Closing down company

**Mark Snowdon** · 11 April 2004, 20:11

until a real expert comes alomg

Ianaa but my understanding is....

capital distributions represent the distribution of the capital reserves of a company rather than the profits - so far as we are concerned the difference is that capital distributions come under capital gains rather than income tax with a tax free band of £8200 or whatever - check the revenue site.
www.inlandrevenue.gov.uk/cgt/

Taper relief reduces the impact of cgt when the gain results from the realisation of an asset which has been held for a long time. Again have a look at the revenue site for the rules and rates. When I asked the ir about this last year they told me there was a special deal for people closing businesses, and that extra relief was available. If you are ill and retiring for health reasons there is also some special offer.

walking off with company assets ? sounds like theft to me as well. remember though that value on the books rarely represents the real value - esp with it equipment. maybe your accountant thinks he can argue that the resale value is minimal.

I guess that you are going to split the company 50/50 with your spouse, get £16400 out as a distribution (ie no tax unless you have capital gains from elsewhere), and take the rest of the cash out as a dividend ?

My local corporate tax office are v.helpfull on this sort of thing. - give them a ring and ask about it - I seem to remember the number s.220 being mentioned.

**zeitghost** · 12 April 2004, 08:44

Re: until a real expert comes alomg

Thanks Mark, I shall investigate further.

All in all, I'm not terribly impressed with the service from the accountant on this.

It may just be that this is a particularly busy time of year for them.

**xoggoth** · 12 April 2004, 10:37

Re: until a real expert comes alomg

Not much to add to Mark's. NAA, however, I think it is true you can take the assets as they are much yours as the cash left in the company. And practically, what is the point of buying them from the company if you then going to distribute the cash you have paid it to yourself? Value still potentially taxable if over CG limit.

The practical problem I can see is that the assets will probably be very overvalued on the books. Accountants tend to use an unrealistic 15% declining balance or similar on computers etc when we all know they become worthless much quicker than that. Think you need to have some sort of revaluation statement in the notes to the accounts.

**zeitghost** · 12 April 2004, 14:03

Re: until a real expert comes alomg

Thanks for that, Xogg.

Since the combination of cash + assets is less than the CGT threshold, I'm probly being a bit too anally retentive about this.

Now to find out which box on the tax return to put all this into.

**AtW** · 12 April 2004, 14:17

taper relief

Am I naive to think that (say) company might just retain profits (after corporation tax) for many years and then I can close it and take all these monies out with minimal tax paid by myself due to good taper relief after 5+ years of owning the company?

Maybe I should just open new LTD every year so that in 10 years time I will be able to cash in tax efficiently by closing one of previously created companies? Long shot but after 10 years it could be waterfall of gold?

**Mark Snowdon** · 12 April 2004, 14:29

re:closure

AtW

I am not sure if that will be a good long term option - I suspect that will attract attention, but I am certainly going to close my company this year because of the new dividend tax. I have cash in the co which will be taxed again if i keep it ( i will show a loss this year because I have been doing childcare and havent done much real work) . I shall be speaking to the ir to sort the capital distribution and divi the rest. I just want to get the timing right to minimise the tax.

Not sure if I will set up another co or do a partnership or sole trader. Need to do some thinking and reading.

M

**Simon SJDaccountancy** · 13 April 2004, 09:23

Taper

The whole taper relief thing works on an Inland Revenue concession.

In law, when a Company is struck off, the final distribution (of cash and assets), is treated as a dividend. The Revenue realised that this literal interpretation is not really "fair", and so came the concession, that in most circumstances the Company can apply to the Revenue to have the final distribution treated as a capital gain rather than dividend, and so you can get the taper relief which is rather good at the moment.

However, these concessions have no force of law, so the Revenue can simply deny them if they feel they are being used solely for "tax advantage" (difficult though to see any other reason of course), and so force you to declare as a dividend.

I have never known of this concession being denied to contractors (I have dealt with contractors now since 1987), however, I do get the sneaking feeling that the Revenue may well now start denying them - no evidence of that yet, but will be interesting to see.

**Mark Snowdon** · 13 April 2004, 11:49

re:taper

Simon,

So getting in quick and claiming relief would be a good thing then ?

How good is the taper relief at the moment - and how do they decide the start date - obviously the company has aquired cash over the years, do they work from the date of formation ?

thanks

Mark
(and probably lots of other interested contractors)

**Bradley** · 19 April 2004, 15:56

Avoision

Maybe I should just open new LTD every year so that in 10 years time I will be able to cash in tax efficiently by closing one of previously created companies? Long shot but after 10 years it could be waterfall of gold?

Mark - there's specific anti-avoidance legislation to stop you doing this. One of the things the Revenue look for when you close down your company is evidence that you've started a new one with the same shareholder(s).

I suspect that any attack on distributing assets would be via this legislation rather than denying the extra-statutory concession.

Closing down company