Limited Company Closure

[Lucky Phil]

Hi All,

Some advice needed please. I decided to close my Limited Company on 29 Feb due to getting a PAYE job. In the final period I have a net profit figure of £8k, my accountant has told me the most tax efficient way to close is pay corp tax of £1.5k and then pay rest as a dividend (which I will be taxed on later).

I have been looking at declaring a capital distribution for the whole lot. This would be under the CGT threshold of £12000 which I haven't touched at all. I had to research this myself as they made a quick "closing" phone call to me and then decided the most tax efficient way would be the above, keeping me out of the loop completely.

They also said if I did do the capital distribution that corp tax of £1.5k would be calculated first anyway and I'd still have to pay it. Please confirm the truth in this which I highly doubt?

My accountant has told me they charge an additional £750 for them to do the capital distribution, despite me having it in writing that they would do all the closing work for me and me also paying £420 to close the Limited Company.

There is no mention of the £750 fee anywhere on their website or why I should pay extra for them to do this. I think I just got the first jobsworth on the phone as when I speak to someone senior they normally knock the price down.

Please advise what is the best way of going forward

Thanks
Phil

[northernladuk]

Seems a lot of money for little savings. I'd carry on as the accountant suggests and concentrate on staying alive.

[Patrick@Intouch]

If your company has made a profit then it will need to pay any corporation tax due as a result.

You would need to have accounts prepared to show the profit made and have these submitted to HMRC. You would then need to settle any tax due.

The remaining funds can be declared as a capital distribution (assuming you aren't intending to resume the same, or a similar trade or activity in the next 24 months as a sole trader, through a partnership or limited company)

If those funds are less than £12k then there will be no need to declare the capital gain on your personal tax return as the proceeds are less than 4x the annual capital gains exemption and the gain is less than the annual exemption also.

If you are intending to carry on the same, or a similar trade or activity within 24 months through one of the vehicles mentioned above then declaring dividends would be the correct treatment.

The only questionable element is that they want to charge you to declare a capital distribution.

[Lucky Phil]

Thanks for replies

Agreed, I'll go with the dividend route.

One last question though. I paid my annual subscription on 6 Feb for the service that I do for calendar year 2020. Accountant is telling me I can't claim for the whole year, which is fine as I closed company on 29 Feb.

He also says I cannot apportion 2 months of that (deduction for professional fees)? Is this true or he just doesn't want to do it as he isn't getting any more money out of me? Any link to assist me you can recommend?

[BolshieBastard]

Thanks for replies

Agreed, I'll go with the dividend route.

One last question though. I paid my annual subscription on 6 Feb for the service that I do for calendar year 2020. Accountant is telling me I can't claim for the whole year, which is fine as I closed company on 29 Feb.

He also says I cannot apportion 2 months of that (deduction for professional fees)? Is this true or he just doesn't want to do it as he isn't getting any more money out of me? Any link to assist me you can recommend?

What did your accountant say?

[Lucky Phil]

I cannot apportion 2 months of the annual subscription I have paid for despite me sending it to them before I closed the company (29 Feb)

I am trying to find out whether this is legit or not. I doubt it

[Chart Accountancy]

If your company has made a profit then it will need to pay any corporation tax due as a result.

You would need to have accounts prepared to show the profit made and have these submitted to HMRC. You would then need to settle any tax due.

The remaining funds can be declared as a capital distribution (assuming you aren't intending to resume the same, or a similar trade or activity in the next 24 months as a sole trader, through a partnership or limited company)

If those funds are less than £12k then there will be no need to declare the capital gain on your personal tax return as the proceeds are less than 4x the annual capital gains exemption and the gain is less than the annual exemption also.

If you are intending to carry on the same, or a similar trade or activity within 24 months through one of the vehicles mentioned above then declaring dividends would be the correct treatment.

The only questionable element is that they want to charge you to declare a capital distribution.

If I can just clarify to the above that The Targeted Anti-Abuse Rule introduced from 6 April 2016 in order to combat 'phoenixing' (the practice of closing one company and starting a new one immediately) only applies to distributions made on winding up (liquidation) it does not apply on striking off.

[Chart Accountancy]

Thanks for replies

Agreed, I'll go with the dividend route.

One last question though. I paid my annual subscription on 6 Feb for the service that I do for calendar year 2020. Accountant is telling me I can't claim for the whole year, which is fine as I closed company on 29 Feb.

He also says I cannot apportion 2 months of that (deduction for professional fees)? Is this true or he just doesn't want to do it as he isn't getting any more money out of me? Any link to assist me you can recommend?

If you will be applying for a voluntary strike off and your final distribution is below £25K, the amount distributed will be assessed as a capital distribution. This treatment is automatic and there is no need to apply for the capital distribution treatment to apply. Historically, an application under ESCC16 was required to access the capital distribution treatment. The restriction mentioned above for opening another company within 2 years does not apply on striking off but only if you were to go through a formal liquidation. It is unclear how you have been quoted by your accountant to access the capital gain treatment which is automatically applicable on the strike off if your funds are below £25K.

[Lucky Phil]

Thanks for your replies

Email from accountant
>
Thanks for your call earlier.

I cannot find any information that relates specifically to this matter however for all expenses, they must meet the wholly, exclusively and necessary for the business rule. Although you have paid for a full year subscription but are also closing the company, it wouldn’t meet this rule as the business is no longer trading. We can apportion the expense for you however just want to make you aware that it is at your own risk and that you would be responsible in justifying this to HMRC should they ever decide to investigate the company. If you would like to proceed on this basis, please let us know.
>

Can anyone help me in proving this is incorrect please?

[Chart Accountancy]

Thanks for your replies

Email from accountant
>
Thanks for your call earlier.

I cannot find any information that relates specifically to this matter however for all expenses, they must meet the wholly, exclusively and necessary for the business rule. Although you have paid for a full year subscription but are also closing the company, it wouldn’t meet this rule as the business is no longer trading. We can apportion the expense for you however just want to make you aware that it is at your own risk and that you would be responsible in justifying this to HMRC should they ever decide to investigate the company. If you would like to proceed on this basis, please let us know.
>

Can anyone help me in proving this is incorrect please?

Can you provide a clarification on the nature of this expense?