Winding up company/ redundancy etc

[Clare@InTouch]

Interesting stuff. If you are going by the statutory line then it says....

I guess we would need to know if you can give statuory payment even though the company doesn't have to. Either way this would amount to next to nothing bearing in mind what they are paying her.

Another interesting paragraph is the last one in the link you gave.

Which is a right ball ache and would be difficult to prove the bonus is to help find work so could just be taxable anyway so looks like this might not fly as a tax free option anymore.

I think it would very hard to argue that last point. The same restriction would apply to directors who try to pay themselves £30k tax free - if they can't prove it was a commercial type transaction then it will be disallowed and taxed under PAYE. It could be an expensive mistake, in which case you're better off paying it as a dividend or capital gain in the first place and not taking the risk.

[northernladuk]

Interesting stuff. If you are going by the statutory line then it says....

Your employer must give you a lump-sum payment if:

•you are made redundant;
•you have at least two years continuous service; and
•you meet the other conditions set out in this document.

I guess we would need to know if you can give statuory payment even though the company doesn't have to. Either way this would amount to next to nothing bearing in mind what they are paying her.

Another interesting paragraph is the last one in the link you gave.

HM Revenue & Customs draw a distinction between payments that are genuinely made to compensate the employee for the consequences of redundancy, and terminal bonuses. It accepts that the former fall within ITEPA 2003, s403, but not the latter. An employer who wishes to pay enhanced redundancy payments should submit the scheme to the PAYE Inspector for a ruling as to whether the payments can be treated as falling within ITEPA 2003, s403 [SP 1/94].

Which is a right ball ache and would be difficult to prove the bonus is to help find work so could just be taxable anyway so looks like this might not fly as a tax free option anymore.

[Clare@InTouch]

But does it matter how much? If you pay 2k to someone you have been giving £75 to will they not have to qualify this amount i.e. prove it is earned or does it really not matter?

Yes, the amount paid needs to fall in line with the HMRC guidance:

"Statutory redundancy pay is calculated as the total of:

•for each complete year of service where age during year less than 22, ½ a week’s pay
•for each complete year of service where age during year is between 22 and 40, 1 week’s pay
•for each complete year of service where age during year is 41+, 1 ½ week’s pay"

The fact that a week's pay has an upper limit above which you cannot pay would indicate that any payments above would not meet the criteria for being Statutory Redundancy Pay. Thus they'd be taxable.

Edited to add:

An enhanced redundancy payment may be made, and it may not be taxable depending on how it's viewed. The Statutory payment plus the Enhanced payment must still stay below the overall £30k to remain non-taxable.

http://www.taxationweb.co.uk/tax-art...exemption.html

[northernladuk]

As far as I'm aware if your employee doesn't qualify for statutory redundancy, then any payment you make to her will be taxable. So you may as well just pay an extra lump sum in her final salary.

Termination payments and benefits: redundancy: statutory redundancy payments

But does it matter how much? If you pay 2k to someone you have been giving £75 to will they not have to qualify this amount i.e. prove it is earned or does it really not matter?

[Clare@InTouch]

Thanks

The trouble with these articles is that they tend to start from an assumption the company wants to give as little as possible and the employee is looking to see what they are entitled to.

We've only employed her for a year and a half anway so if I wanted to get rid I could do at not cost, but that's not the scenario here. I'd like the company to give her redunancy and I'd like it to be tax free

As far as I'm aware if your employee doesn't qualify for statutory redundancy, then any payment you make to her will be taxable. So you may as well just pay an extra lump sum in her final salary.

Termination payments and benefits: redundancy: statutory redundancy payments

[SallyPlanIT]

Using ESC C16 and Entrepreneur's relief is an effective way of closing a company, giving an effective rate of 10% tax.

However, please be aware that after the emergency budget, a higher rate of 28% tax was introduced on June 23rd 2010 on capital gains instead of what was 18% across the board. This is applicable to all capital gains income over the £43,875 (according to your tax code) threshold. Entrepreneurs relief remains at 10% if you qualify to apply it, regardless of which tax bracket you fall into.

If you extract the money as dividends, I'm sure you're aware that the higher rate of tax is 22.5% and 32.5% for income over £150k.

In a nutshell, using ESC C16 alone, as a higher rate tax payer will not be as effective as dividends, unless your in the top income bracket over £150K

[chaplic]

Thanks

The trouble with these articles is that they tend to start from an assumption the company wants to give as little as possible and the employee is looking to see what they are entitled to.

We've only employed her for a year and a half anway so if I wanted to get rid I could do at not cost, but that's not the scenario here. I'd like the company to give her redunancy and I'd like it to be tax free

[northernladuk]

There is lots of good articles about redundancy like the one below but it does say must have 2 years service before it kicks in. I can't seem to find much about what the maximum an employer can give. I would think that paying her a disproportionate amount would be frowned upon to stop people avoiding tax in situations very similar to this.

I think MF's idea does have merit though and would be very worthwhile looking in to in an effort to maximise pay to your mum and reduce the tax burded. Might also be worth checking you are not making yourself a target by paying too much.

Redundancy article

[chaplic]

I don't think he necessarily has to have an invoice from his mum. I am asuu
ing you have been paying her. So firstly find out what her total income is and top it to her tax allowance. Secondly, I suppose you could make her redundant but Im not sure how that works?

That's what I was getting at, sorry if I'm not clear.

I pay her as a "normal" employee

I would have though (for her) making her redundant with a payment is more tax effective and is there any benefit to the company of doing that instead of dishing out money. Also, her other Job redundancy will be considerably higher (though I doubt reaching £30K) is there any issues with two redundancies at pretty much the same time?

[MarillionFan]

There are a number of good threads on a similar vein on here, try searching for winding up or entrepreneurs relief or something like that.

The giving your mum anything is probably pretty black and white. Remember at present this is company money NOT your money so until it is out and taxed there probably isn't much you can do, unless she invoices you for something or other of course. Why not get her to post this question and she can tell you what to do and bill you under 'business consultancy'

I don't think he necessarily has to have an invoice from his mum. I am asuu
ing you have been paying her. So firstly find out what her total income is and top it to her tax allowance. Secondly, I suppose you could make her redundant but Im not sure how that works?

[northernladuk]

There are a number of good threads on a similar vein on here, try searching for winding up or entrepreneurs relief or something like that.

The giving your mum anything is probably pretty black and white. Remember at present this is company money NOT your money so until it is out and taxed there probably isn't much you can do, unless she invoices you for something or other of course. Why not get her to post this question and she can tell you what to do and bill you under 'business consultancy'

[chaplic]

Hi All

Long time lurker, de lurking for some advise.

I've agreed to join the darkside once my current contract is up. My natural field of work is dead and what's left is really crappy so it's not that big a loss. And I've secured a fairly senior role that I doubt you'd get as a contractor. The plan is to hunker down for a couple of years and see where we are at.

Anyway, I'm looking to wind up the firm

There are two directors, myself and my wife - she contracted through the company too before dropping our little one, and we pay my mum £75 a week for basic admin stuff.

I think there will be about £20K left in the firm when we've paid all our dues.

Firstly, I'd like to give my mum a little bit of wedge as a send off. She had a "proper" job too, but is awaiting (looking forward to) redundancy from that as well. I'm not talking a huge amount (I was thinking £2K) but are there any tax benefits/ complications that she and I need to be aware of?

Which obviously leaves me to weasling money out of the company. I read about entrepreneurs relief, but wonder if it's worth the hassle money wise? What are other options? Leaving the company running but doing nothing, pare down insurances and sack the accountant would probably still give me a reasonable interest return that I could extract divis as I wanted in an emergency?

Finally - I have thoughts about writing a book, which is not as aimless as it first seems as I have a lot of content written already and proven success on a private forum, but am ignorant of the publishing world. Any point in keeping the Ltd on the assumption my yet-to-be-written book will be a best seller?

TIA my lovlies