Er relief and MVL

[jarjarbinks]

hi all,
I am newbie on the forum, looking for some advice and maybe this has already been asked:

I have been contracting for a while now and looking to go permanent due to personal reasons, mainly being closer to home.

Can I close down my company and claim ER relief ? my accountant is not too sure of going down that route as there are significant funds close to £170k and he said that it can be argued as to whether ER is applicable in this case. He also suggested that if I do close down then the money can be distributed as capital distribution and will be taxed at 20%. I am a bit confused as I assumed that It would be taxed at the dividend tax rate of 37.5% if i do not claim ER relief.

Many Thanks

[jamesbrown]

A capital distribution receives CGT treatment. The ER is something you additionally claim on your SATR and is a completely separate thing. The MVL deals with the former. The ER is your job, but the bar is lower.

Based on the info provided, and assuming it's a trading company and not a CIHC, it doesn't sounds like you'd be at risk from the TiS legislation, and I don't think the size of the distributable profits matters. If you distribute the profits without an MVL/capital distribution then, sure, it will be a dividend distribution (or salary if your prefer).

[Maslins]

By going through an MVL, the distributions will be taxed as capital gains, unless you fall foul of the "TAAR" (basically you restarting doing the same thing within 2 years). If you did contract again via a Ltd Co soon, the distributions will be taxed as dividends, so probably mostly at 32.5%.

Assuming you don't restart within 2 years, and you're a higher rate taxpayer, then capital gains on share sale (which is what this would be an equivalent of) is 20%. This is likely what your accountant is referring to.

However, even though I appreciate the company presumably now has a hefty cash balance that's way more than what would realistically be required for working capital, as you've been a contractor then I would expect that:
- over 80% of your profit has been from trading income, rather than investment.
- over 80% of your time has been on trading income, rather than investment.
- over 80% of your business expenses have been related to trading income, rather than investment.
If you tick all 3 of those boxes, and meet the more standard criteria for entrepreneurs relief (eg company been trading at least 2 years, you're a director, with >5% shares), then you should suffer just 10% personal tax.

[northernladuk]

OP.. Maslins hasn't commented but they run they MVLOnline solution as well as being contractor specialist accountants. A number of our respected posters have used this service including, I believe, one of our moderators in a situation the same as yours.

He's not allowed to advertise on the forums so I thought I'd mention it.

As you can see he's already supplied more information than your accountant has so, particularly with those sums your best bet is to give them a ring and let them handle it for you.

Members Voluntary Liquidation | MVL Online(R)

Also, it has been asked before and here is a particularly good thread going through it all in detail. You might recognize someone in it!

https://www.contractoruk.com/forums/...mvlonline.html

[jarjarbinks]

OP.. Maslins hasn't commented but they run they MVLOnline solution as well as being contractor specialist accountants. A number of our respected posters have used this service including, I believe, one of our moderators in a situation the same as yours.

He's not allowed to advertise on the forums so I thought I'd mention it.

As you can see he's already supplied more information than your accountant has so, particularly with those sums your best bet is to give them a ring and let them handle it for you.

Members Voluntary Liquidation | MVL Online(R)

Also, it has been asked before and here is a particularly good thread going through it all in detail. You might recognize someone in it!

https://www.contractoruk.com/forums/...mvlonline.html

Many thanks for all your replies.I will get in touch with Maslins.

[Montymoore]

You could have a look at this for info as well

The document is a bit old but the rules haven't changed

https://www.companyrescue.co.uk/file...-mvl-guide.pdf

[CompoundOverload]

From a tax perspective, the capital distribution that is paid out (after CGT is applied), how is this viewed in terms of gross income? Is it shown as investment income / income from a company as I don't believe it is subject to income tax and NI and so wouldn't be included in "gross earnings"?

[WordIsBond]

From a tax perspective, the capital distribution that is paid out (after CGT is applied), how is this viewed in terms of gross income? Is it shown as investment income / income from a company as I don't believe it is subject to income tax and NI and so wouldn't be included in "gross earnings"?

If you sell shares at a profit are they included in "gross earnings"? Why would you think this CG would be?

[bstar1]

hi all,
I am newbie on the forum, looking for some advice and maybe this has already been asked:

I have been contracting for a while now and looking to go permanent due to personal reasons, mainly being closer to home.

Can I close down my company and claim ER relief ? my accountant is not too sure of going down that route as there are significant funds close to £170k and he said that it can be argued as to whether ER is applicable in this case. He also suggested that if I do close down then the money can be distributed as capital distribution and will be taxed at 20%. I am a bit confused as I assumed that It would be taxed at the dividend tax rate of 37.5% if i do not claim ER relief.

Many Thanks

Your accountant is misleading you !, Contact Nixon Williams for ER, I went with them last year and they were great!

[CompoundOverload]

If you sell shares at a profit are they included in "gross earnings"? Why would you think this CG would be?

Sorry, laymans terms please.....