closing limited company by liquidation

[Martin at NixonWilliams]

I, along with my friend have started a limited company in 2011. I had done contract jobs till 2012 and have currently taken up a permanent job which is on a 40% tax band. My friend too has moved out opened a different limited company as he is doing contracting.

For the years 2011 and 2012, we have run our payroll for around 45K each from the limited company. We have paid all the corporation and taxes and we never took dividends. There is around 100K left in the company account. We are planning to close the company and take out the money.

For this, our accountant has suggested us to liquidate the company with a professional insolvency practitioner and that we pay 10% tax on the total money we have.

I have a few doubts regarding this approach:

a. Is it advisable to place our company under liquidation?
b. Will there be any impact for us to operate any company in future?
c. How much personal tax should we be paying for the money I got after doing liquidation?

Could you please advise.

A liquidation in your case does seem like the best approach. However, double check that you are actually eligible for entrepreneurs relief before you go ahead with the liquidation. If you are not eligible, the liquidation could be a very expensive mistake as you would be better off taking dividends at a rate of 25% (allowing for your capital gains free allowance). The reason for this is because a formal liquidation would not be required if dividends are taken, and the effective rate of tax on the dividends (25%) would be more favourable than the 28% you would pay if the funds were taken as capital.

As part of your planning you should also consider the likelihood of any further capital gains you might have in the 2013/14 year as this may affect the tax you pay on the closure of your company. For example, the sale of a property that is not your primary residence or any shares you hold in other companies.

There is nothing to worry about in terms of the liquidation. Even if you do not go through with the formal liquidation the company will still techincally be liquidated, but informally.

Martin

[Andrew@Wisteria]

I, along with my friend have started a limited company in 2011. I had done contract jobs till 2012 and have currently taken up a permanent job which is on a 40% tax band. My friend too has moved out opened a different limited company as he is doing contracting.

For the years 2011 and 2012, we have run our payroll for around 45K each from the limited company. We have paid all the corporation and taxes and we never took dividends. There is around 100K left in the company account. We are planning to close the company and take out the money.

For this, our accountant has suggested us to liquidate the company with a professional insolvency practitioner and that we pay 10% tax on the total money we have.

I have a few doubts regarding this approach:

a. Is it advisable to place our company under liquidation?
b. Will there be any impact for us to operate any company in future?
c. How much personal tax should we be paying for the money I got after doing liquidation?

Could you please advise.

Seems the correct approach - You should get in touch with a decent insolvency Practitioner as remaining funds are over £25k - try this guy....
Simon Renshaw | Accura Accountants Ltd | London

For future reference you should have taken only c.£7k salary and the rest of the £45k in dividends to reduce your NI bill.

Andrew

[Mik]

Thanks a lot for your reply

Thanks a lot for your reply

[Jessica@WhiteFieldTax]

A - it's likely to be the most tax efficient option
B - a solvent members voluntary liquidation should have no impact on running a coolant in the future. That's the legal position. In practice some people have reports blights to their credit record, but I would imagine they can be corrected.
C - all other thing seeing equal 10% on the balance after Corporation Tax paid. Exemption on approx £10k. Compares to 22.5% for a dividend in base rate.

[northernladuk]

You could try searching the forums. Use the search as shown below and use the term liquidation or something like. You will find quite a few posters that had done liquidation..

http://forums.contractoruk.com/welco...uk-forums.html

[Mik]

I, along with my friend have started a limited company in 2011. I had done contract jobs till 2012 and have currently taken up a permanent job which is on a 40% tax band. My friend too has moved out opened a different limited company as he is doing contracting.

For the years 2011 and 2012, we have run our payroll for around 45K each from the limited company. We have paid all the corporation and taxes and we never took dividends. There is around 100K left in the company account. We are planning to close the company and take out the money.

For this, our accountant has suggested us to liquidate the company with a professional insolvency practitioner and that we pay 10% tax on the total money we have.

I have a few doubts regarding this approach:

a. Is it advisable to place our company under liquidation?
b. Will there be any impact for us to operate any company in future?
c. How much personal tax should we be paying for the money I got after doing liquidation?

Could you please advise.