Hints & tips for shareholders to keep more money.
Do as much of the work yourself
- Sell the assets – you may need to instruct an agent for specialist items
- Pay the creditors – all of them
- Get all the book debt money in
- Have the accounts prepared to the date the company ceased to trade – may need your accountant
- File accounts at Companies House to cessation of trade
- Tell H M Revenue and Customs (PAYE and VAT) that you have ceased trading
- Have tax and VAT returns prepared and submitted to the cessation of trading
- Transfer pensions out of the Company – may need a pension advisor
Although you may need to instruct a professional in some areas (such as pensions), by doing a lot of this work yourself, you could be saving a lot of money in professional fees.
Beware: Monitor the position closely by keeping a record of the assets and liabilities and if at any time, you think that you are not going to have enough money to pay all of the Company’s liabilities, you need to stop and get help from an Insolvency Practitioner.
How much will be left?
Work out how much money (and other assets) you have after you have paid (or provided for) your liabilities.
If it is less than £25,000:
You can apply close your company and apply for this to be struck off. The following link will guide you on this procedure https://www.gov.uk/strike-off-your-company-from-companies-register
If it is more than £25,000:
If you do not formally liquidate the company, the surplus funds to be classed as dividend income and taxed at the various dividend rates.
For the distribution to be classed as a Capital Distribution, which is currently taxed as a capital gain, you will need to liquidate the company. Most shareholders qualify for business asset disposal relief which is currently at 10% on these capital distributions.
A Members Voluntary Liquidation “MVL” is a formal procedure, but many firms have streamlined the process for simple “cash at bank only” Companies to keep the costs down. In the majority of cases, the fees will be a lot less than the tax savings, so they are worthwhile.
Why do I need it to be a Capital Distributions?
Business asset disposal relief (formerly known as entrepreneur relief) is available to individual shareholders who have owned the business during the year that ends on the date the business was disposed of or ceased trading,
There’s a maximum lifetime limit on the amount of Entrepreneurs’ Relief you can claim on qualifying gains. The current limit is £1million. You can make claims for Entrepreneurs’ Relief on more than one occasion.
Capital Gains Tax is due at 10% on all qualifying gains (this includes Capital Distribution’s) up to the maximum lifetime limit.
Mr Plant decided to retire and dispose of his garden centre. He sold the business assets and paid all his debts, leaving him £100,000 in his bank. He had no other gains or losses. This qualified for Business asset disposal relief and would be taxed on £100,000 less his personal allowance) at 10%, i.e. approximately £9,000. He had to pay a liquidator £2,000 in total so it cost him £11,000 and he ended up with £89,000 in his retirement pot.
If he had received this as income, he wouldn’t have had to pay the liquidator, but would be taxed at the higher dividend rate at 37.5% and his tax bill may be somewhere near £37,500, leaving his retirement post with £62,500. Quite a difference!
Mr Plant was so thrilled with the £26,500 of money he had saved, he started his retirement by going on a World cruise.
Please do not hesitate to contact Claire Foster on 01302 965485 or email@example.com for further information or to receive a quote to provide an MVL. Alternatively you can request a callback using the form on our website.