Reply to: Share buy back

[Bradley]

Uniform rate

I see. So (in my case) the payments made this year will qualify for the 75% relief so the 50k comes down to 12.5k for CGT purposes. If the remaining payment is not made till next tax year (which may happen but is unlikkely) then due to the non trading nature of the company they will not get the taper relief.

No the reduced taper rate would apply to all payments not just the last payment.

[ASB]

What you may find is that HMRC will say that full taper relief is not due at 75% because of the length of time that the company has been non-trading.

I see. So (in my case) the payments made this year will qualify for the 75% relief so the 50k comes down to 12.5k for CGT purposes. If the remaining payment is not made till next tax year (which may happen but is unlikkely) then due to the non trading nature of the company they will not get the taper relief.

[Bradley]

Tainted

2) Apply for ESC C16. Pay an interim 40k this year. Pay remainder next year. Need to find out if the concession allows for staged payments (don't really see why not, since that is what happens in a formal liquidation). We will be maiking 3 sets of payments. The first cleared out the banks account. The second will come from the IR which is 2 x incentive payments. The third, also from the IR which is the repayment interest.

Obviously you would need a valid reason for the extended period of time. Perhaps there are somne bills trhat will take time to collect, or maybe you need to transfer domaiun names on expiry or similar.

What you may find is that HMRC will say that full taper relief is not due at 75% because of the length of time that the company has been non-trading. For example, company ceases to trade 31st March 2006 and makes the application under ESC C16 by 30th April. The 1st capital payment is 31st May. You'd then have to wait until 6th April 2007 to make the next capital payment to get it into the next tax year. HMRC would say that non-trading year means that 1 year out of all the years the company has been in existence doesn't qualify for 75% taper relief. It's probably easier to cease trading and start to wind up at the end of a calendar year therefore.

[ASB]

No, there is no mrs pickle to split the pot with, so I am looking at CGT bill of 5k ish.

I'm just going down this road at the moment, but I managed to get round it by paying dividends in the last tax year to about the 22% band to me and Mrs ASB. This only left about 50k in the pot which I paid on wind up.

Some possibilities which might be worth you considering:-

1) Don't wind up "old co", Run New Co and trad through that. Pay divis from OLD co until such point as the retained fund is < cgt limit. (No idea if the taxman will like it though]. I think he has was of consolidating closely related trading companies.

2) Apply for ESC C16. Pay an interim 40k this year. Pay remainder next year. Need to find out if the concession allows for staged payments (don't really see why not, since that is what happens in a formal liquidation). We will be maiking 3 sets of payments. The first cleared out the banks account. The second will come from the IR which is 2 x incentive payments. The third, also from the IR which is the repayment interest.

Obviously you would need a valid reason for the extended period of time. Perhaps there are somne bills trhat will take time to collect, or maybe you need to transfer domaiun names on expiry or similar.

[pickle]

no mrs pickle

No, there is no mrs pickle to split the pot with, so I am looking at CGT bill of 5k ish.

The share buy back was my consideration for tyring to split it over two years. If anyone has any smarter ideas I would love to hear from them. I think the porblem with many of the more exotic schemes out there is that the cost of the work to get them implemented barley makes it worth it, for a 5k saving.

I dont think the Inland Rev will have a problem with me going on holiday and comming back to a contract. Obviously you have to sell it as something else "I just changed my mind whilst sat on the beach" is probably enough.

And ill be careful to register the new ltd co under a different tax office, so as not to smear there nose in it, so to speak.

[ASB]

http://www.hmrc.gov.uk/manuals/ctmanual/CTM36850.htm

I *think* that is different. It is also covered as case e here. http://www.hmrc.gov.uk/manuals/ctmanual/CTM36875.htm

The link you posted refers to a transaction in securities AND subsequent winding up. In the case of ESCC16 there is no transaction in securities.

However it would seem to stymie the idea of doing a buyback of half the shares in one year and then liquidating the next.

[ASB]

and given the small amount of Capital gains I will have to pay on 90k

Assuming you get the taper relif then this comes down to 22.5k. Taking out your allowance then this still leaves 14k chargable. This is likely to give a CGT bill of of 5,600. [Unless of course there is a Mrs Pickle also holding half the shares]

I would think that for 5.6k exploring whether you can spread across two tax year is worth investigating.

[Bradley]

Avoidance

They didn't ask me. They just insisted the company was struck off.

http://www.hmrc.gov.uk/manuals/ctmanual/CTM36850.htm

[ASB]

To get the reserves out when you close the company you have to say that you are not going to trade again otherwise they'll treat the cash out as a whopping big dividend and not as capital repaid. That usually means more tax.

In other words you can't close down, go on holiday for a while and then reincorporate.

They didn't ask me. They just insisted the company was struck off.

[Bradley]

Avoidance

Well, for info guys, after seeking profesional advice (thanks - u know who u r), I am just going to close the ltd down in december at the end of current contract, go on holiday over xmas, and come back and sign any renewal under a brand spanking new ltd co. It seems the Inland Rev will be suss to my reason for the buy back, and given the small amount of Capital gains I will have to pay on 90k when I close co. down its just not worth the hassle of going down the buy back route.

Not sure what I'll do with all those free branded pens I keep getting sent with the old companies name on though......

To get the reserves out when you close the company you have to say that you are not going to trade again otherwise they'll treat the cash out as a whopping big dividend and not as capital repaid. That usually means more tax.

In other words you can't close down, go on holiday for a while and then reincorporate.

[pickle]

I think that only applies if it is the main reason. I imagine that the OP is not really interested in using their CGT allowance. Really I think that the company believes it has too much capital employed for it's needs and therefore want to launch the buyback.

Whether the inspector will buy that is a different question.

Well, for info guys, after seeking profesional advice (thanks - u know who u r), I am just going to close the ltd down in december at the end of current contract, go on holiday over xmas, and come back and sign any renewal under a brand spanking new ltd co. It seems the Inland Rev will be suss to my reason for the buy back, and given the small amount of Capital gains I will have to pay on 90k when I close co. down its just not worth the hassle of going down the buy back route.

Not sure what I'll do with all those free branded pens I keep getting sent with the old companies name on though......

[ASB]

Simon - I always thought that you were specifically barred from buying back your own shares if tax avoidance was one of the reasons for so doing?

I think that only applies if it is the main reason. I imagine that the OP is not really interested in using their CGT allowance. Really I think that the company believes it has too much capital employed for it's needs and therefore want to launch the buyback.

Whether the inspector will buy that is a different question.

[Bradley]

Avoidance

Yep, can be done, but a fair amount of work. Mail me at the usual and I can give you a quote and some details.

Simon - I always thought that you were specifically barred from buying back your own shares if tax avoidance was one of the reasons for so doing?

[Hex]

correction: 32.5% of the gross amount (25% of the net)

Nope - Total tax liability is 32.5 of the gross amount. So, given there is a 10% tax credit the extra tax payable is 22.5% of the gross amount which equates to 25% of the net amount.

32.5% of the gross amount could only be the same as 25% of the net amount if the net was a larger amount than the gross.

[XLMonkey]

[I]Once you go over the £38,335 you have to pay 22.5% of the gross amount of the dividend in extra tax.

correction: 32.5% of the gross amount (25% of the net)