Winding Up Ltd Company and staring again?

[Shakara!]

Any opinions appreciated............

I have around 5 clients that I trade with within a Ltd Company.

This has been running for the last 5 years without issue.

From scanning the messageboard, this seems to be the preferred structure around these parts.

My "problem" is that despite putting all valid expenses though the Co, taking a salary at the PA, and dividends up to the start of the 40% tax personal bracket, the amount of cash in the company has built up over the last few years into a sizeable sum.

The most tax efficient solution seems to be just to close the company down, and pay the current 10% capital gains tax on the value left in on my personal tax return. I can't see this 10% rate lasting for that long, so now would seem to be the time to act. My clients couldnt care less if they are billed under Ltd Co v1 or Ltd Co v2.

This would appear to be OK if you had been running a fish and chip shop for 25 years and were now retiring by selling the business or even just winding it up.

The issue would be that I would be closing down on a Friday and then starting trading in a new ltd company (version 2 if you like) on the Monday.

I cant see HMRC being too delighted with this arrangement.

If it is OK to do this, what is to stop you doing it every year?

Presumably other people have had similar experiences?

[sweetandsour]

The issue would be that I would be closing down on a Friday and then starting trading in a new ltd company (version 2 if you like) on the Monday.

I cant see HMRC being too delighted with this arrangement.

If it is OK to do this, what is to stop you doing it every year?

You can close the company and take any remaining funds as capital but you have to ask HMRC for permission, search for ESC16.

This permission will be denied if you intend carry on trading in the same line of business. "Phoenix Company" is the term you need to search for.

The 10% rate only applies to your first £1,000,000 in any case. After that it is 18%.

[Maslins]

As suggested above, the ability to withdraw funds at CGT rates when getting a company struck off is a concession rather than a right. You need to apply and advise HMRC why you are winding up.

If you mention that you're going to start a new company doing exactly the same thing they almost certainly won't grant it. If you don't mention it, and they find out, them granting ESC16 will almost certainly be retrospectively withdrawn, on the basis of you not providing all the facts.

You can get a formal liquidation done, in which case CGT is the default treatment, rather than something HMRC may let you have. However, formal liquidations aren't the cheapest things, certainly something you need professional assistance with rather than doing a DIY job.

[centurian]

I cant see HMRC being too delighted with this arrangement.

A big understatement - put simply they won't allow it. If they did, we'll all be doing it every 6 months, with every renewal.

[Shakara!]

Thanks for the views.

If people aren't doing this, how are they dealing with reserves building up in their ltd cos?

Pension Contributions is the obvious if unattractive "solution"

I noticed this on the HMRC website regarding the "Assurances" you have to provide.

http://www.hmrc.gov.uk/specialist/esc.pdf

Extra-Statutory Concessions
Concessions as at 10 August 2009

The assurances include:

The company
- does not intend to trade or carry on business in future; and
- intends to collect its debts, pay off its creditors and distribute any balance of its assets to its shareholders (or has already done so); and
- intends to seek or accept striking off and dissolution.

The company and its shareholders agree that
- they will supply such information as is necessary to determine, and will pay, any Corporation Tax liability on income or capital gains; and
- the shareholders will pay any Capital Gains Tax liability (or Corporation Tax in the case of a corporate shareholder) in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up.


All of which sounds fair enough, but none of the above mentions that you cannot start up again immediately.

Any contrary opinions - or has everyone been battered into submission by HMRC over the years?

[FarmerPalmer]

You could make your self redundant when you close the company.

I know someone that close a company every 2 years and pays out 30K redundancy

because:
the first 30k of a redundancy payment is tax free
HMRC have a limited time to investigate a company after it closes down, and can't catch you for tax over previous years.

His accountant told him not too and he asked where in law it says its illegal.

His accountant couldn't find it and so this is what he does.


I'm probably stupid in that I have had the same company for 12 years now, and try to make a name for my business. Not very tax efficient I know.

[malvolio]

Then people wonder why genuine contractors get treated as tax evading scum...

It is illegal, the second he starts back in the same role for the same, albeit phoenixed, employer. Assuming he has a genuine contract of employement in the first place: you can't make officers redundant, only employees. And phoenixing is also illegal, as previously noted.

[Shakara!]

Cheer up malvolio, it only gets wasted on illegal wars and supporting the current encumbent's pals anyway, doesn't it?

Would you mind me asking how you handle this situation then?
Do you just allow a cash reserve build up and up and up and up, or can you suggest an alternative strategy?

[Billy Pilgrim]

Is there anything to stop anyone going to an Umbrella for a six month stint ??

And THEN re-opening a new co ???

[malvolio]

Is there anything to stop anyone going to an Umbrella for a six month stint ??

And THEN re-opening a new co ???

Nothing at all. It would be a damned silly waste of time and money of course.