Limited business profits

modelreject

Hi,

There wasn't a business thread on the forums that I could see so I thought I would post this here. It it semi relevant :-)

I was just wanting to know, if someone has a limited company and are in profit with lets say £400,000, basically sitting in the business account. What happens to that money, lets say, if the owner wanted to shut business tomorrow. Would that money go in their pocket?

Many thanks,
MR

TheTracker

modelreject wrote: »

Hi,

There wasn't a business thread on the forums that I could see so I thought I would post this here. It it semi relevant :-)

I was just wanting to know, if someone has a limited company and are in profit with lets say £400,000, basically sitting in the business account. What happens to that money, lets say, if the owner wanted to shut business tomorrow. Would that money go in their pocket?

Many thanks,
MR

There is a Small Biz board here http://forums.moneysavingexpert.com/forumdisplay.php?f=27

You could close the business with a voluntary liquidation, which would cost about £1-2k to perform. You need to have submitted accounts up to the day before liquidation, and have no creditors or debtors.

You could qualify for Entrepreneur's Relief on the capital gain, effectively a 10% tax on the £400k, noting that you've probably already paid 20% corporation tax over the years to result in this balance, making a 28% tax overall. Each person has a £10m ER lifetime allowance. It was £1m not long ago.

As of April 6th, 2016, a targeted tax anti-avoidance measure comes into effect which means if you trade in a similar activity within two years of the distribution of capital then the disposal is treated as income, not a capital gain, and is subject to income tax at your personal level, so 45%+ with that amount, not 10%. You've probably missed the boat here, as the distribution needs to be made by April 5th of this year to escape the measure. We'll have to see how the TAAR plays out in reality.

You could hurry up and make a pension contribution with any eligible carry back to reduce tax exposure.

Every budget there are rumours about the abolition of or further restrictions on ER. The restrictions do appear, but gradually.

modelreject

I am totally new to this. Regarding...

"You could close the business with a voluntary liquidation, which would cost about £1-2k to perform. You need to have submitted accounts up to the day before liquidation, and have no creditors or debtors."

Does that end up that the amount the owner would take home at the end of it,£398,000 and then that is taxed?

Just wanting to know the best case final take home money if the business was to close.

Many thanks again,
MR

TheTracker

You have a £11k CGT allowance, so if you have no other capital gains then £387k is taxed at 10%, so £359k in the pocket, best case.

modelreject

Thanks TheTracker. Much appreciated!

redmalc

Modelreject
Please confirm if all of your creditors are paid in full,if so you could go and instruct a Practioner to do a Members Voluntary Liquidation for you which would put the company to bed formally and the remaining proceeds would be dealt with correctly and this should cost no more than 2K/3K