Dividend withdrawal strategy on closing limited company

[intalex]

Hi all,

I'm in the process of finding and engaging the right accountant to help me close down my company, but wanted to check views from the forum (many views are better than one) around a dividend withdrawal strategy I have come up with below:-

Create 2 dividend pots, and furthermore split each pot into 2 as follows:-

Dividend 1: Before applying to strike off company
1.1 Net dividend to take total earnings to higher rate tax (£42,475 less Total Gross Salary in current year)
1.2 Net dividend to be taxable at higher rate tax of 25%

Dividend 2: After applying to strike off company
2.1 Net dividend up to the CGT tax-free allowance of £10,600
2.2 Net dividend up to the limit for Entrepreneur's Relief of £25,000

Once my final surplus cash position is known after clearing all debtors, creditors and corporation tax, my thoughts are to fill up each of 4 pots in the following order of priority:-

1.1 (£42,475 less total gross salary earned in tax year) - no additional tax payable
2.1 (£10,600) - no additional tax payable
2.2 (£25,000) - taxable @ 10%
1.2 Remaining balance - taxable @ 25%

Really interested to know if the above dividend strategy would be the most tax efficient (subject to meeting conditions for Entrepreneur's Relief).

Many thanks in advance for your views and opinions.

PS> If any accountants (preferably based in Central London) are able to offer an all inclusive package for helping me close my company and wrap up final accounts, then please PM me today as I'm looking to make a decision on an accountant today. Alongside knowledge and advice, I'll need some help with preparing and submitting final accounts, dividend paperwork, P45, applying to strike off company, de-registering from VAT and PAYE and notifying HMRC, etc.

[philip@wellwoodhoyle]

You can't use your CGT annual exemption against dividends. Your can't use the £25k CGT capital threshold against dividends. Dividends are subject to income tax not capital gains.

So, your £10.6k and £25k payments would have to be capital payments. Your capital payments are over £25k so you can't do the solvent strike off route - as it would still be liable to income tax not CGT, so you'd have to get a liquidator (cost a few grand) to go through a formal liquidation - the payment out of which would be capital, the first £10.6k exempt and the balance subject to 10% ER CGT.

You could just pay a dividend now to use your 12/13 basic rate band and then another dividend on or after 6/4/13 to use up your 13/14 basic rate band.

HMRC don't like you paying dividends after cessation of trade and before the solvent striking off to get you below the £25k "capital" limit - if you breach their rules, all the capital is taxed as if it were a dividend.

By the way, not a good idea to leave monies in the company when you apply for striking off. Banks may freeze the company bank account and you may end up with the company struck off and the money passed to the Crown under bona vacantia.

[Craig at Nixon Williams]

If you have a high amount of retained earnings in the company (and qualify for entrepreneurs relief) then it may be worthwhile appointing a liquidator to help you wind up the company as this would take away the £25,000 restriction on what can be treated as capital.

Always make sure that you use up your basic rate allowance in dividends, in the way that you have suggested as you will not incur any additional tax if you are a basic rate taxpayer.

Noe that the £10,600 annual exemption is included in the £25,000 that can be taken as capital, not in addition to it.

It would definitely be worth speaking to an accountant so that you can fully explain your circumstances to see whether it would be worth formally liquidating the company.

Hope this helps!
Craig

[intalex]

Thanks both for your quick responses.

WHA - Unfortunately, I can't dip into next tax year's basic rate tax, as I'm entering full-time employment so will need my basic rate allowance for then.

Craig - I've just learnt from an accountant I was in talks with that the 10.6k is part of the 25k. Unfortunately, even then, the excess (taxable at 25%) isn't large enough to absorb potential liquidator fees.

I therefore decided to hire the accountant I was in talks with to deal with it in the most efficient and compliant manner.

[Wanderer]

Be very careful about applying to strike your company while there is still money in the company account or you may lose it and have to get the company restored to get it back....

[ELBBUBKUNPS]

Be very careful about applying to strike your company while there is still money in the company account or you may lose it and have to get the company restored to get it back....

And be warey of using accountancy firms 'partnered' Insolvency Practices.

[Nixon Williams]

And be warey of using accountancy firms 'partnered' Insolvency Practices.

Can I ask why?

The insolvency practitioner we suggest is completely independent from ourselves.

The reason we have the option is that most clients prefer us to deal with them and sort out all the paperwork, but all clients are free to choose their own insolvency practioner should they wish to.

[intalex]

Just to state my opinion, if I were to liquidate, then I would definitely prefer an accountancy practice that can handle the entire process by partnering with a liquidator, so long as the process was executed in a competent and compliant manner and the service was priced competitively (comparable to going to a liquidator directly).

But that's just my opinion, as I find it less painful than having to find and co-ordinate 2 independent professionals' activities to achieve one goal.

[ELBBUBKUNPS]

Just to state my opinion, if I were to liquidate, then I would definitely prefer an accountancy practice that can handle the entire process by partnering with a liquidator, so long as the process was executed in a competent and compliant manner and the service was priced competitively (comparable to going to a liquidator directly).

But that's just my opinion, as I find it less painful than having to find and co-ordinate 2 independent professionals' activities to achieve one goal.

You will find you will have to deal with the liquidator direct regardless for the majority of the process.

[Waldorf]

You will find you will have to deal with the liquidator direct regardless for the majority of the process.

But why would this make you wary of using a liquidator recommended by your accountant?