Question about non-trading periods

[Scotslaw]

I was wondering if anyone has knowledge or experience they can share about periods when the ltd isn't trading.
The lack of trading could be a lull between contracts, or could be a long hiatus at the end of contracting.
What sort of financial activities are still acceptable from a ltd view and for how long?

I have heard that because the ltd is specifically set up as a contracting/consultancy, any expense unrelated to that line of work isn't considered by HMRC as a legitimate business expense, and could potentially be seen as personal income of the sole director. Is this the case?

If the only expense incurred in such non-trading periods is employee salary, how long could that continue for? Could remaining funds in the ltd be used as a source of income until they're exhausted (effectively a pension), on the same basis as when the company is trading? I have come across conflicting views on this as well.

[Craig@Clarity]

Just bear in the mind the guideline of wholly and exclusive for the purpose of the business in order to decide whether you should continue to put through expenditure through the company. If the company doesn't have a current contract but is actively seeking another one, the company is still trading. It just isn't making any sales yet. Same principal as a double glazing salesman (do these still exist?), if they went round knocking on doors but didn't make any sales, I would argue they're still trading but haven't yet generated any sales. As such, any costs incurred in between contracts wholly and exclusive is fine to put through. Usual costs would be travel, stationery, postage, IT equipment, annual party etc. If you have a salary in the company, that's fine to continue.

There isn't a definitive length of time that states you can be in hiatus before you stop accepting costs through the company. Just be sensible. If you wanted to use the company as a pension, then there's nothing stopping you continuing with a salary but perhaps dividends payouts maybe another option?

[Scotslaw]

Just bear in the mind the guideline of wholly and exclusive for the purpose of the business in order to decide whether you should continue to put through expenditure through the company. If the company doesn't have a current contract but is actively seeking another one, the company is still trading. It just isn't making any sales yet. Same principal as a double glazing salesman (do these still exist?), if they went round knocking on doors but didn't make any sales, I would argue they're still trading but haven't yet generated any sales. As such, any costs incurred in between contracts wholly and exclusive is fine to put through. Usual costs would be travel, stationery, postage, IT equipment, annual party etc. If you have a salary in the company, that's fine to continue.

There isn't a definitive length of time that states you can be in hiatus before you stop accepting costs through the company. Just be sensible. If you wanted to use the company as a pension, then there's nothing stopping you continuing with a salary but perhaps dividends payouts maybe another option?

Thanks Craig that makes it clearer and aligns with what I believed to be the case.
Do you have a view on how HMRC would treat a situation if company funds were used to pursue business activities, which weren’t directly related to the stated purpose of the business.
For example, investment of the company funds into investable assets, for the sole purpose of capital appreciation.

Or for development of a prototype for a startup, which isn’t IT contracting.
Or investment into another company which I might want to start up/join as director.

I’m wondering if I were to wind up contracting and go down the start up route, if I would have to wind down my Ltd.

[Chart Accountancy]

Thanks Craig that makes it clearer and aligns with what I believed to be the case.
Do you have a view on how HMRC would treat a situation if company funds were used to pursue business activities, which weren’t directly related to the stated purpose of the business.
For example, investment of the company funds into investable assets, for the sole purpose of capital appreciation.

Or for development of a prototype for a startup, which isn’t IT contracting.
Or investment into another company which I might want to start up/join as director.

I’m wondering if I were to wind up contracting and go down the start up route, if I would have to wind down my Ltd.

This would imply that you will be turning your existing company into an investment company. If you would like to rather have your current company kept as a trading company, you could look into setting a separate company. It would be best to discuss with your accountant the best structure most suited for what you would like to achieve in the future.