Practicalities of closing CO post ESC C16

[MrC]

Got some accumulated post tax profits in the co which I'm looking to release and avail of funds via CG with entrepreneurs relief. I'm trying to get my head around the best way of doing this following the ESC C16 changes earlier in the year.


As i understand it financially if the remaining sum is >£25K then the MVL Online route with associated costs is probably the best option. If it's less than £25K the formal liquidation process isn't required and the accountant can do it.

What I don't know much about is the legal/hmrc situation of gaining the hmrc approval to get the ET. Do you have to avoid opening another company in same field for 6 months in either scenario as used to apply under ESC C16? I've searched in vain on the forum to find much post ESC C16 content.


Few things I'm hoping to clarify and get some advice (preferably from people who have been through this first hand):


What is the impact of closing the Co on continuity of things like mobile contracts and mortgages and are there any other big factors i should be considering? Most other company expenses (insurance, accountancy costs) run on a month by month basis so shouldn't be an issue.

The business has a mobile phone contract with around 18 months left to run. The best tax option here might be as suggested here.
I'm could consider transferring the contract from old to new co(if starting another co after) but that might have issues with getting credit on new co and would link the old and new co's which might be bad news.

I have a mortgage (which i will want to renew next summer and possibly 2 years thereafter).

I'm wondering whether to plump for a 5 year fixed mortgage as this would guarantee not falling foul of not having 3 years of accounts problem. But maybe if i stick with my existing lender they won't reassess income as long as new product doesn't adversely affect the affordability.


Accountant says they have limited experiences of this process.

[Maslins]

Re the entrepreneur's relief, the main black and white criteria is that you've been a director of the company with >5% shares for at least a year.

The two potentially grey ones are:

Trading vs investment company - some nervous accountants suggest if you get to the stage where you've got £X00,000 in a deposit account, which is clearly far more than the company requires for day to day trading activities, then HMRC may seek to argue your company is an investment (rather than trading) company.

Transactions in securities - this is the one that basically says you can't close "Joe Bloggs Contracting 1 Ltd" get funds out via CGT/ER, then set up "Joe Bloggs Contracting 2 Ltd" the next day.

If I were you, I certainly wouldn't attempt to transfer the mobile contract over from Oldco to Newco. In itself it's a small thing, but I'd suggest it'd be silly to risk the "big win" of entrepreneurs relief by getting the really small win of saving tens/a hundred quid by not closing a mobile contract early.

I doubt you'll get any concrete answers either here or elsewhere...so depends how close to the wind you want to sail.

[Jessica@WhiteFieldTax]

The new legislation is in CTA S1030a

The Enactment of Extra-Statutory Concessions Order 2012

On the face of it, other than overall lifetime cap on ER, there is no restriction on closing down and restarting...

...however there is a catch all anti avoidance, "Transactions in Securities" that I think could apply in similar conditions to HMRCs thinking on use of ESC C16, i.e. in phoenixing situations.

I can't find anything on S1030a in HMRC manuals, and its too early for a lot of practical experience to be out there.

So for now, you would have to assume a capital release scheme using S1030a is risky, and at the least you would need (i) good commercial reason (asset protection? change of direction?) and (ii) some clear blue water time wise.

Re ESC C16 a six month gap was not a set requirement, the quality of the change rather than its length was important. It could just as easy be 3 or 12 months.

HTH

edit - my posting crossed with Maslins - agree with them

[MrC]

Thanks for the (very quick!!) and informative responses.

Not entirely clear whether the "Transactions in Securities" would apply here. Company has been trading several years and would be < 50K. Seems as you say though it's unchartered waters.

btw found this informative for anyone else reading this.

There's an option to pay a bumper xmas pension contribution which would push amount <£25K if that might be less likely to experience problems? (i'm guessing the answer is grey )

@Jessica@WhiteFieldTax - would you consider this more risky than closing under ESC C16? And if so for any reason other than it's untested?