Closing the company

[merkkrazy]

Hi

Me and my wife have been trading through the same company for last one year. Evidently we gathered a good amount of funds in that company. We were going to buy a house so we took a large amount of Director's Loan from our own company. We must pay back by Nov-2014 if we want to avoid paying tax on it. Now, unfortunately my wife's contract ended in July. My CA suggested to close the company as she is out of contract and hence the company will not be trading. And I should open a new company just for myself. This will also help recover the funds as well as clear the Director's loan as a positive side-effect. As suggested, I have moved to a new company from Aug but haven't closed the old company yet as I have my doubts. I have a few questions:

1. The old company has not been trading for last 2 months. Is it sufficiently good time to close it? Normally they say it should be 6 months before you should close it. Also, I am still working (though through a new company), will it not look odd to HMRC?
2. Will it not alert the HMRC that I am closing it to avoid paying tax on Director's loan?
3. My CA will be charging £3000 to close it (This includes liquidation fees and fees to prepare the liquidated accounts, de-registration of the company etc). Are these normal charges?

Overall, I am not too comfortable with it but have no option if I want to avoid paying higher tax.

Any suggestions?


Thanks,
Merk

[TheCyclingProgrammer]

This has been discussed numerous times on here but in short:

1. Time between ceasing to trade and shutting down the company isn't that important. You can liquidate the company now - the issue is whether or not any claim for entrepreneurs relief on your capital distribution would be successful. Assuming both you and your wife are shareholders and company officers/employees and have been for over a year you *should* be eligible but there is always a risk that HMRC could deny relief using Transactions in Securities legislation by claiming that you've simply transferred the existing trade to the new business. If that were to happen, any capital distribution would be treated as dividends and you'd be liable to higher rate tax on dividends over the higher rate threshold and you'd have also wasted money on liquidation fees.

2. If your company has legitimately ceased trading then I wouldn't have thought so but I suppose HMRC could use this as a further argument if they pursued anti-avoidance under TiS rules. I'm not sure how the outstanding balance would be cleared when going down the liquidation route - whether its before or after liquidation etc. Somebody on here should be able to answer that.

3. You may be able to find cheaper but your situation might not be straightforward so I wouldn't say its far outside the ballpark.

[merkkrazy]

Closing the company

Thanks "TheCyclingProgrammer". Appreciate your patient reply.

You mentioned about this being discusses before, I couldn't find it in the forums. Is there any quick link?

Cheers
Merk

[northernladuk]

IMO don't trade as a husband and wife company. Mixing business and personal is too much hassle. I would always use a separate company. If you have your own you can shut it down and use the tax advantages (if you are shutting it legitimately). If you are both in the company the chance of finding a window to close it are going to be very slim.

I would go with the accountants advice.

[Alan @ BroomeAffinity]

If the liquidator writes off the load - which looks like it may be in your plans - then you will be assessed personally as if the amount written off was a net dividend. Section 421 ICTA I think. So it's not going to make any difference to the tax due (other than than kick it down the road a bit).

[Rhino 888]

If there is no big tax gain, and it costs £3k to close the company, what is the benefit of closing it and starting a new one?

When I last closed a company (after nearly a year with no work, and close to going permy) I did it myself, it cost very little.
I suspect the rules on taking the funds out as capital gain may have changed since then.
I assume there is no mileage in redundancy payout for the spouse who no longer works via the company?

[TheCyclingProgrammer]

If there is no big tax gain, and it costs £3k to close the company, what is the benefit of closing it and starting a new one?

There isn't. There is a tipping point at which liquidating becomes beneficial but as mentioned its only doable if you aren't going to leave yourself exposed to challenges under TiS rules and are eligible for ER on your gains. Below that point its simpler to simply pay a final dividend.

When I last closed a company (after nearly a year with no work, and close to going permy) I did it myself, it cost very little.
I suspect the rules on taking the funds out as capital gain may have changed since then.
I assume there is no mileage in redundancy payout for the spouse who no longer works via the company?

The rules changed a few years ago. There's now a cap on final distributions as capital without formal liquidation of £25k.

http://www.wilkinskennedy.com/servic...ry-liquidation

[Craig@Clarity]

There is a tipping point at which liquidating becomes beneficial but as mentioned its only doable if you aren't going to leave yourself exposed to challenges under TiS rules and are eligible for ER on your gains. Below that point its simpler to simply pay a final dividend.

Tipping point at which MVL is beneficial is around he £50k retained profit mark. MVLOnline is competitive when dealing with formal liquidations at around £1k too.