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Best way to close Limited Company?

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    Best way to close Limited Company?

    Hello!

    After 8 years of contracting I moved to permanent, and I have some money left on the company bank account.
    What would be the best way to save on taxes?

    (I share the company 50/50 with my wife who is not working anywhere else and is receiving minimal salary + dividends from our limited company).

    I thought of the following two options:
    1. Keep the company and continue paying my wife just salary (and no dividends) until all company money runs out, and then close the company.
    2. Transfer all company money to my and my wife's pensions now and close the company.

    Will appreciate any advice and thanks in advance...

    #2
    Originally posted by leo123 View Post
    Hello!

    After 8 years of contracting I moved to permanent, and I have some money left on the company bank account.
    What would be the best way to save on taxes?

    (I share the company 50/50 with my wife who is not working anywhere else and is receiving minimal salary + dividends from our limited company).

    I thought of the following two options:
    1. Keep the company and continue paying my wife just salary (and no dividends) until all company money runs out, and then close the company.
    2. Transfer all company money to my and my wife's pensions now and close the company.

    Will appreciate any advice and thanks in advance...
    If you won't be going back to contracting for at least 2 years, then it would be worth looking at going down the capital gains/entrepreneurs relief route. If the companies available profits after tax are below £25K you wouldn't need to appoint a liquidator, as it is only for capital distributions above £25K when you would need to appoint a liquidator. So depending on when you last traded, your company year end and available reserves you may still want to look at doing a pension contribution if your profits were not much over £25K but this all depends on the bigger picture really.

    Comment


      #3
      Ricky, thanks for this! However why would I need to sell my company (as that's what Entrepreneurs Relief for), if I could keep it open and pay tax-free salary + max possible tax-free pensions until all money runs out?

      If the company stays open and does not receive any income, I presume I will not have to pay any corporate tax, right?

      Comment


        #4
        Originally posted by leo123 View Post
        Ricky, thanks for this! However why would I need to sell my company (as that's what Entrepreneurs Relief for), if I could keep it open and pay tax-free salary + max possible tax-free pensions until all money runs out?

        If the company stays open and does not receive any income, I presume I will not have to pay any corporate tax, right?
        ER is a tax relief on capital gains.
        You can close the company and take the cash out as capital. It's the reverse of what you did to start the company (you put >= £1 in as starting capital).
        See You Next Tuesday

        Comment


          #5
          All depends how much money you have in your business.

          You can’t just keep your limited company open for years to pay your wife the same salary as she gets now. I mean, what exactly is she doing to warrant that, especially as you have no invoices, expenses or anything to justify this. Will be red flags to the tax man all over. You’ll also both need to complete self-assessment tax returns every years as directors of a limited company...oh and pay a retaining fee with the accountant to submit accounts over the year...plus IR35 Insurance..IPSE..etc etc

          Obviously you both can’t take any more dividends.

          If you have much more over £25k then MVL it quick hoping Rishi doesn’t screw everyone over ER/capital gains tax first. Stick the cash in an ISA or whatever.

          The 2 year rule is just starting another limited company in same business..but you can go Brollie in that time, and swap over afterwards if outside IR35.

          Or..using pensions is a decent option. If you haven’t put anything in for 3 years that’s 120k you can put away.

          Under 25k, liquidise it.
          Last edited by BABABlackSheep; 12 August 2020, 11:37.

          Comment


            #6
            Originally posted by leo123 View Post
            Ricky, thanks for this! However why would I need to sell my company (as that's what Entrepreneurs Relief for), if I could keep it open and pay tax-free salary + max possible tax-free pensions until all money runs out?

            If the company stays open and does not receive any income, I presume I will not have to pay any corporate tax, right?
            The salary would have to be justifiable to the role of your wife within the business. BABABlackSheep has covered this off along with some of the other things you would need to consider. So would definitely recommend looking into the capital gains routes and depending on the profits available even considering MVL, if you would prefer to get your hands on the cash instead of putting it away into a pension.

            Comment


              #7
              Thanks to everyone!

              Comment


                #8
                MVL route

                Neither of the options you originally suggested would enable you to have access to the cash at bank anytime soon. I'm guessing that may not be a priority for you therefore.

                However, if you would like to have the cash sooner an MVL might be appropriate. Distributions from an MVL are (generally) treated as capital and Entrepreneur's Relief [ER] may also be available (if eligible). Given that you and your wife each own 50% you can each make use of your annual capital gains allowance. [Capital Gains allowance currently £12,300.] The allowances, combined with ER, should significantly reduce or eliminate the tax due. You would of course need to pay an IP's (reasonable!) fees for the liquidation but it does also finish off the company neatly and relatively quickly and avoids further filing/accountancy costs.

                Comment


                  #9
                  Originally posted by leo123 View Post
                  Ricky, thanks for this! However why would I need to sell my company (as that's what Entrepreneurs Relief for), if I could keep it open and pay tax-free salary + max possible tax-free pensions until all money runs out?

                  If the company stays open and does not receive any income, I presume I will not have to pay any corporate tax, right?
                  Just to clarify, you don't need to sell your company in order to be able to claim ER.

                  Comment

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