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Winding up a Limited Company

including wills and probate
Laughton
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Winding up a Limited Company

#232195

Postby Laughton » June 26th, 2019, 5:23 pm

Having reached a certain age and finally having become so frustrated by all the red tape that goes with running a limited company I have decided to call it a day, wind up the company and, hopefully, live on the proceeds of over 40 years of working.

The company has assets of something over £500,000 and no liabilities other than a director's loan on which I've been paying interest at the statutory rate.

I'm therefore about to start a Members Voluntary Liquidation for which I need to appoint a liquidator. My question is, what protection do I have against the liquidator disappearing with the money given that it all has to be paid to him/her at the start of the process?

The firm I have in mind is fairly local, is a member of the Insolvency Practitioners Association (IPA), say they are bonded and carry insurance. But how can I be sure? I called the IPA to ask what protection I, as a client had, but they were not at all forthcoming. They have a complaints process but that's for when things have gone wrong which is exactly what I'm trying to avoid.

Am I worrying unncecessarily (it's taken me a long time to build up this money)? At least in a bank account I know I'm protected by the government up to £85,000 per bank.

johnhemming
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Re: Winding up a Limited Company

#232196

Postby johnhemming » June 26th, 2019, 5:49 pm

Its difficult to give advice for this sort of thing via a forum because there are all sorts of detailed questions that need answering not least starting with knowing the details of the balance sheet.

Superficially it does not sound insolvent (unless the company owes you more than it has in the bank). Therefore I would question why you would want an insolvency practitioner rather than a more general accountant to help. The key to this sort of situation is understanding the tax position hence I would be inclined to talk to an accountant myself.

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Re: Winding up a Limited Company

#232199

Postby Gersemi » June 26th, 2019, 6:05 pm

I would have thought the best way would be to realise as much of the assets as possible before commencing the MVL, that seems to be the normal process. Is there some reason why you can't do this?

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Re: Winding up a Limited Company

#232200

Postby PinkDalek » June 26th, 2019, 6:08 pm

Why would the OP be looking at an MVL if not solvent. He wouldn't get far with the Statement of Affairs for an MVL if insolvent.

We're looking at an MVL now. We are to use our accountants who are also Licenced Practitioners. The worry the OP has hasn't occurred to me as the insurance cover etc should, erm, cover it. Although we too are into 6 figures, the amount involved isn't £500,000.

No doubt the OP has checked his place of choice is definitely an IPA https://www.insolvency-practitioners.org.uk/ipasearch

AsleepInYorkshire
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Re: Winding up a Limited Company

#232201

Postby AsleepInYorkshire » June 26th, 2019, 6:32 pm

Laughton wrote:Having reached a certain age and finally having become so frustrated by all the red tape that goes with running a limited company I have decided to call it a day, wind up the company and, hopefully, live on the proceeds of over 40 years of working.

The company has assets of something over £500,000 and no liabilities other than a director's loan on which I've been paying interest at the statutory rate.

I'm therefore about to start a Members Voluntary Liquidation for which I need to appoint a liquidator. My question is, what protection do I have against the liquidator disappearing with the money given that it all has to be paid to him/her at the start of the process?

The firm I have in mind is fairly local, is a member of the Insolvency Practitioners Association (IPA), say they are bonded and carry insurance. But how can I be sure? I called the IPA to ask what protection I, as a client had, but they were not at all forthcoming. They have a complaints process but that's for when things have gone wrong which is exactly what I'm trying to avoid.

Am I worrying unncecessarily (it's taken me a long time to build up this money)? At least in a bank account I know I'm protected by the government up to £85,000 per bank.


https://www.gov.uk/closing-a-limited-company

AiY

PinkDalek
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Re: Winding up a Limited Company

#232205

Postby PinkDalek » June 26th, 2019, 7:04 pm



Sorry to butt in again but I can't see how that assists the OP's specific concerns.

Laughton
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Re: Winding up a Limited Company

#232209

Postby Laughton » June 26th, 2019, 7:29 pm

Many thanks for the interest.

Sorry - I was obviously not specific enough in my original post. To answer the questions raised:

Yes, the company is solvent.
The company has NO debtors or creditors other than me (re the loan account) and this loan account is much less than the assets. Pretty much all the assets are cash in the bank.
The fixed assets of the company are minimal (£400 for office computer etc.) which I intend to purchase from the company on liquidation.
An "accountant" can't liquidate a company unless the accountant is also a licensed liquidator
Even though the company is solvent it has to go through a liquidation process.
Yes the Liquidator of choice is a member of the IPA
I intend taking the proceeds out as a capital distribution and take advantage of Entrepreneurs Relief (10% tax)

So, yes the Liquidators "bond" and insurance should ensure safety but does the panel think it is acceptable for me to ask the Liquidtor for proof of the existence of the bond and insurance? I don't know the Liquidator, I've never dealt with them before (presumably most normal people only have to deal with a Liquidator once in their career.

AsleepInYorkshire
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Re: Winding up a Limited Company

#232210

Postby AsleepInYorkshire » June 26th, 2019, 7:33 pm

PinkDalek wrote:


Sorry to butt in again but I can't see how that assists the OP's specific concerns.

I read/interpreted that the OP's company has no issues with solvency. If the company has no issues with solvency then I think the easiest and cheapest route is to strike it off. This also negates any risk with using an insolvency practitioner.

https://www.gov.uk/closing-a-limited-company
Closing a limited company
You usually need to have the agreement of your company’s directors and shareholders to close a limited company.
The way you close the company depends on whether it can pay its bills or not.
The company can pay its bills (‘solvent’)
You can either:
- apply to get the company struck off the Register of Companies
- start a members’ voluntary liquidation
Striking off the company is usually the cheapest way to close it.


If the company has no issues with solvency then I think the easiest and cheapest route is to strike it off.

https://www.gov.uk/strike-off-your-comp ... s-register
Overview
You can close down your limited company by getting it ‘struck off’ the Companies Register, but only if it:
hasn’t traded or sold off any stock in the last 3 months
hasn’t changed names in the last 3 months
isn’t threatened with liquidation
has no agreements with creditors, eg a Company Voluntary Arrangement (CVA)


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johnhemming
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Re: Winding up a Limited Company

#232212

Postby johnhemming » June 26th, 2019, 7:38 pm

Given that there is only one shareholder I would not think a formal liquidation process is required. There are tax implications of a capital distribution, but one would presume the capital could be distributed through a reduction of capital of some form, any tax declarations made and then at the appropriate time an application be made for striking off the company.

It is, however, probably worth having some professional advice on this process because of the tax implications.

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Re: Winding up a Limited Company

#232217

Postby Laughton » June 26th, 2019, 8:22 pm

"If the company has no issues with solvency then I think the easiest and cheapest route is to strike it off."

You're probably right if the balance sheet is negligble but do you know what the income tax would be on £500,000?

Yes, I could draw dividends over a lot of years to stay tax efficient - but who's to say how dividends will be treated in years to come. In the meantime I'd still have to pay interest on the directors loan until I'd earned enough dividends to pay it off. Also, I really don't want to wait years to complete the process

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Re: Winding up a Limited Company

#232218

Postby johnhemming » June 26th, 2019, 8:37 pm

In the end the mvl is probably best.

AsleepInYorkshire
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Re: Winding up a Limited Company

#232219

Postby AsleepInYorkshire » June 26th, 2019, 8:39 pm

Laughton wrote:"If the company has no issues with solvency then I think the easiest and cheapest route is to strike it off."

You're probably right if the balance sheet is negligble but do you know what the income tax would be on £500,000?

Yes, I could draw dividends over a lot of years to stay tax efficient - but who's to say how dividends will be treated in years to come. In the meantime I'd still have to pay interest on the directors loan until I'd earned enough dividends to pay it off. Also, I really don't want to wait years to complete the process


I think you have a closed company - i.e. less than 5 employees. Also if it's an MVL that is seen to be for no other reason than to avoid tax it may be still subject to income tax.

https://www.crunch.co.uk/knowledge/tax/ ... strike-off

However, you need to be aware that distributions from the voluntary liquidation of a company may be subject to income tax under the following circumstances:
- The company is a ‘Close Company’ (i.e. has five or fewer shareholders)
- Within two years after receiving a distribution the owner is involved with a similar trade or activity
- The winding up of the company appears to be to reduce tax.


AiY

PinkDalek
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Re: Winding up a Limited Company

#232220

Postby PinkDalek » June 26th, 2019, 8:44 pm

johnhemming wrote:Given that there is only one shareholder I would not think a formal liquidation process is required. There are tax implications of a capital distribution, but one would presume the capital could be distributed through a reduction of capital of some form, any tax declarations made and then at the appropriate time an application be made for striking off the company.


What do you mean by a reduction of capital in these circumstances? Say there's £500,000 in the bank. Original paid up share capital £2. There's no capital to reduce.

What hasn't been mentioned but I'm sure the OP already knows, ESC C16 has effectively been enacted but only applies where "the amount of distribution, or total amount of distributions if more than one, does not exceed £25,000" from https://www.gov.uk/hmrc-internal-manual ... l/ctm36220.

That's why the OP wishes, correctly, to go down the formal MVL route (as we are doing).

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Re: Winding up a Limited Company

#232224

Postby PinkDalek » June 26th, 2019, 9:08 pm

AsleepInYorkshire wrote:
I think you have a closed company - i.e. less than 5 employees. Also if it's an MVL that is seen to be for no other reason than to avoid tax it may be still subject to income tax.

https://www.crunch.co.uk/knowledge/tax/ ... strike-off

However, you need to be aware that distributions from the voluntary liquidation of a company may be subject to income tax under the following circumstances:
- The company is a ‘Close Company’ (i.e. has five or fewer shareholders)
- Within two years after receiving a distribution the owner is involved with a similar trade or activity
- The winding up of the company appears to be to reduce tax.


That is a somewhat brief overview but let's assume that Conditions A-C are satisfied.

If they are, Condition D states:

“it is reasonable to assume, having regard to all the circumstances, that –

1. The main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to income tax, or

2. The winding up forms part of arrangements the main purpose or one of the main purposes of which is the avoidance or reduction of a charge to income tax”.


From https://www.gov.uk/hmrc-internal-manual ... l/ctm36340

From what the OP has said so far, I doubt he fails under Condition C but we probably lack sufficient background.

Article here Are You Winding Me Up? By Mark McLaughlin, January 2018 https://www.taxinsider.co.uk/1851-Are_Y ... Me_Up.html (I haven't searched to see what happened next, if anything).

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Re: Winding up a Limited Company

#232226

Postby MyNameIsUrl » June 26th, 2019, 9:20 pm

I went through the solvent liquidation process about 5 years ago, in similar circumstances, i.e. I was retiring and wanted to extract the accumulated cash in a tax-efficient manner. (At the time - I don't know if things have changed I - this was a 10% rate to extract all the cash using entrepreneurs' relief). The only way to get the relief was to use solvent liquidation.

My accountant worked for a relatively small firm, and he recommended an Insolvency Practitioner who was a partner in a much bigger firm with around 10 offices in local towns. The chances of such a professional 'doing a runner' are surely tiny.

I do seem to recall that he requested that I withdraw the bulk of the cash before he took over the company. I left in the company bank account only enough to cover his fees and sundry expenses. So the money was never truly exposed to malpractice.

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Re: Winding up a Limited Company

#232229

Postby Laughton » June 26th, 2019, 9:31 pm

My understanding is that ALL conditions have to be satisfied to fall foul of the anti avoidance provisions and as I have no intention of being involved with a similar trade or activity ever let alone within two years I'm confident that I will be entitled to Entrepreneurs Relief.

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Re: Winding up a Limited Company

#232233

Postby AsleepInYorkshire » June 26th, 2019, 9:45 pm

PinkDalek wrote:
AsleepInYorkshire wrote:
I think you have a closed company - i.e. less than 5 employees. Also if it's an MVL that is seen to be for no other reason than to avoid tax it may be still subject to income tax.

https://www.crunch.co.uk/knowledge/tax/ ... strike-off

However, you need to be aware that distributions from the voluntary liquidation of a company may be subject to income tax under the following circumstances:
- The company is a ‘Close Company’ (i.e. has five or fewer shareholders)
- Within two years after receiving a distribution the owner is involved with a similar trade or activity
- The winding up of the company appears to be to reduce tax.


That is a somewhat brief overview but let's assume that Conditions A-C are satisfied.

If they are, Condition D states:

“it is reasonable to assume, having regard to all the circumstances, that –

1. The main purpose, or one of the main purposes of the winding up is the avoidance or reduction of a charge to income tax, or

2. The winding up forms part of arrangements the main purpose or one of the main purposes of which is the avoidance or reduction of a charge to income tax”.


From https://www.gov.uk/hmrc-internal-manual ... l/ctm36340

From what the OP has said so far, I doubt he fails under Condition C but we probably lack sufficient background.

Article here Are You Winding Me Up? By Mark McLaughlin, January 2018 https://www.taxinsider.co.uk/1851-Are_Y ... Me_Up.html (I haven't searched to see what happened next, if anything).

https://www.ensors.co.uk/blog/The-tax-i ... quidation/
In recent times HMRC have focused on the tax rules surrounding solvent liquidations to ensure that they are being used for their proper purpose and not merely as a vehicle employed by Shareholders to avoid higher rates of tax. HMRC’s Targeted Anti Avoidance Rule in relation to liquidations sets out specific circumstances for any distribution to be treated as capital and has brought the whole regime into Self Assessment.
AiY

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Re: Winding up a Limited Company

#232248

Postby PinkDalek » June 26th, 2019, 11:36 pm

AiY

I’m aware of the TAAR background, thanks, but do bear in mind these scare articles might be from people touting for business!

Here’s a random extract from HMRC’s letters I have on file (before the guidance was issued on HMRC’s website):

Example 2

Mrs B is an IT contractor. Whenever she receives a new contract, she sets up a limited company to carry out that contract. When the work is completed and the client has paid, Mrs B winds up the company and receives the profits as capital.
Again, conditions A to C are met because Mrs B has a new company which carries on the same or a similar trade to the previously wound up company. Here, though, it looks like there is a main purpose of obtaining a tax advantage. All of the contracts could have been operated through the same company, and apart from the tax savings it would seem that would have been the most sensible option for Mrs B. Where the distribution from the winding up is made on or after 6 April 2016, in these circumstances the distribution will be treated as a dividend and subject to income tax.


That’s the type of avoidance they are after.

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Re: Winding up a Limited Company

#232315

Postby Mike88 » June 27th, 2019, 12:04 pm

Having gone through the winding up process of a solvent company myself some 20 years ago I would advise the OP speaks to a couple of insolvency practitioners first. You will or should get free advice and you don't have to employ those you speak to. Some of these guys are accountants and some lawyers and are incredibly expensive. Once they get involved virtually everything is out of your hands and suddenly expensive hotel bills, meals and of course their hourly rate all adds considerably to the cost.

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Re: Winding up a Limited Company

#232326

Postby Laughton » June 27th, 2019, 12:58 pm

mike88 - I think things have moved on a lot in the past 20 years. I've spoken to a number of isolvency practitioners all of whom are now prepared to carry out the job on a fixed fee basis. Mine is a very very straightforward case in that there is no property, no real fixed assets and no stock. Only the cash held at the bank and some extra corporation tax related to the directors loan to be reclaimed.

I didn't really start this thread looking for the pros and cons of an MVL - I've already done quite a lot of research and, given that my company is not sellable, am happy this is the cleanest, quickest and above all technically the correct way to wind it up. I am also happy that I will qualify for Entrepreneurs Relief.

One problem that I have come across is that I have yet to meet an insolvency practitioner who is prepared to give tax advice and an accountant that is prepared to say whether or not HMRC will definitely accept my application for Entrepreneurs Relief. Probably one reason why I gave up using an accountant many years ago.

Likewise HMRC, even if given all the facts will not say in advance whether or not Entrepreneurs Relief would be granted. Personally I do not think that is fair or in accordance with their Charter - but that's a different matter.

Many thanks to all for your interest, having slept on it I've decided that I have nothing to lose in asking my preferred practioner what proof he can offer that the company's funds are protected by a bond and/or insurance whilst in his possession. If he's not prepared to give proof then there's always another practitioner to ask.


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