NotAllThere]

Because the IR say so. It's not considered a temporary workplace.

[Crossroads]

If you've only had one contract then some of your T&E are not allowable.

Why?

[NotAllThere]

If you've only had one contract then some of your T&E are not allowable.

btw ... don't go permie. You'll only regret it.