To close LTD down or not?

[CoolCat]

Hi,

Apology if this has been discussed.

I have now accumulated significant amounts of money in my company and although I confirmed with my client I will get a contract outside IR35 from April 2021 I am considering closing my co.

The reason for that is I am worried about the impending CGT and Income tax raises knowing the current situation and the government borrowing that ensued.

What are your opinions on the matter? Are there any signs of taxation going through the roof from April 2021?

Thanks.

Generate lots of legit business expenses

[Lance]

You can't draw dividends @ 7.5% if you are gainfully employed elsewhere into the higher tax brackets. And what if you have a lifetime's worth of capital in the business account (£100k, £300k, £500k whatever) - it would take years to draw that down.

There are many reasons to close the company. Some will choose to proactively MVL because they fear tax disadvantages. For example, if you have been contracting 20 years and you have £500k retained capital in your Ltd, but there is a proposed tax change coming up that could ruin your retirement plan, then you might well choose to end your contract career early and liquidate the company to ensure efficient tax treatment. Why work another 2 years to earn £100k (net) into your business, when that £100k will all go to pay the new higher taxes.

then just take £2k a year out. Until you retire when you take out c. £50k a year. Don't take your pension until the LTD funds have run down.
And LTD can also pay into pensions.

I get your point if the warchest is massive, and you're still young, then maybe, but not if you can still take £100k+ a year in revenue as opposed to a £60k permie job.
I bet there are very few actual scenarios where it does make sense to close the LTD when contract work is still available.

I just think the OP and some of the other posters are being a bit simplistic. Your suggestion is perfectly valid in the right circumstance (as is mine).

[ChimpMaster]

but why???????

Even if CGT goes up to 40% (seriously unlikely as.... Tories... landowners... capital) you can draw dividends still. 7.5% is less than 10% CGT with ER anyway.... Just drip feed based on your circumstances year on year.

Yes you'll have £1,000 a year accountancy fees (or less if you deregister from VAT and ask accountant to discount). That £1,000 can be relieved against previous CT bills.
ER might be scrapped, but not relevant if not closing the company.

the ONLY reason to close the company is if you are forced to go inside IR35 and there's very little chance of contracting in 2 years. This really shouldn't be a debate IMO

You can't draw dividends @ 7.5% if you are gainfully employed elsewhere into the higher tax brackets. And what if you have a lifetime's worth of capital in the business account (£100k, £300k, £500k whatever) - it would take years to draw that down.

There are many reasons to close the company. Some will choose to proactively MVL because they fear tax disadvantages. For example, if you have been contracting 20 years and you have £500k retained capital in your Ltd, but there is a proposed tax change coming up that could ruin your retirement plan, then you might well choose to end your contract career early and liquidate the company to ensure efficient tax treatment. Why work another 2 years to earn £100k (net) into your business, when that £100k will all go to pay the new higher taxes.

[Lance]

snip>>> I have to rethink because if ER won't be targeted then I can use dividends to draw <<<<snip

eh???

[fandyman]

This is a hard decision and the uncertainty caused by this government is nothing short of disastrous. I don't blame you for considering closing down your company at this stage, and in your situation.

CGT might well be targeted in the budget but not many professionals/advisors think that ER will be affected - at least not for a while, considering it was already scaled back last time.

You could MVL and remain contracting under an umbrella, though probably not advisable at the same client. And if you're considering going permie at the same client, make sure it is for a completely different role to the one you're currently contracted for.

Normally I would suggest closing the company if you're at the end (or near to end) of your contracting career. I certainly am - there is no work for me in the whole of the UK in my skillset, so logically it's a good time to MVL.

Hopefully you have a good skillset that is future proof, in which case you could close down the business and take a perm job elsewhere for a few years, and after that decide whether to return to contracting or remain in a perm career. This way you would get your funds out to buy that house with.

This seems to me like the best reply so far and thank you for that.

My main concern is with house purchase on the horizon next year I will need the funds extracted from my co and with the higher taxes next year looming I was thinking it is the right moment to close and pay 10% with CGT on ER instead of 32.5% with dividends.

But I agree I have to rethink because if ER won't be targeted then I can use dividends to draw and pay for the house and stay in contracting for another few years hoping that I will recoup the difference and more.

I also agree with heyya99 that going permie is a mid to long term decision so I need to write down few possible scenarios that may play out for the next couple of years.

Thanks all for your replies so far.

[Lance]

Is a good reply.

I’m in a similar situation as the OP myself.

I’m considering staying at the same company flipping to umbrella(if I have to). I know the risks, and the only consideration I have is whether I close my limited company down via MVL(no ER changes dependant) or I keep it going until I can hopefully get another outside role somewhere in the future.

but why???????

Even if CGT goes up to 40% (seriously unlikely as.... Tories... landowners... capital) you can draw dividends still. 7.5% is less than 10% CGT with ER anyway.... Just drip feed based on your circumstances year on year.

Yes you'll have £1,000 a year accountancy fees (or less if you deregister from VAT and ask accountant to discount). That £1,000 can be relieved against previous CT bills.
ER might be scrapped, but not relevant if not closing the company.

the ONLY reason to close the company is if you are forced to go inside IR35 and there's very little chance of contracting in 2 years. This really shouldn't be a debate IMO

[BABABlackSheep]

This is a hard decision and the uncertainty caused by this government is nothing short of disastrous. I don't blame you for considering closing down your company at this stage, and in your situation.

CGT might well be targeted in the budget but not many professionals/advisors think that ER will be affected - at least not for a while, considering it was already scaled back last time.

You could MVL and remain contracting under an umbrella, though probably not advisable at the same client. And if you're considering going permie at the same client, make sure it is for a completely different role to the one you're currently contracted for.

Normally I would suggest closing the company if you're at the end (or near to end) of your contracting career. I certainly am - there is no work for me in the whole of the UK in my skillset, so logically it's a good time to MVL.

Hopefully you have a good skillset that is future proof, in which case you could close down the business and take a perm job elsewhere for a few years, and after that decide whether to return to contracting or remain in a perm career. This way you would get your funds out to buy that house with.

Is a good reply.

I’m in a similar situation as the OP myself.

I’m considering staying at the same company flipping to umbrella(if I have to). I know the risks, and the only consideration I have is whether I close my limited company down via MVL(no ER changes dependant) or I keep it going until I can hopefully get another outside role somewhere in the future.

[ChimpMaster]

This is a hard decision and the uncertainty caused by this government is nothing short of disastrous. I don't blame you for considering closing down your company at this stage, and in your situation.

CGT might well be targeted in the budget but not many professionals/advisors think that ER will be affected - at least not for a while, considering it was already scaled back last time.

You could MVL and remain contracting under an umbrella, though probably not advisable at the same client. And if you're considering going permie at the same client, make sure it is for a completely different role to the one you're currently contracted for.

Normally I would suggest closing the company if you're at the end (or near to end) of your contracting career. I certainly am - there is no work for me in the whole of the UK in my skillset, so logically it's a good time to MVL.

Hopefully you have a good skillset that is future proof, in which case you could close down the business and take a perm job elsewhere for a few years, and after that decide whether to return to contracting or remain in a perm career. This way you would get your funds out to buy that house with.

[jayn200]

You just need to model out some scenarios and make a decision.

Figure out what 5 years is gonna look like if you go perm, contract inside, or contract outside.

Remember to take into account your house purchase and extracting money for that.. And if you are really concerned about ER going away then include that as well or model it separately. I know it might seem tedious but without looking at the numbers it's all just a wild guess.

[heyya99]

Hi,

Apology if this has been discussed.

I have now accumulated significant amounts of money in my company and although I confirmed with my client I will get a contract outside IR35 from April 2021 I am considering closing my co.

The reason for that is I am worried about the impending CGT and Income tax raises knowing the current situation and the government borrowing that ensued.

What are your opinions on the matter? Are there any signs of taxation going through the roof from April 2021?

Thanks.

I can understand the anxiety. You've built up a sizeable warchest and want to keep that. With impending IR35 changes, I closed and went perm but I was ready to tbh. It sounds like you're not ready to. You don't know what changes will be rolled out in the next budget, and you have an outside iR35 contract post April 2021, I'd hold on to that. Hold onto your seat and ride this out. Even if there's a tax apocalypse, you'll still make more in your contract to still be financially better off with keeping contracting, imo.

It sounds like you're panicking about changes that might not be implemented (something I'm guilty of) and you might regret it. I'd only go perm if you plan to do that for the medium/long term.

EDIT: My post didn't include your desire to purchase property. That's the reason I was happy to MVL and put money to a deposit.

[ladymuck]

Why do you have to be a permie to move house?

[Lance]

Sounds more like the tax tail wagging the business dog.

If you’ve got a lucrative, outside IR35, contract likely to go beyond April, why on earth would you walk away from that to save some tax?
How does halving, or worse, your income sound?

[fandyman]

are you going to quit contracting?
If not then don't do it.

Google TAAR.


Edit: how is it you know about CGT but not the fact that you can’t just close one company and open another? Do some research (not much. It’s pretty bloody basic this)

I would consider staying on a contract but am planning to move house and need to withdraw the funds from the company somehow so the only reasonable way would be to close down and go permie.

I am aware about TAAR and am not planning to open another company to work around dividend tax if that is what you were suggesting.

I was wondering what do ppl think about current situation and the fact there is going to be significant increase in taxes in general in the new tax year.

Seemed to me like a right moment to wind up and go permie for at least 2 years even though I could secure a new contract with a client. It would also mean getting the money out in most tax efficient and legal way.

[Lance]

To close LTD down or not?

Hi,

Apology if this has been discussed.

I have now accumulated significant amounts of money in my company and although I confirmed with my client I will get a contract outside IR35 from April 2021 I am considering closing my co.

The reason for that is I am worried about the impending CGT and Income tax raises knowing the current situation and the government borrowing that ensued.

What are your opinions on the matter? Are there any signs of taxation going through the roof from April 2021?

Thanks.

are you going to quit contracting?
If not then don't do it.

Google TAAR.


Edit: how is it you know about CGT but not the fact that you can’t just close one company and open another? Do some research (not much. It’s pretty bloody basic this)

[fandyman]

Hi,

Apology if this has been discussed.

I have now accumulated significant amounts of money in my company and although I confirmed with my client I will get a contract outside IR35 from April 2021 I am considering closing my co.

The reason for that is I am worried about the impending CGT and Income tax raises knowing the current situation and the government borrowing that ensued.

What are your opinions on the matter? Are there any signs of taxation going through the roof from April 2021?

Thanks.