Help with Self Assessment and Capital Gains

Rhiaz

Hello,

I have looked but can't find this query on the boards, so apologies if it's been asked before!

I am doing my tax return for 2017/18 and have 2 queries

1. Do I need to include dividends from bank shares that amounted to around £3 in the year?

2. I previously had a limited company - just me, very basic. The company was dissolved early this year and I paid the money left into my own bank account. The total was £18789.23, of which £100 was the original share investment so not relevant, and then I took £5000 as dividends - so this is tax free and I state that on my return?
I have then been using google and the gov.uk information to calculate the below as I read I could treat the money as a capital gain:
£18,689.23 - total capital gain
(11300) capital gains allowance
So £7389.23 is the total taxable gains to pay tax on?

I then took my taxable income from my P60 and minused £11500 tax allowance, then I added that figure to the £7389.23, and got £31,430.23
So I think I then have to pay 10% tax on the total taxable gains of £7389.23, making £738.92.

Firstly is this correct, and if so how do I show that on the self-assessment form?

I went to an accountant to ask this and they told me the above is all totally wrong and I would have to pay dividend tax on the whole amount that I took out...
I'm a bit confused, can anyone advise?

Thanks for reading.

Dazed_and_confused

1. Yes

2. Dividends are not "tax free". £5,000 can be taxed at a 0% tax rate but you still have to include dividend income on the return. You would have at least £5,000 (+ £3) of taxable dividend income which may affect other things and increase your overall tax liability even if it is itself taxed mainly at 0%.

I don't really understand the rest, you don't include capital gains in an income tax calculation although your income tax rate may determine the capital gain rate.

You may get more help on here but professional advice may be the way to go given your other misunderstandings.

00ec25

Rhiaz wrote: »

I went to an accountant to ask this and they told me the above is all totally wrong and I would have to pay dividend tax on the whole amount that I took out...
I'm a bit confused, can anyone advise?

did you give the accountant all the facts? The tax on closing down a Ltd Co is a bread and butter scenario for an accountant.

you are closing down a company
the company has assets of less than £25,000?

there are VERY specific rules re CGT and closing a company with <25k of assets

try google again... here is a starter for you...

https://www.contractoruk.com/limited_companies/how_pay_least_tax_closing_limited_company.html

Rhiaz

Thank you both and sorry if what I have written is confusing!

The accountant looked at my final accounts dated Nov 2016 - I basically stopped all trading by that time and have been employed in a regular job since then.

He didn't go into too much detail as it was an initial free consultation and he wanted £240 plus vat to do my tax return. But he definatley said the money isn't a csapital gain but I thought it was a business asset - ie the cash being returned to the sole shareholder.
Thanks for the link that's exactly what I read and tried to follow the below advice:

If you have less than £25,000 in the company on dissolution, there will be little change. You can still release the assets (cash) to shareholders and be taxed as a capital gain rather than as a dividend. The good news here is that you will no longer need permission from HMRC to do so.

My above calculation was basically following my understanding of the calculation found on the gov uk site
capital-gains-tax/work-out-need-to-pay

00ec25

naturally no one is going to give you the precise answer when you present looking for one off advice for a one off scenario where you will never be back as a regular customer.

Did you seriously expect to be given a detailed answer that would enable you to complete your tax return for free by someone whose sole purpose in life is to charge for the advice they give and be held financially liable if they get it wrong?

pay the £240 and let someone who knows what they are doing do it for you which, by the sounds of it, may not be that "accountant". Was he professionally qualified?

polymaff

Whatever you do, before relying on anything from gov.uk, look at their CGT calculation example:

Example

Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,300. Your gains aren't from residential property.

First, deduct the Capital Gains tax-free allowance from your taxable gain. For the 2018 to 2019 tax year the allowance is £11,700, which leaves £600 to pay tax on.

Add this to your taxable income. Because the combined amount of £20,600 is less than £45,000 (the basic rate band for the 2018 to 2019 tax year), you pay Capital Gains Tax at 10%.

This means you'll pay £60 in Capital Gains Tax.


and think again.

polymaff

Rhiaz wrote: »

I have then been using google and the gov.uk information to calculate the below as I read I could treat the money as a capital gain:
£18,689.23 - total capital gain
(11300) capital gains allowance
So £7389.23 is the total taxable gains to pay tax on?

... or you could have made two post-trading distributions, one either side of an April 6th, potentially resulting in no CGT liability at all.

Rhiaz

Hi Polymaff, thanks for your responses, although I am a bit confused.

I did read a similar example to the one you posted and followed that method with my own figures.

When you say 'and think again' does that mean I have totally misunderstood?

Kind rgs

Rhi

polymaff

HMRC produce all sorts of "examples" which make many, many unstated assumptions. That's misleading enough, but this example also includes a complete untruth - that "the basic rate band for the 2018 to 2019 tax year" is £45,000. It isn't anythiing like that. Worse, it just happens that their specific figures work out correctly with that error in place - but there would be other incomes for which the stated method would produce the wrong result. So in terms of the truth, the whole truth and nothing but the truth, HMRC score 0 out of 3. It is this sort of nonsense that gives rank amateurs a bad name.

Efficiently closing a limited company is a matter of sequencing the events optimally. The multiple distributions spanning tax years technique is an excellent one for avoiding CGT liability on sub-£25k remnants.

Which I hope that I've carefully considered, and written up, to get my score much nearer 3 out of 3.

Rhiaz

Thank you, clearly understood, and I wish I had had a 'helpful' accountant whilst I had my own company.
I never took dividends so totally appreciate my lost opportunity thanks to your comment: "Efficiently closing a limited company is a matter of sequencing the events optimally. The multiple distributions spanning tax years technique is an excellent one for avoiding CGT liability on sub-£25k remnants."

I'm just going to call HMRC and ask for advice on my current situation.

Really do appreciate your time once again, thank you

3/3 from me!

polymaff

Rhiaz wrote: »

Thank you, clearly understood, and I wish I had had a 'helpful' accountant whilst I had my own company.
I never took dividends so totally appreciate my lost opportunity thanks to your comment: "Efficiently closing a limited company is a matter of sequencing the events optimally. The multiple distributions spanning tax years technique is an excellent one for avoiding CGT liability on sub-£25k remnants."

I'm just going to call HMRC and ask for advice on my current situation.

Really do appreciate your time once again, thank you

3/3 from me!

You may be missing my point. Even if you've taken low-tax dividends, if there is still money to distribute, the multi-year process allows you to get the final up-to-£25k out potentially tax free. So it is not dividends or capital gains, but dividends (preferably taxed at 0%), and then capital distributions at 0% as well.

Could extract up to £37k taxed at 0%