Closing company - entrepreneurs relief

[Greg@CapitalCity]

Yes, its a trade off isn't it. A bird in the hand is worth two in the bush etc;

(1) Close the company now
- Take a £35k hit now on CGT;
- Potential phoenix problem, though I strongly doubt it;
- You get to draw a line under 15 years of contracting, and any future scraps you pick up could be put through as a sole trader if income is low;

(2) Keep the company going
- Save yourself a £35k CGT liability;
- Company probably turns into an investment company once trading activity becomes low (lose CGT advantages if you did decide to later close it down, but ESC C16 will probably disappear soon anyway in its current form);
- Pay out dividends over a long period of time - at risk of unknown changes to tax rates several years down the line;
- On-going (but reduced) accountancy fees;

In my view option 1 looks better - but then its not my money, or my company. Good luck!

[simondolan]

Depending upon your age is it worth considering using the pension rules to transfer some of it into a pension/SIPP, use immediate vesting and then income drawdown?

Potentially. Depends on circumstances and limits.

[ASB]

Depending upon your age is it worth considering using the pension rules to transfer some of it into a pension/SIPP, use immediate vesting and then income drawdown?

[nrsql]

If you are to retire from full time work then definitely go the entrepreneurs relief route. It might not be around forever and is a very cheap way to get the money out. I can't see any issues at all the Revenue would have as regards clearance. I think your accountant is wrong.

Thanks - that's my view. Not that the accountant is wrong but he's working from different priorities.
Taking the money out slowly via dividends I think would be cheaper but take longer.

[nrsql]

I can see a few issues her that you need to speak with your accountant about;

(1) Investment company - does the high level of savings you have accrued shift the status of your company from a trading company to an investment company? You have not mentioned anything about this so I guess your accountant still considers it to be a trading coming, but if your consulting income drops significantly in proportion to your investment activity its an area you are going to have to consider. Two effects of being deemed an investment company are (i) you pay the main corporation rate on your profits, (ii) you can't use Entrepreneurs Relief. Have a read of this; CG64060 - Entrepreneurs? Relief: trading company and holding company of a trading group - meaning of "in the course of, or for the purposes of, a trade"

(2) Closing down your company but continuing to work. You have probably heard of phoenix'ing, where a company is wound up, a capital gain extracted tax efficiently, and trading then resumed through a new ltd company. This may be a problem your accountant is alluding to, and S.703 ICTA 1988 'Cancellation of a tax advantage from certain transactions in securities' is the troublemaker, and the HMRC can undo any tax advantage gained.

(3) Slowly taking dividends? I don't know - its sounds like a prolonged form of agony to me. Then you have the investment company issue to grapple with, and on-going accountants fees. Tax-wise though its probably a fair option.

Thanks.
(3) Agree about the long term agony - part of the gain here would be simplification. I think his view is that the dividends would be tax paid so I'm saving the 10%. He said if I stopped trading the he would reduce the fees. Bit concerned about the investment company bit.

(1) Up til now I've always been trading - I think this is the first year I've managed more than a couple of months off. I don't think sales have ever been below £70k in the past several years. Hopefully that would be enough to get round the investment company issue (income from the cash is very low at the moment anyway). This company year (sep-sep) will be about £35k if things go to plan and I stop using the company.

(2) is what I am concerned about as it seems a bit like cheating.

[simondolan]

If you are to retire from full time work then definitely go the entrepreneurs relief route. It might not be around forever and is a very cheap way to get the money out. I can't see any issues at all the Revenue would have as regards clearance. I think your accountant is wrong.

I'd like to close my company and claim entrepreneur's relief.
I've tried retiring a few times - I lasted 3 months recently before accepting a 3 month contract. Will hopefully rest for a while after this but can't see myself ever stopping work - quite enjoy it and get bored easily when not working.
I'm not short of money and at the moment take out salary and dividends up to the basic rate tax limit.

Anyway, I've had the company for over 15 years and it has about £350k in it. I have some money in notice accounts - up to 6 months, not sure if I can close these early with penalties.

My accountant suggests that I should wait until I retire then take the money out slowly with dividends (problem is tht I can't see myself ever retiring completely) and also that I might have problems if I close the company but carry on working.

Would this be fairly straightforward or might I have issues - do you think my accountants advice is good?

[Greg@CapitalCity]

I can see a few issues her that you need to speak with your accountant about;

(1) Investment company - does the high level of savings you have accrued shift the status of your company from a trading company to an investment company? You have not mentioned anything about this so I guess your accountant still considers it to be a trading coming, but if your consulting income drops significantly in proportion to your investment activity its an area you are going to have to consider. Two effects of being deemed an investment company are (i) you pay the main corporation rate on your profits, (ii) you can't use Entrepreneurs Relief. Have a read of this; CG64060 - Entrepreneurs? Relief: trading company and holding company of a trading group - meaning of "in the course of, or for the purposes of, a trade"

(2) Closing down your company but continuing to work. You have probably heard of phoenix'ing, where a company is wound up, a capital gain extracted tax efficiently, and trading then resumed through a new ltd company. This may be a problem your accountant is alluding to, and S.703 ICTA 1988 'Cancellation of a tax advantage from certain transactions in securities' is the troublemaker, and the HMRC can undo any tax advantage gained.

(3) Slowly taking dividends? I don't know - its sounds like a prolonged form of agony to me. Then you have the investment company issue to grapple with, and on-going accountants fees. Tax-wise though its probably a fair option.

[nrsql]

I'd like to close my company and claim entrepreneur's relief.
I've tried retiring a few times - I lasted 3 months recently before accepting a 3 month contract. Will hopefully rest for a while after this but can't see myself ever stopping work - quite enjoy it and get bored easily when not working.
I'm not short of money and at the moment take out salary and dividends up to the basic rate tax limit.

Anyway, I've had the company for over 15 years and it has about £350k in it. I have some money in notice accounts - up to 6 months, not sure if I can close these early with penalties.

My accountant suggests that I should wait until I retire then take the money out slowly with dividends (problem is tht I can't see myself ever retiring completely) and also that I might have problems if I close the company but carry on working.

Would this be fairly straightforward or might I have issues - do you think my accountants advice is good?