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Company wind-up - which route?

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Fluke
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Company wind-up - which route?

#284486

Postby Fluke » February 15th, 2020, 12:23 pm

I have a Ltd co through which I have been working as a contractor for about 15 years, I’m the sole director and there are no other employees. The company has not traded for nearly 3 years.

Assets are made up of about £12k cash and about £50k invested in a fund which includes a capital gain of about £10k. I.e I invested £40k it’s now worth about £50k. No corp tax has been paid on this gain yet as it hasn’t been realised. Ditto dividends as these have been accumulated within the fund.

There is also a peer to peer account, the original investment has now been repaid with interest from this account and what remains is about £1600 of bad debt which is unlikely ever to be recovered.

I’m thinking of closing the company down at the end of the current year (July) and wondering about the most cost efficient way of going about it.

In the current financial tax year I will have used up my personal tax allowance (£12,500) by way of a one-off payment from my SIPP, and my £2k tax free dividend allowance from some non-isa shares that I have.

So what I”m thinking is that the company pays me a dividend of about £30k in the current financial year on which I will need to pay dividend tax of 7.5% - £2,250. So far so good. (Btw I have checked with the fund manager and they have confirmed that I can transfer some or all of the investment into my own name from the company name, it's just a matter of filling out a couple of forms.)

Then after 6th April I could go one of 2 ways:

Either

I pay most of the remainder of the co. funds (approx £30k) to myself as a dividend on which I’ll pay the 7.5% tax on next years self assessment. I leave enough in the company to cover corp tax on the aforementioned capital gain, accountancy fees etc. I ask my accountant to do my year end accounts as usual (around August) and at the same time (perhaps before?) I apply to have the company struck off, (Companies House fee £10). And then I do all the other winding up bits and pieces, cancel DD’s close accounts etc.

Cost: 7.5% dividend tax on £30k (£2,250) + 19% corporation tax on £10k capital gain (£1900)* = £4,150. Plus my usual accountancy fees and the £10 to Companies House.

*This assumes I cannot offset the bad debt from the p2p account against corp tax, I have no idea if I can or not.

Or

I pay myself a dividend of about £5k on which I will pay 7.5% tax on next years self assessment, leaving about £25k in the company, and then I go down the voluntary liquidation route and have the £25k (less accountancy/liquidation fees) distributed to me as capital on which I would not be liable for CGT as I don’t have any other personal capital gain considerations.

Cost: 7.5% on £5k dividend tax (£375) + Liquidation fees (£?) let’s call it £500 that’s 375 + 500 = £875.

Conclusion: Option 2 sounds like the way to go, but if I’m able to offset the bad debt from the p2p account against corporation tax that brings down the cost of option 1, and if liquidation costs far more that my estimated £500 then the gap between the 2 routes closes considerably.

What do people think? Have I got this right? Is there anything else I should consider?

PinkDalek
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Re: Company wind-up - which route?

#284503

Postby PinkDalek » February 15th, 2020, 1:30 pm

Brief comment only re Option 2 (haven't looked in depth).

Fluke wrote: I go down the voluntary liquidation route and have the £25k (less accountancy/liquidation fees) distributed to me as capital on which I would not be liable for CGT as I don’t have any other personal capital gain considerations.


What is you base cost in the company and, if a few pounds only, why no CGT on £25,000 (unless there is potential of a spouse being involved or the capital distributions are to be spread over two tax years etc)?

Also you are assuming the 'dividend tax rate', the £2,000 etc will be the same as now in 2020-2021.

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Re: Company wind-up - which route?

#284567

Postby Fluke » February 15th, 2020, 5:21 pm

PinkDalek wrote:... why no CGT on £25,000 (unless there is potential of a spouse being involved or the capital distributions are to be spread over two tax years etc)?


Oops! I didn't check that. Not having to deal with CGT usually I just had some vague notion that the tax free allowance is much higher than is actually is, sorry about that. Okay well that changes the picture a bit and the gap between the 2 options has narrowed somewhat.

Option 1 remains unchanged at £4,150 (with caveats) but option 2 is now:

Cost: 7.5% on £5k dividend tax (£375) + 10% CGT on £13,000 (£1300)* + Liquidation fees (£500)ish = £2,175

*£25000 - £12000 CGT free allowance

Now, if I can offset the £1600 against corp tax, that brings the 2 options much closer together.


PinkDalek wrote:. Also you are assuming the 'dividend tax rate', the £2,000 etc will be the same as now in 2020-2021.


Yes. Got nothing else to go on at the moment.

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Re: Company wind-up - which route?

#284586

Postby PinkDalek » February 15th, 2020, 7:25 pm

I haven't looked in more detail at your numbers and we don't know, for example, your total taxable income to see if the IT/CGT rates you use are correct, but re:

Fluke wrote:Now, if I can offset the £1600 against corp tax ...


You may well have seen similar to this relating to Income Tax:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/597959/Income_tax_relief_for_irrecoverable_peer_to_peer_loans_FINAL_GUIDANCE__2_.pdf

It includes:

What this means for persons Subject to UK Corporation Tax

Persons subject to corporation tax will not be eligible for this relief, but may be able to claim a deduction for any losses under the Loan Relationships regime (more detail in the Corporate Finance Manual at CFM30000).


CFM30000 is here https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm30000 but I certainly haven't read through the numerous pages. If your accountant is up to speed they may know the answer but, if not, their fees on a potential saving in CT of £300 may not be worth asking the question. If you forward your own draft Corporation Tax computation to them for their review, I'd probably claim it and see what they say.

More generally, is there any reason this Topic wasn't posted at Taxes (it can be moved there is you think that might pull in more knowledgeable replies).

PinkDalek
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Re: Company wind-up - which route?

#284598

Postby PinkDalek » February 15th, 2020, 8:24 pm

... maybe here is the relevant page in the HMRC Manual:

https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm32030

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Re: Company wind-up - which route?

#284603

Postby uspaul666 » February 15th, 2020, 8:40 pm

Pretty sure the “offset p2p losses against tax on interest” thing only applies to lending as an individual. Further, if the companies p2p lending account is transferred to an individual (somehow) after it might have been eligible for bad debt relief then the individual cannot use the bad debt relief - relief is only available when you buy the loan when it is in good condition and it subsequently goes bad.
I’d be very interested in follow ups to this subject, being in a similar situation with my contracting company but with only bad p2p loans stuck in it to about the same amount as the OP.

Fluke
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Re: Company wind-up - which route?

#284681

Postby Fluke » February 16th, 2020, 11:24 am

PinkDalek wrote:I haven't looked in more detail at your numbers and we don't know, for example, your total taxable income to see if the IT/CGT rates you use are correct, but re:

Fluke wrote:Now, if I can offset the £1600 against corp tax ...


You may well have seen similar to this relating to Income Tax:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/597959/Income_tax_relief_for_irrecoverable_peer_to_peer_loans_FINAL_GUIDANCE__2_.pdf

It includes:

What this means for persons Subject to UK Corporation Tax

Persons subject to corporation tax will not be eligible for this relief, but may be able to claim a deduction for any losses under the Loan Relationships regime (more detail in the Corporate Finance Manual at CFM30000).


CFM30000 is here https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm30000 but I certainly haven't read through the numerous pages. If your accountant is up to speed they may know the answer but, if not, their fees on a potential saving in CT of £300 may not be worth asking the question. If you forward your own draft Corporation Tax computation to them for their review, I'd probably claim it and see what they say.


Thank you for the links PinkDalek, I've read through and cannot see an obvious answer. I've fired off an email to Funding Circle to ask them, they may just point me at the same docs you have but they must have had this question before and they should know the answer. Given that I have the other option of voluntary liquidation which works out cheaper anyway, I might just take the path of least resistance.

PinkDalek wrote:More generally, is there any reason this Topic wasn't posted at Taxes (it can be moved there is you think that might pull in more knowledgeable replies).


Yes it's got a foot in both camps, I might just pop over there and link across.


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