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zeitghost
11th April 2004, 19:14
I'm in the process of closing down my company.

The accountant is being particularly opaque & not exactly helpful...

What's a capital distribution?

How is it different from a dividend?

What's taper relief?

There are various assets in the company other than cash.

I've been told that I can just "take" these assets.... sounds like theft to me...

I had thought to buy them off the company (the assets were valued at about £3k at the end of the last financial year in October 2003).

Anyone got any reliable info that I can understand?

The IR have given their approval to closing the company down & all I have left to do is send 652a to Companies House.

Mark Snowdon
11th April 2004, 20:11
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/ (http://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
12th April 2004, 08:44
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
12th April 2004, 10:37
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
12th April 2004, 14:03
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
12th April 2004, 14:17
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
12th April 2004, 14:29
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
13th April 2004, 09:23
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
13th April 2004, 11:49
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
19th April 2004, 15:56
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.

Bradley
19th April 2004, 16:07
The whole taper relief thing works on an Inland Revenue concession.
The concession that Simon's talking about comes into effect if you're striking-off the company under s652a of the companies act. This is and cheaper and less formal way of "liquidating" a company.

If you wanted to avoid relying on the concession then you could go down the formal liquidation route but that can cost a few thousand.

However, in my experience the concession is only denied where there is outstanding tax or returns due.

zeitghost
19th April 2004, 18:44
I had a letter back from the IR giving permission in a couple of weeks.

That reminds me, have to close the bank account.

zeitghost
20th April 2004, 18:36
Ooo er, just as well I checked, one cheque hasn't cleared yet...

ASB
21st April 2004, 11:44
There is another issue with taper relief. ISTR that you have to be a trading company to get it. As usual there is no exact definition.

If, however, you have a considerable pile of cash you may find you can't get the taper relief.

Doubtless one of the accountants can fill in the gaps.

JoelHarding
22nd April 2004, 18:53
I don't think that's right. Where there is a pile of cash from surplus trading income, there is a concession I believe so that business asset taper relief is not affected.

Also, I think it is worth correcting Mark Snowdon's figures above. If a husband and wife's CGT allowances of £8,200 each are used, then because of the interaction with 75% taper relief, £65,600 can be extracted from the company tax free with the balance at 10%.

NB Why would you take the rest out as dividend and pay 25% rather than 10% on a capital distribution, unless your basic rate allowances are unused?

Mark Snowdon
22nd April 2004, 19:06
I wasnt sure of the impact of taper relief, I had the impression that it wasnt guarranteed.

Have you a link or reference for us to look up ?

Thanks

Mark

JoelHarding
23rd April 2004, 08:59
Yes see Tax Bulletin 53 at the following URL:

www.inlandrevenue.gov.uk/...chor164658 (http://www.inlandrevenue.gov.uk/bulletins/tb53.htm#anchor164658)

In particular "As Park J. pointed out in the O'Neill case, it is the exception rather than the rule that means a company is not carrying on a business when it puts its money on deposit."

Mark Snowdon
3rd May 2004, 17:46
As a service to others who may be considering similar. The rule on getting the capital gain rather than divi is Extra Statuary Concession c.16 and is detailed in the publication IR1.