Moving to a perm role

[flambo]

Morning all,

Quick question. Have landed a perm role - will be hanging up my contracting gloves for a little while.

What's the best way to deal with my Ltd company and accounts. Will come back to contracting in a few years I'd imagine.

Is it best to keep it open? Close it?

Cheers

[TheCyclingProgrammer]

If there is a decent amount of retained profit, or you don't want to take a dividend as your new job will push you into the higher rate and you have no intention to continue trading in the near future, then I would take advantage of this situation and shut down the company and take a capital distribution (if capital is over £25k you would need to liquidate). You can start a new company in the future if you do decide to return to contracting. Your accountant should be able to advise you on the final details of doing this. Some might be cautious about transactions in securities rules but I honestly don't think that would apply here (and you can obtain HMRC clearance to be sure if you want peace of mind).

The alternative is to keep the company running, possibly shutting down your payroll and deregistering for VAT to reduce the admin overhead and submitting your annual accounts and returns which shouldn't be too much work. You might be able to arrange a discounted rate with your accountant. You can continue to draw dividends from retained profit if you want to but be mindful that your job will (I'm assuming) mean those dividends are taxed at the higher rate.

If it was me I'd take the first option.

[DirtyDog]

If there is a decent amount of retained profit, or you don't want to take a dividend as your new job will push you into the higher rate and you have no intention to continue trading in the near future, then I would take advantage of this situation and shut down the company and take a capital distribution (if capital is over £25k you would need to liquidate). You can start a new company in the future if you do decide to return to contracting. Your accountant should be able to advise you on the final details of doing this. Some might be cautious about transactions in securities rules but I honestly don't think that would apply here (and you can obtain HMRC clearance to be sure if you want peace of mind).

The alternative is to keep the company running, possibly shutting down your payroll and deregistering for VAT to reduce the admin overhead and submitting your annual accounts and returns which shouldn't be too much work. You might be able to arrange a discounted rate with your accountant. You can continue to draw dividends from retained profit if you want to but be mindful that your job will (I'm assuming) mean those dividends are taxed at the higher rate.

If it was me I'd take the first option.

I agree - at the moment, there is no definite ideal of coming back to contracting, so it would be hard for HMRC to argue that you should be denied the entrepreneur's relief.

[Martin at NixonWilliams]

I agree with TCP's post, those are the best options if you do decide to close and are not caught by the TIS legislation. If you do have funds in excess of £25,000 and therefore need to formally liquidate you should consider the cost of the liquidation aswell as the tax savings.

Broadly speaking, you should compare the CGT payable plus the liquidation cost (usually £1,000-£1,500 to those who recognise contractor businesses, others charge a lot more) with the tax involved with paying a dividend to bring the shareholders funds below to £25,000, thus avoiding the liquidation cost. It is usually around the £36,000 mark where a liquidation is the most cost effective solution.

[Maslins]

Broadly speaking, you should compare the CGT payable plus the liquidation cost (usually £1,000-£1,500 to those who recognise contractor businesses, others charge a lot more) with the tax involved with paying a dividend to bring the shareholders funds below to £25,000, thus avoiding the liquidation cost. It is usually around the £36,000 mark where a liquidation is the most cost effective solution.

On the whole I agree with all the posts above, only bit I'd be a bit careful about is the suggestion of a dividend to bring retained profits below £25k then strike off. This can be done, but you need to ensure the dividend is done whilst the company is still trading, then the final payout is clearly as part of the company close down.

If you cease trading, tot everything up and then notice you've got (say) £30k net assets, any distributions from that point should be considered as part of closing down the company. You can't simply decide that £6k of it is a dividend, the remaining £24k is capital.

[TheCyclingProgrammer]

If you cease trading, tot everything up and then notice you've got (say) £30k net assets, any distributions from that point should be considered as part of closing down the company. You can't simply decide that £6k of it is a dividend, the remaining £24k is capital.

Interesting. Presumably an existing contract would be enough to show you are still obvious trading but if you are out of contract, how would whether or not you are still trading be determined (after all, contractors don't normally just "stop trading" because they are out of contract)? Who is the burden of proof on, the company or HMRC?

I guess in OPs case, a permanent job offer and no ongoing contract and plans to shut down would be a strong pointer in favour of ceased trading?

[flambo]

Thanks everyone. That's really useful - will need to have a think about all the possible options and discuss with my accountant.

Cheers

[benB]

Broadly speaking, you should compare the CGT payable plus the liquidation cost (usually £1,000-£1,500 to those who recognise contractor businesses, others charge a lot more) with the tax involved with paying a dividend to bring the shareholders funds below to £25,000

Thx for these info Martin!
One question: what do you mean by "Accountants/Liquidators who recognise contractor businesses"? Is it a kind of status or certification they might have or not?

Benoit