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bigduckontax, Accountant
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My limited company makes about £50,000pa. I am selling the

Customer Question

My limited company makes about £50,000pa. I am selling the goodwill for £200.000 and closing the company. What are the tax implications for the company and will I pay further tax when I withdraw the funds from the company on closure?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

By closing your company you are effectively disposing of your interest in the organisation. In essence, you are selling your shares. You will therefore be liable to Capital Gains Tax on the final selling value less costs and the original or any subsequent investment. From this figure you may deduct any loans you have made to the company if you have not already recovered them before the sale. CGT is levied at 18% or 28% depending upon your own income level including any gain made in the year of disposal. You have an Annual Exempt Allowance of 11K against CGT, but the rest of the gain is taxable. If you were an original investor in the company on its formation you can claim Entrepreneur's Relief which reduces the tax rate to 10%.

Any profit made by the company in the year of closure will be liable to Corporation Tax in the usual way.

I do hope I have thrown some light on your problem for you.
Customer: replied 2 years ago.

Sorry, but not selling the Shares. My question was not about selling shares. I am selling the Goodwill. I am retaining the shares and then ceasing to trade.

Expert:  bigduckontax replied 2 years ago.
I am aware of that and I did not tell you you were selling your shares. My wording was that you are effectively so doing. However, from a taxation point of view you are disposing of your shares when you shut down the company and withdraw funds. You thus make the capital gain on ceasing to trade when you finally withdraw the funds from the company and collect the residue.
Customer: replied 2 years ago.

So the company pays tax on the profit on Goodwill. The company can no longer trade. I am then taxed on withdrawing the funds on which the Company has paid tax. So assuming no offset costs, potentially taxed at 20%(CT) + 28% or18% or 10%(CGT) on the £200,000. So worst case pay 48%, best case 30%


 

Expert:  bigduckontax replied 2 years ago.
If you sell the company's business to a third party then those moneys come into the company as income. Companies are not subject to the CGT regime, all gains being rolled up as income and subject to CT. After payment of CT any funds remaining after the settlement of all company debts and other liabilities and coming to you are subject to CGT in your hands on the gain which is the difference between what you have put into the company in the way of share purchases and what you receive back. This is taxed at 10% through Entrepreneur's Relief (ER), but you have to be in at the start of the company's existence to be so entitled. If you are not entitled to ER then the gain you make is charged at 18% or 28% or a combination of both depending upon your income including this gain in the year of sale. The level of the split between 18 and 28% is determined by the amount of unused 20% tax rate remaining on your personal tax account.

So sorry; that's how UK taxation works. Sorry to be the bearer of such dismal tidings.
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Category: Tax
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Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support. Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes.
Expert:  bigduckontax replied 2 years ago.
Just an afterthought; have you considered using some of the surplus cash in your company to make a payment into your private pension plan? That would be allowable against the company's CT liability. It would also reduce the moneys available to you on closure and thus your CGT bill.

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