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Sam
Sam, Accountant
Category: Tax
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I have a limited company with around £100,000 . Is it possible

Customer Question

I have a limited company with around £100,000 .

Is it possible to close the existing company and start a new company.

The main reason for this is to get the enterprenuers relief 10% capital gains tax.

My company is a personal service company.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi

Thanks for your question

You mean as way of saving money on tax? Rather then paying income tax.

Thanks

Sam
Customer: replied 2 years ago.

Yes that is correct

Expert:  Sam replied 2 years ago.
Hi Sam

No I am afraid not, HMRC would treat you as committing tax evasion - as you are preventing them from collecting the correct tax due.



This would end up then costing you the correct tax due plus up to a 100% penalty equal to the tax due - plus any interest - please do not even think about doing this, its a massive gamble,which you will see you highly at risk of losing.

Your best bet is to
1) Draw it out as dividends to lessen the initial tax burden
2) Pay up to £52,505 into a pension (threshold permitting) to then get the lump sum added to the pension pot plus 20% tax relief AND be due a tax refund of the additional tax relief (between the 20% and your highest rate of tax)

Thanks

Sam

Customer: replied 2 years ago.

 


 


 


My wife & I are shareholders of the company. We both take salary + Dividends up to the limit of approx £39,000.


 


I understand if I take dividends more than this limit I will have to pay tax 25% taking 10% tax credit into consideration.


 


Can you please elaborate the point 2 it is not clear what I should do.


 


 


I have seen in the HMRC website it says that you can take up to £10 million in aggregate during the life time capital gains as enterprenuers relief.


 


What do they me by this ?


 


Kind Regards


 


Sam


 


 

Expert:  Sam replied 2 years ago.

Hi Sam

 

 

Thanks for your follow up questions

 

If the salary and dividends exceed £42,475 - and you take dividends that further exceeded this threshold, then you pay an additional 32.5% less then 10% notional tax credit suffered by the company (so a further 22.5% overall) But then any monies you pay out, that attract tax relief, such as pension contributions and gift aid payments, also have to be considered to allow you the benefit of this additional tax.

This is because any pension contribution made, would only have received the basic tax relief by the pension plan, (when we put £100 into a pension plan, the amount is actually grossed up to £120) and if you are a higher rate taxpayer, then the relief due ALSO has to be at this higher rate, so after making a claim in your tax return HMRC refund you back the amount over and above the 20% relief awarded.
So in this instance you get an additional 22.5% back (so you are no worse off)


The £10 million in aggregate means that in any lifetime, you can dispose of shares or trade assets (those that attract entrepreneurs relief) up to £10 million -

so you could over your lifetime - for capital gains purposes dispose of any amount of eligible assets/shares - and benefit from the 10$ capital gain charge.

 

Thanks

 

Sam

Expert:  Sam replied 2 years ago.
Hi

I forgot to add - it may well be that if you wish to benefit from no further tax sufferance, and do not wish to lose the money long term to a pension pot, then do just pay yourself up to the £42,475 level with the mix of salary and dividends to reduce the tax burden, but this may take a little time.

Thanks

Sam
Customer: replied 2 years ago.


Hi,


 


Can you please let me know under what criteria that I am not entitle for the enterprenuers relief 10% capital gains tax


 


Regards


sam

Expert:  Sam replied 2 years ago.
HI Sam

Thanks for your further question

On the basis that you advise that you wish to use this as a way of drawing out the profits from the company to lessen your tax burden and then open a new company straight after. This is tax evasion.

If you were selling the company - or there was a sale of shares - or a genuine closure then this would attract the 10% entrepreneurs relief

Its easier to say when it applies, rather then when it doesn't - but if you have a more specific question in mind, then do ask.

Plus even if there was a way around this, then HMRC may argue that any unreasonable amount of retained profits should be charged under income tax and not capital gains, so refuse the entrepreneurs relief.

Bottom line, it has to be a genuine ending of the business

Thanks

Sam
Customer: replied 2 years ago.

Hi


If I take the some money in the company by paying higher rate tax and pay some money to a pension so that there is no money left in the company.


 


If I close the company at that time and open a new company is this ok ?


 


Regards


Sam

Expert:  Sam replied 2 years ago.
Hi Sam

This really should be listed as a new question, as per Just Answer policy. But as this is the first time you have used Just Answer, I shall answer on this occasion.

Yes this would be permitted as you are drawing the money out, paying the relevant tax, and then claiming the additional relief due on the pension contributions through your personal tax.

If you then close the company, and start from scratch with a new company, then you just have the transfer of any assets to consider for Corporation tax should there by any.

Thanks

Sam

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