Company wind-up - which route?
Posted: 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?
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?