Company restructuring

[ITandArty]

Dear All,

If there is a small company with two directors (husband and wife) and the shares are split 51(Husband):49(Wife)
The activity of the company is IT contracting, IT R&D and Art creation. The husband covers the IT areas, with the wife creating the art and doing the administration, with the Directors fees / salary split roughly 66-33 % in favour of the husband.
So far all the money has come from contracting as the IT R&D is still ongoing (but made substantial progress) , but the art while being created is not selling.
If the IT contracting stops, what is the best way to restructure the company.

Arty

[malvolio]

Close it down? After all, it won't have an income...

[Paralytic]

If the IT contracting stops, what is the best way to restructure the company.

For what purposes? What is your goal?

As above, if you just want to get the money out, close down the company (look to pay dividends up to 7.5% threshold first). If you're still looking for more IT work, keep it going until work comes in. If your wife turns out to be Banksy, keep it open and perhaps speak to your accountant about changing the company activity.

[Lance]

I'm not sure that trying to sell art via a LTD. company is going to help.
For a start adding 20% VAT to every purchase won't help it sell (assumption that you are VAT regsitered).

Why not just move the art out and forget restructuring. If you get a perm job just close it.

[ITandArty]

Thanks for the replies so far I think I need to expand on my ideas.
Accepted the company either needs to close or go dormant for future use (if required), If the art business does not work. This is also self-created art not reselling, and yes I am vat registered
I was more thinking about strategies.
There is money in the bank more than can be used this year and stay in the basic tax bracket.
Some of the ideas were
1. Close the company and pay whatever fees and taxes are due, not giving the art side an opportunity.
2. I stop receiving a salary (buy any IT related assets), and I transfer all my shares to my wife. I don’t think capital gains tax applies as it’s a husband to wife transfer? This makes it a pure art business, with the existing funds in the bank. She then tries to make a go of it, and takes her directors fee and also dividends within the basic tax bracket. Next tax year we review the situation, removing more funds if necessary.
3. The business just keeps running (hoping for success) until we run out of money and then closes. No debts, just director’s fees & expenses.

Any other options, and pros / cons ?
I want to be completely legal.

Many Thanks
Arty

[Lance]

Thanks for the replies so far I think I need to expand on my ideas.
Accepted the company either needs to close or go dormant for future use (if required), If the art business does not work. This is also self-created art not reselling, and yes I am vat registered
I was more thinking about strategies.
There is money in the bank more than can be used this year and stay in the basic tax bracket.
Some of the ideas were
1.Close the company and pay whatever fees and taxes are due, not giving the art side an opportunity.
2.I stop receiving a salary (buy any IT related assets), and I transfer all my shares to my wife. I don’t think capital gains tax applies as it’s a husband to wife transfer? This makes it a pure art business, with the existing funds in the bank. She then tries to make a go of it, and takes her directors fee and also dividends within the basic tax bracket. Next tax year we review the situation, removing more funds if necessary.
3.The business just keeps running (hoping for success) until we run out of money and then closes. No debts, just director’s fees & expenses.

Any other options, and pros / cons ?
I want to be completely legal.

Many Thanks
Arty

I don’t understand why you’d run an art business this way.
What are we talking here?
Some paintings for retail? Crafts?
Wholesale supply of bought in art to retailers?

I assume that your wife draws stuff and wants to sell it. If that’s the case then I can’t see that a LTD is going to help.
The advantages of a Ltd setup are limited liability, which doesn’t help if my assumption is right, and tax efficiency from dividends, which is pointless if nothing sells.

[ITandArty]

She creates stuff for sale to retail. However if we ignore what she actually does, the point is there are multiple things the company does.
If we stop the main money providing area, which also means I won't have sufficient time for the development side , leaving just the art.
While i would like to get this going. If we can, Is it reasonable/legal to hand over my shares to her as a gift, so while giving her the opportunity to get art side working well she also has complete access to the company finances, which she can use for directors fee and dividends. Effectively drawing down on the money the company has, until its all used.
Arty

[pr1]

Cutting to the chase, are you wondering if you can stop contracting and start a permie job on a high salary whilst leaving the money in your company for your wife to draw down to avoid you paying high rate dividend tax on your 51% of the shares, rather than closing the company now

Correct?

As far as I know that's fine (but IANAL)

[Paralytic]

Cutting to the chase, are you wondering if you can stop contracting and start a permie job on a high salary whilst leaving the money in your company for your wife to draw down to avoid you paying high rate dividend tax on your 51% of the shares, rather than closing the company now

Correct?

As far as I know that's fine (but IANAL)

This. I do wish people would ask the question they want answered and not a sanitised version where they attempt to rationalise what they're really wanting to do.

At least he wasn't asking for a friend

Definitely worth checking with an accountant whether HMRC would look to involve TAAR, even for a spouse transfer of shares.

[WordIsBond]

Thanks for the replies so far I think I need to expand on my ideas.
Accepted the company either needs to close or go dormant for future use (if required), If the art business does not work. This is also self-created art not reselling, and yes I am vat registered
I was more thinking about strategies.
There is money in the bank more than can be used this year and stay in the basic tax bracket.
Some of the ideas were
1. Close the company and pay whatever fees and taxes are due, not giving the art side an opportunity.
2. I stop receiving a salary (buy any IT related assets), and I transfer all my shares to my wife. I don’t think capital gains tax applies as it’s a husband to wife transfer? This makes it a pure art business, with the existing funds in the bank. She then tries to make a go of it, and takes her directors fee and also dividends within the basic tax bracket. Next tax year we review the situation, removing more funds if necessary.
3. The business just keeps running (hoping for success) until we run out of money and then closes. No debts, just director’s fees & expenses.

Any other options, and pros / cons ?
I want to be completely legal.

Many Thanks
Arty

Ask your accountant about the legality but I see no issues with transferring all shares to Mrs.

You'd pay her a salary of £8.6K (tax free, and protects against Corp Tax on any small amount she makes on her art). You'd then pay divs up to the higher rate threshold with tax at 7.5% after the first 8K of the divs (in other words, after personal allowance and divs allowance). So, a little over £2K in taxes each year while you wind the funds down. If she ends up making a little money with her art, that's cool, it takes a little longer to wind the funds down. You also pay an accountant each year to process the accounts, etc. You'd presumably deregister from VAT since you'll have very low revenue and that way she doesn't have to charge it on what she sells.

The other probable alternative is to close the company (MVL) and claim Entrepreneur's Relief. That would mean you pay 10% tax on the distributions from the company. You get all the money right away. You don't have to pay accountants anymore, though you do have to pay someone to handle the MVL for you. This does have the added benefit of pretty much closing off any historical IR35 problems once the company is closed. You won't be able to close it if HMRC have started an IR35 (or other) investigation of you, but if they haven't, you can probably close it and not worry too much anymore.

The best decision partly depends on multiple factors, such as whether there's benefit in getting all the money out quickly, how concerned you may or may not be about historical IR35 investigations, whether you want the hassle of continuing to have to deal with accountants, whether Mrs hopes to make this art thing into a bigger deal or whether it is always likely to just be a small hobby that hopefully makes a few extra quid, etc, etc.

The financial differences between the two options are probably not all that large, so other factors related to your life and personalities and goals and current financial situation are probably more important in making the decision.