ESC16 & reopenig company

[waccoe]

Hi,
I'm sure this must have been asked many times, but my quick search didn't turn up any answers. I've been contracting a long time, approx 18 years, through the same limited company. More recently, my missus, who's in freelance sales, has also been contracting through the company. I have quite a large sum in the company account, which I always struggle to get out in a tax efficient manner.

A friend of mine, told me that he closes down his company every few years, and takes the balance in the account as a capital payment, I believe through an ES16, paying just the 18% capital gains tax on the amount, and then reopens a new company.

Can anyone tell me if this is legitimate & legal?. For my case, my circumstances have changed, and the direction of the company has changed, in that it's no longer purely a software consultancy business, but also provides freelance sales through my wife. Would it be legitimate to close my existing company down, and start afresh? I know the rules for this may be changing in March.

I know this is probably one for my accountant, but they tend to just advise what is easier for them, any additional advice they'd charge for, which is why I thought I'd start off with the excellent "free" advice on offer here

[northernladuk]

Firstly no it isn't. Search for the word Phoenixing. How can shutting down a business to avoid paying tax and re-opening it again to carry on be right?

Check this thread and do search as there are more..

http://forums.contractoruk.com/accou...rs-relief.html

Also you cannot claim ESC16 now. It ends in March so you don't have time to get it in. The only way to close the company now is to liquidate it.

[xoggoth]

Re-open a company? Cheaper to start a new one I'd have thought.

[VectraMan]

Firstly no it isn't. Search for the word Phoenixing.

Phoenixing is when a company goes bust, but the owners buy back the good parts and carry on the same business without the debts. Completely different, and legal.

[Waldorf]

Hi,
I'm sure this must have been asked many times, but my quick search didn't turn up any answers. I've been contracting a long time, approx 18 years, through the same limited company. More recently, my missus, who's in freelance sales, has also been contracting through the company. I have quite a large sum in the company account, which I always struggle to get out in a tax efficient manner.

A friend of mine, told me that he closes down his company every few years, and takes the balance in the account as a capital payment, I believe through an ES16, paying just the 18% capital gains tax on the amount, and then reopens a new company.

Can anyone tell me if this is legitimate & legal?. For my case, my circumstances have changed, and the direction of the company has changed, in that it's no longer purely a software consultancy business, but also provides freelance sales through my wife. Would it be legitimate to close my existing company down, and start afresh? I know the rules for this may be changing in March.

I know this is probably one for my accountant, but they tend to just advise what is easier for them, any additional advice they'd charge for, which is why I thought I'd start off with the excellent "free" advice on offer here

Take a look at this - http://www.nixonwilliams.com/images/...%20Company.pdf

It seems to indicate that you cannot do what you suggest.....but I know people who have done it, I recall someone on here mentioning that their accountant suggested doing this on a regular basis!

[philip@wellwoodhoyle]

Probably one of the reasons for the withdrawal of the ESC in March is to remove this option to do it cheaply. From March, you can only take £25k as capital unless you want to pay a few thousand to a licensed insolvency practitioner to wind it up formally.

But, yes, it's something that was quite common and few, if any, were caught. But that's probably more because HMRC didn't notice rather than it being legitimate.

We've done it a few times, but every time, there's been a good business reason, such as a period on the bench, or when the director has got a temporary proper employment, or gone abroad travelling for several months. It was quite useful to get the funds out of a company, but like I say, we only did it when there was a proper "break" in trading and some level of doubt as to whether the person would start contracting again after the break, so we always had a good counter-excuse if HMRC did come knocking (which they never did).

[TheFaQQer]

Also you cannot claim ESC16 now. It ends in March so you don't have time to get it in. The only way to close the company now is to liquidate it.

I don't believe that is the case - I'm sure that Clare@InTouch said this week that she had a quick turnaround in December / early January. I can't be bothered to search for it though.

[castoff101]

http://forums.contractoruk.com/accou...rocedures.html

This is the thread that suggests you may be able to apply and obtain for ESC(16) before March.

[Clare@InTouch]

I don't believe that is the case - I'm sure that Clare@InTouch said this week that she had a quick turnaround in December / early January. I can't be bothered to search for it though.

We've had agreement back from HMRC in just over a month, so still time to get approval before the deadline if your accountant can work fast enough to get everything done. As its tax season most accountants are exceptionally busy this month, so bear that in mind.

Saying that, I believe Puma mentioned he'd discussed the situation with HMRC and they'd indicated ESC C16 agreement may be given retrospectively as long as the actual distribution was done prior to 01/03.

[northernladuk]

Phoenixing is when a company goes bust, but the owners buy back the good parts and carry on the same business without the debts. Completely different, and legal.

That's true googling it now but it seems to be the term we seem to use when shutting down a company to make good on the tax breaks to then just start again. Phoenixing a bust company might be ok, shutting one down just to avoid tax I am sure isn't. I can't find where it says it can't be done but I am sure if you are honest with the HMRC they will not grant it and I see in the forums mention of retrospective withdrawl.

It is all down to the value to risk of the OP I guess at the end of the day.