What to do with the money in my business.

Riggsy68

Hi all. Hoping this is the right area to post this. I'm after some suggestions. For the last 13 years I have single-handedly been running a small but quite successful Recruitment company, specialising in the supply of Temp workers to the Engineering industry. However, the climate in this sector is currently the worst I have ever seen it in my 33 years as a Recruiter. This is down to a 'perfect storm' of problems including the Pandemic, Brexit, tightening of the IR35 rules, and rebound in the economy which means finding temps qualified to do the work is neigh on impossible. I have decided to run the business down and call it a day. At 54 years old, I'm too young to retire so will have to find work of some description. Currently, there is just short of £200K capital reserves tied up in the business (no assets to speak of). If I do decide to close the business, what suggestions would people make about how to extract the most amount of money from the business? I don't want to pay it all to myself and end up giving 40% to the Inland Revenue (especially as Corporation Tax has already been paid, but that's another matter). I cannot sell the business, as effectively, I AM the business. Not only that, no one would want it with it's current turnover / profit. I could plough money into my Pension, but I am limited as to what I can pay in annually, and to be honest, I want to close down sooner rather than later. All suggestions very welcome!!

Grumpy_chap

You can take £2k per year dividend at no tax.

You can take personal allowance as dividend or salary and the tax is very low (some NI if salary and possibly the health levy on dividend - I am not sure how the health levy applies to dividend below tax threshold).
Taking enough salary to make enough NI contributions to earn your "stamp" for the year might make sense.  
If you take the salary after July, the NI will be lower ( unless there is a trap for that for Ltd Co Director).

If you make company pension contributions, they are not capped by annual earnings but the £40k contributions allowance applies.  Depending on past years contributions you may have carry forward available from up to the past three years.

You can make dividend payments from personal allowance up to higher rate threshold at 8.75% tax (which is over and above corporation tax already paid).

That should give options to easily get £200k out relatively tax efficiently either all this tax year, or spread over two tax years.

Hope that helps.

What has your Accountant advised?

One other possibility would be to by an EV through the business and pay low BIK.  I am not sure that would be allowed for a company that effectively ceased trading plus you'd have to keep the company alive so it might be more hassle then it is worth.

norsefox

Grumpy_chap said:

You can take £2k per year dividend at no tax.

You can take personal allowance as dividend or salary and the tax is very low (some NI if salary and possibly the health levy on dividend - I am not sure how the health levy applies to dividend below tax threshold).
Taking enough salary to make enough NI contributions to earn your "stamp" for the year might make sense.  
If you take the salary after July, the NI will be lower ( unless there is a trap for that for Ltd Co Director).

If you make company pension contributions, they are not capped by annual earnings but the £40k contributions allowance applies.  Depending on past years contributions you may have carry forward available from up to the past three years.

You can make dividend payments from personal allowance up to higher rate threshold at 8.75% tax (which is over and above corporation tax already paid).

That should give options to easily get £200k out relatively tax efficiently either all this tax year, or spread over two tax years.

Hope that helps.

What has your Accountant advised?

One other possibility would be to by an EV through the business and pay low BIK.  I am not sure that would be allowed for a company that effectively ceased trading plus you'd have to keep the company alive so it might be more hassle then it is worth.

I am not at all familiar with this, but is there scope for using Business Asset Disposal Relief to reduce the tax bill when winding up a company?

Riggsy68

Grumpy_chap said:

You can take £2k per year dividend at no tax.

You can take personal allowance as dividend or salary and the tax is very low (some NI if salary and possibly the health levy on dividend - I am not sure how the health levy applies to dividend below tax threshold).
Taking enough salary to make enough NI contributions to earn your "stamp" for the year might make sense.  
If you take the salary after July, the NI will be lower ( unless there is a trap for that for Ltd Co Director).

If you make company pension contributions, they are not capped by annual earnings but the £40k contributions allowance applies.  Depending on past years contributions you may have carry forward available from up to the past three years.

You can make dividend payments from personal allowance up to higher rate threshold at 8.75% tax (which is over and above corporation tax already paid).

That should give options to easily get £200k out relatively tax efficiently either all this tax year, or spread over two tax years.

Hope that helps.

What has your Accountant advised?

One other possibility would be to by an EV through the business and pay low BIK.  I am not sure that would be allowed for a company that effectively ceased trading plus you'd have to keep the company alive so it might be more hassle then it is worth.

Thank you. Some food for thought there.

Riggsy68

norsefox said:

Grumpy_chap said:

You can take £2k per year dividend at no tax.

You can take personal allowance as dividend or salary and the tax is very low (some NI if salary and possibly the health levy on dividend - I am not sure how the health levy applies to dividend below tax threshold).
Taking enough salary to make enough NI contributions to earn your "stamp" for the year might make sense.  
If you take the salary after July, the NI will be lower ( unless there is a trap for that for Ltd Co Director).

If you make company pension contributions, they are not capped by annual earnings but the £40k contributions allowance applies.  Depending on past years contributions you may have carry forward available from up to the past three years.

You can make dividend payments from personal allowance up to higher rate threshold at 8.75% tax (which is over and above corporation tax already paid).

That should give options to easily get £200k out relatively tax efficiently either all this tax year, or spread over two tax years.

Hope that helps.

What has your Accountant advised?

One other possibility would be to by an EV through the business and pay low BIK.  I am not sure that would be allowed for a company that effectively ceased trading plus you'd have to keep the company alive so it might be more hassle then it is worth.

I am not at all familiar with this, but is there scope for using Business Asset Disposal Relief to reduce the tax bill when winding up a company?

norsefox said:

Grumpy_chap said:

You can take £2k per year dividend at no tax.

You can take personal allowance as dividend or salary and the tax is very low (some NI if salary and possibly the health levy on dividend - I am not sure how the health levy applies to dividend below tax threshold).
Taking enough salary to make enough NI contributions to earn your "stamp" for the year might make sense.  
If you take the salary after July, the NI will be lower ( unless there is a trap for that for Ltd Co Director).

If you make company pension contributions, they are not capped by annual earnings but the £40k contributions allowance applies.  Depending on past years contributions you may have carry forward available from up to the past three years.

You can make dividend payments from personal allowance up to higher rate threshold at 8.75% tax (which is over and above corporation tax already paid).

That should give options to easily get £200k out relatively tax efficiently either all this tax year, or spread over two tax years.

Hope that helps.

What has your Accountant advised?

One other possibility would be to by an EV through the business and pay low BIK.  I am not sure that would be allowed for a company that effectively ceased trading plus you'd have to keep the company alive so it might be more hassle then it is worth.

I am not at all familiar with this, but is there scope for using Business Asset Disposal Relief to reduce the tax bill when winding up a company?

That's something I will look into thanks.

NorthYorkie

With the amounts you mentioned, you must take advice from your accountant, and be prepared to pay for it. Don't rely on a forum where you know nothing of the experience of those responding (including me!) - "Free advice is often worth as much as you pay for it"

K_S

@riggsy68 I'll preface my post by stating that I'm not an accountant

A acquaintance of mine was recently in a similar position as yourself, looking to retire with many years of retained profits saved up inside his consultancy company. His business was still profitable but he'd been looking to retire and covid helped him make up his mind.

What he did was use a Members Voluntary Liquidation, and afaik he only had to pay a 10% tax rate on the reserves released. I think you can only do this through a regulated/authorised professional practitioner and there is eligibility criteria to be met.

Again, I've no idea whether this suits your situation or not, but perhaps worth exploring. Good luck!

Riggsy68

K_S said:

@riggsy68 I'll preface my post by stating that I'm not an accountant

A acquaintance of mine was recently in a similar position as yourself, looking to retire with many years of retained profits saved up inside his consultancy company. His business was still profitable but he'd been looking to retire and covid helped him make up his mind.

What he did was use a Members Voluntary Liquidation, and afaik he only had to pay a 10% tax rate on the reserves released. I think you can only do this through a regulated/authorised professional practitioner and there is eligibility criteria to be met.

Again, I've no idea whether this suits your situation or not, but perhaps worth exploring. Good luck!

Thank you and sorry for the late reply. I will talk to my Accountant this week. 

Ciprico

Google 

Business Asset Disposal Relief

Could be applicable

Was known as entrepreneurs tax relief...

Jeremy535897

There are detailed conditions to be satisfied. See:
https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-business-asset-disposal-relief-2021

DairyQueen

K_S said:

@riggsy68 I'll preface my post by stating that I'm not an accountant

A acquaintance of mine was recently in a similar position as yourself, looking to retire with many years of retained profits saved up inside his consultancy company. His business was still profitable but he'd been looking to retire and covid helped him make up his mind.

What he did was use a Members Voluntary Liquidation, and afaik he only had to pay a 10% tax rate on the reserves released. I think you can only do this through a regulated/authorised professional practitioner and there is eligibility criteria to be met.

Again, I've no idea whether this suits your situation or not, but perhaps worth exploring. Good luck!

Mr DQ (a qualified accountant) followed this route to take retained profits from his consultancy on retirement this year. If OP meets the criteria then it is the most tax efficient method. OH paid £3,000 in fees to the authorised practitioner who undertook the liquidation. Went very smoothly although expect quite a bit of number crunching, form-filling and affidavit-swearing.