Taking a (possibly permanent break from contracting) should I close my business?

[razorboy]

Hi,

First, apologies if this is the wrong forum.

I've been working for the last 6 years as a contractor, limited company, using a standard accountancy with a monthly fee.

At the end of last year my contract expired. Since then I've taken a break and am now doing some unrelated work (basically I'm writing a book). Since it may be some time before I see any payment for the work I'm doing now I've kept the business open and am drawing a small salary which is covering my expenses. Should I keep this arrangement going or is there any downside on the legal or tax side to doing this for an extended period of time (potentially for over a year).

I kind of resent paying the monthly accountancy fee when I'm not working, but I guess I face paying tax on the final dividend (£40k-ish) if I close it down now? Also, I've found in the past that these kinds of accountancy firms drag their feet terribly when closing down businesses (I assume to get a few more payments out of clients) - I guess I could just dispense with them now, but then I'd have to make a one-off payment to another accountant to do the work or try and do it myself (not my strong point).

Any advice appreciated.

Ta
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[northernladuk]

Well first off if you are paying an accountant why aren't you asking him? Your fee from an accountant is usually a yearly fee with monthly payments so I would be surprised if they drag their heels just for another months income. Your accountant is probably the best to advise as you can discuss the details which will be key.

It depends on what you income is going to be for the next period. If it's low then just keep it open and keep diviing the money out until it's gone. If you are going to be having a decent income then you might want to liquidate the company and make some use of some tax breaks.

You might also consider dumping a large payment in to a pension to save the tax......

[ASB]

Depends on the number. But, 10k salary, no tax to pay. Reduces retained profits, dividend up to higher rate threshold, no further tax to pay. Sounds like it might fir with your overall retained funds. Also you will be loss making, so this gives rise to negative CT which may be reclaimable through the carry back provisions.

Much as you don't want to, a chat with your accountant may prove worthwhile to get a decent strategy for your personal position.

[Maslins]

If you anticipate negligible personal earnings in the 2014/15 tax year, £40k'll be about perfect to take a salary and dividends whilst staying under the higher rate threshold (or at least close to it).

If you will likely be having other earnings and want the cash out, an MVL might be worth looking at to get the cash out at CGT rates (often just under 10% after annual exemption and entrepreneurs relief).

If you want to keep the company in the background, you might get a modest reduction in monthly fee from your accountant, but be aware that things like annual accounts/CT return will still require filing just as frequently and involve similar amounts of work regardless of whether the company invoices £1,000 or £100,000 in the year.

[razorboy]

So, the advice from my accountant is that I should not be drawing a salary if I am no longer trading. I also need to change my arrangement with them and change to a reduced monthly payment which will mean they will continue to file details for the business as dormant.

[Scruff]

Your accountant seems as though he needs a changin', as Bob Dylan might have said...

[TheCyclingProgrammer]

I suppose it's conceivable that a directors salary could be challenged as not for trade purposes if you're not actually trading, but it seems incredibly unlikely IMO. You still have the legal duty as company director, after all. However it would result in a trading loss so it could be questioned.

There are no restrictions on you taking dividends as long as there is still profit. And I wouldn't worry much about drawing a basic salary either, personally.