Extracting last profit and closing company

Slinky

My OH used to be a self employed consultant through a ltd company, but now has a permanent PAYE job. He is a higher rate taxpayer.

There's about £5K of overpaid corporation tax that he finally managed to get refunded into his business account which he wants to extract in the most tax efficient manner. His accountant can't be bothered returning calls now and he's used an online filing service to lodge minimal accounts for the last 3 years, which is how long it took to get the old accountant to successfully chase the refund from HMRC.

I'm a non tax payer, income from interest (£5k) and about £300 in plc dividends and a little bit self employed from Prolific (under £1K). We are married.

Could my OH gift the shares in his ltd company to me, I declare a dividend to clear out the balance on the account and then make the company dormant or close it down?

Or is there another way to do this tax efficiently.

TIA for any help.

billy2shots

Any need to do the share transfer.

Can you not become an employee and take the money in wages?

Seems like the least amount of overheads (accountant fees for transferring shares)  

Just to be clear, is partner self employed or under a ltd? The two are very different. 

Sounds like you mean he is ltd but is the only employee on the books currently. 

DullGreyGuy

billy2shots said:

Can you not become an employee and take the money in wages?

As long as there is work to do to justify the salary (or you are happy running the risk with HMRC)

Slinky

It's a ltd company he was director and sole employee of.

Me working for the company is a non starter, there's no work to be done and it would stick out a mile.

I would need to investigate the feasibility of the share transfer. We set the company up online in about 15 minutes, without the need of an accountant. It's probably just a form needs completing.

uknick

One issue with a transfer of shares may be the value to assign them as a value over £1,000 attracts stamp duty.  But in your case I assume they'll be a gift which avoids stamp duty.  I also assume the Ltd articles allow for what you are proposing.

Once you've cleared the cash, how are you intending to wind the company up, strike it off or member's voluntary liquidation?

Strike off your limited company from the Companies Register: Overview - GOV.UK (www.gov.uk)

Liquidate your limited company: Liquidate a company you do not want to run anymore - GOV.UK (www.gov.uk)

I assume you'll want to strike it off as I think that's the cheapest way of doing it.  just make sure you've cleared all assets and cash before you strike it off as once you do anything left gets taken by the Crown.

Slinky

uknick said:

One issue with a transfer of shares may be the value to assign them as a value over £1,000 attracts stamp duty.  But in your case I assume they'll be a gift which avoids stamp duty.  I also assume the Ltd articles allow for what you are proposing.

Nominally there are 100 £1 shares, so nominally they'd be a gift of £100? The company was set up with standard articles of association template from Companies Made Simple.

Even if they were valued at over £1000, would stamp duty apply to a gift between spouses?

uknick

Stamp duty exemption between spouses is very limited.  HMRC's website says this;

"Which transfers are exempt

If a transfer of shares is exempt from Stamp Duty:

• the transfer document does not need to be stamped
• you do not need to send the documents to HMRC
• there’s no Stamp Duty to pay

Examples include:

• shares that you receive as a gift and that you do not pay anything for (either money or some other consideration)
• shares that your spouse or civil partner transfers to you when you marry or enter into a civil partnership
• shares held in trust that are transferred from one trustee to another
• shares held as security for a loan that are transferred back to you when you repay the loan
• shares that someone leaves to you in their will
• shares transferred to you when you get divorced, or when your civil partnership is dissolved
• shares that are admitted to trading on a recognised growth market but not listed on any market
• transfers that a liquidator makes as settlement to shareholders when a business is wound up
• transfer to the beneficiaries of a trust when the trust is being wound up
• certain types of loan capital

If chargeable consideration of more than £1,000 is given for a transfer where an exemption exists, you’ll need to complete the second exemption certificate on the back of the stock transfer form."

To avoid stamp duty you should be gifted the shares using a correctly executed deed of gift.  This doesn't need a professional to complete.  Google "deed of gift" and you should be able to prepare your own.  You just need to include a couple of things to make it a deed; for example, it must state the terms of the gift, must be dated and independently witnessed.

With regard to the share value, it's not as simple as citing the nominal value.  If that were the case, share premium wouldn't exist and all the related complex accounting rules.

There are many, very complicated ways, to value shares.  For a PLC it's relatively easy as it's what the open market is prepared to pay and is shown on the various exchanges.

For a private Ltd it's not so simple.  In your example you could say the fair value of the shares is £5k as that's what sitting in the bank.  That is assuming there are no other assets held on the balance sheet.  The reason being, why would the existing shareholders take less than the £5k if that's sitting in the bank?

But all that's irrelevant if the shares are gifted to you for nothing. 




 

Slinky

Thanks, that's very helpful. Yes they would be a gift with no money/any other consideration changing hands.

So assuming we can do the correctly executed transfer, given that my income is only from interest (£5k) and about £300 in plc dividends and a little bit self employed from Prolific (under £1K), can I then declare a dividend and take the whole lot out in one lump before April 5th 2024 so we can then sort out striking off the company?

uknick

Slinky said:

Thanks, that's very helpful. Yes they would be a gift with no money/any other consideration changing hands.

So assuming we can do the correctly executed transfer, given that my income is only from interest (£5k) and about £300 in plc dividends and a little bit self employed from Prolific (under £1K), can I then declare a dividend and take the whole lot out in one lump before April 5th 2024 so we can then sort out striking off the company?

From what you've said it would appear so.

And to be pedantic, you won't declare the dividend, the company will through a set of board minutes.  Never forget a Ltd is a completely separate legal entity to the owners and directors.

Slinky

uknick said:

Slinky said:

Thanks, that's very helpful. Yes they would be a gift with no money/any other consideration changing hands.

So assuming we can do the correctly executed transfer, given that my income is only from interest (£5k) and about £300 in plc dividends and a little bit self employed from Prolific (under £1K), can I then declare a dividend and take the whole lot out in one lump before April 5th 2024 so we can then sort out striking off the company?

From what you've said it would appear so.

And to be pedantic, you won't declare the dividend, the company will through a set of board minutes.  Never forget a Ltd is a completely separate legal entity to the owners and directors.

Yes of course, thank you. I will get him (as the director) to declare the dividend. I will also have to declare myself as a person with significant interest also.

One other thing regarding the dividend, am I right in thinking there will be no tax for me to pay with the sort of levels of income I quoted?  I've just received a letter from HMRC saying they no longer need tax returns from me (used to run my own ltd but sold the assets and it's dissolved now).

uknick

From what you've said it would seem you have no tax liability to pay for the dividends.

Plus, bear in mind final dividends are taxable when they are declared, not received.  Interim dividends are taxable when they are received.

This means you could declare a final dividend for £2,500 in the 2023-24 tax year and then another final dividend of £2,500 for the 2024-25 tax year and pay both just after April 6 2024.  One cash payment, accounted for in 2 different tax years.

Then strike the company off in 2024-25.