Reply to: Closing company cost effectively

[Martin at NixonWilliams]

Why not max out your pension contribution from your perm salary then take dividend up to the 40% bracket?

Whilst this is sometimes a good idea, I suspect it would take a very large contribution to make this work.

For example, on an £80,000 salary a net contribution of £30,500 would be required just to bring the higher rate threshold in line with the salary. You would therefore need to contribute more than this amount to withdraw the funds from the company tax free.

[Martin at NixonWilliams]

Have a bit of a dilemma; I've been perm for a while and never closed down the company. Currently paying £114/month for nothing; company has zero turnover/income. There's a few tens of thousands sitting around in the company and from all the reading I've done, it looks like I'll get hit at the higher tax rate if I decide to take it out as a result of my perm income.

All in all, net of all CT paid, fees, and now this additional income tax, the contracting work I did looks like it's yielding me around 50% of what was an extraordinarily low rate to begin with... seems all not worth it.

Is there really no better way to close the company and withdraw what's rightfully earned without having to give it all away!!

You will only pay higher rate tax if you withdraw the funds as dividends.

If you qualify for entrepreneurs relief you could withdraw the funds as capital, paying tax at just 10%. The first £11,000 would also be tax free assuming you have no other capital gains in the year.

Your accountant should be able to review your circumstances and advise you of the best way of extracting the funds.

I hope this helps.

Martin

[eek]

Have a bit of a dilemma; I've been perm for a while and never closed down the company. Currently paying £114/month for nothing; company has zero turnover/income. There's a few tens of thousands sitting around in the company and from all the reading I've done, it looks like I'll get hit at the higher tax rate if I decide to take it out as a result of my perm income.

All in all, net of all CT paid, fees, and now this additional income tax, the contracting work I did looks like it's yielding me around 50% of what was an extraordinarily low rate to begin with... seems all not worth it.

Is there really no better way to close the company and withdraw what's rightfully earned without having to give it all away!!

Wouldn't closing the company down result in a capital gain with the possibility of entrepreneur reliefs knocking the tax down to 10%.

[Olly]

Have a bit of a dilemma; I've been perm for a while and never closed down the company. Currently paying £114/month for nothing; company has zero turnover/income. There's a few tens of thousands sitting around in the company and from all the reading I've done, it looks like I'll get hit at the higher tax rate if I decide to take it out as a result of my perm income.

All in all, net of all CT paid, fees, and now this additional income tax, the contracting work I did looks like it's yielding me around 50% of what was an extraordinarily low rate to begin with... seems all not worth it.

Why not max out your pension contribution from your perm salary then take dividend up to the 40% bracket?

[dmo]

Have a bit of a dilemma; I've been perm for a while and never closed down the company. Currently paying £114/month for nothing; company has zero turnover/income. There's a few tens of thousands sitting around in the company and from all the reading I've done, it looks like I'll get hit at the higher tax rate if I decide to take it out as a result of my perm income.

All in all, net of all CT paid, fees, and now this additional income tax, the contracting work I did looks like it's yielding me around 50% of what was an extraordinarily low rate to begin with... seems all not worth it.

Is there really no better way to close the company and withdraw what's rightfully earned without having to give it all away!!

[Pondlife]

There's noooooo way the OP is an accountant IMHO.

...and therefore referring to 'My client' just adds confusion. If they'd phrased the question as "I didn't know what I was doing and so have come a cropper", they might have had a better response. Again IMHO.

[Clare@InTouch]

I can understand wanting to help a client who has gone ahead and done something without realising the implications, it happens a lot. But a professional accountant should know better than to try to lie, and should know when to say "it's pants, but it's kinda your own fault, this is what your options now are" - why would you risk being kicked out of your professional bodies to help someone who did something without asking for help first, and who genuinely owes tax? Unless you don't have a professional body to be kicked out of.....?

[GazCol]

Then she is a crap accountant if she asked in the General section of a contractor's forum.

Or a troll.

Ability isn't in question (crap is being kind, fwiw) - but blame is squarely with anybody that takes action as drastic as closing down a company without seeking any kind of advice first.

Fair play for seeking advice - I'd have just said laters to the client.

[cojak]

If there's a faint possibility that Joanne is not a troll:

Tell your client that she's learned a harsh business lesson - ask your accountant before doing anything radical with your company.

And your lesson is go back to your accounting books and learn about this in more detail...

[cojak]

This thread is also on AccountingWeb - given there's more backstory there I think it's harsh to blame Joanne as her client seems to have acted without advice and off her own back when closing the company.

Then she is a crap accountant if she asked in the General section of a contractor's forum.

Or a troll.

[Pondlife]

"My client"

[TheFaQQer]

This thread is also on AccountingWeb - given there's more backstory there I think it's harsh to blame Joanne as her client seems to have acted without advice and off her own back when closing the company.

Given that the OP asks questions like

Her partner is a lower rate tax payer. Can he receive a payment? Do payments have to be paid before the company closed. He's not a shareholder but is that checked ?

, I can almost understand that the client didn't ask / follow their advice.

Having read the thread on AccountingWeb (link) I'm with the experts over there - it looks like a professional advisor is asking if there is any way that they can easily lie to reduce their client's tax liability because people cocked up. If my accountant was asking questions like that, I'd be incredibly scared.

[GazCol]

This thread is also on AccountingWeb - given there's more backstory there I think it's harsh to blame Joanne as her client seems to have acted without advice and off her own back when closing the company.

[kal]

My client has closed her company with. 55k of dividends in final accounts last year but now wants to see is she can reduce her tax bill . Two months before it closed it has 20k, can this be classed as capital or will this trigger an enquiry. If she reinstated the company through the courts what happens to the money taken out. Does this need to go into SElf assessment or can she say earlier costs paid were actually dividends reducing the final bill to 33k. She's a young mum and in a real state about this so any advice would be good. Thank you!

Ship has sailed with respect to EA , pay the tax and move on.

[MicrosoftBob]

Young mums can't get professional advice when they close their companies and take out £55k in cash. They're too busy being MILFs

FTFY