Company ceased trading but still has £40k in bank

skid112

Hi was wondering if anyone can help on this as we are getting conflicting advise from our accountant and the Tax Office.

Basically the company we own has ceased trading as of September last year. Profitable up until we ceased. We now have over £40,000 in the bank after paying all due bills, which we are looking to take out as tax efficently as possible as we wind the company down.
any help is appreciated

Pennywise

Get your accountant to apply for HM Revenue & Customs Extra Statutory Concession C16 which means that the amount left in the company can be paid to the shareholders as "capital" meaning that the shareholders benefit from their annual capital gains tax exemption and possibly business asset taper relief (depending on the time they owned the business and it was "qualifying" under HMRC definition of trading).

Asking HM Revenue & Customs for advice on tax planning is like asking turkeys to vote for christmas - they aren't allowed to give advance tax planning advice, they can only advise on compliance which is basically telling you what forms to fill in after the event.

Hopefully your accountant will have told you about ESC C16 - if not, then you probably don't have a very good accountant!

skid112

thank you pennywise, and no we have not been told that by our accountant.

inmypocketnottheirs

Pennywise wrote:

Asking HM Revenue & Customs for advice on tax planning is like asking turkeys to vote for christmas

Great! I love that comment!:beer:

Dunc6

It will probably best to pay yourself a dividend each year until the balance is reduced to zero. Tax planning will be essential to ensure that you do not pay the higher rate of tax of 32.5% on the dividends paid. Your Accountant should be able to give you advise on this and will be able to calculate your total annual income and advise you on the dividend to be paid.

cash99

Only pay a dividend this year if you will not have to pay higher rate tax on it. Don't pay dividends over several years as this could well incurr additional tax at some stage, plus you will have the added cost of running the company for those years.

If you have owned the company for more than two years, and it was a qualifying business, you will be entitled to 75% taper relief on any distribution under ESC 16 which would take the £40k distribution, which will be taxed as a capital gain down to £10K immediately, which split between 2 is obviously less than you annual exemption.

You need to act fast however as from the date the company ceased trading you begin to lose your business asset taper relief.

The process is very straightforward and I have attached a copy of the letter I used to shut my own company down last year.

Speak to your accountant asap.



Dear Sir

xxxxx Ltd

The above company ceased trading on xxxxxxxxx. We are writing to request clearance under ESC 16 that distribution of the surplus in the company can be treated as if made during a formal winding up.

We confirm that the company:
(a) does not intend to trade or carry on business in future, and
(b) intends to collect its debts, pay off its creditors in full and distribute any balance of its assets to its shareholders , and
(c) intends to seek striking off and dissolution.

The company and its shareholders also agree that:
(a) they will supply such information as is necessary to determine, and will pay, any CT liability on income or capital gains.
(b) the shareholders will pay any CGT liability in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up.

We look forward to hearing from you.

Yours faithfully


Signed by all shareholders and directors