Closing your Limited Company with a low tax bill Expert advice on how to extract cash when closing down your company.
How to pay the least tax closing a limited company Contractors must fork out more to wind-up, so take the following steps to keep a lid on costs.
Not only do the shareholders benefit from the distributions that exceed £25,000 being treated as capital, the funds may also be subjected to Entrepreneurs' Relief, a personal tax relief that reduces the tax rate down to 10%.
Getting some closure: How to shut down your limited company For contractors that need to close their limited: we look at how to achieve a clean and tidy separation.
However since 1st March 2012, ESC C16 was written into tax law with a distribution limit of £25,000.
This means that if the distributions are less than £25,000 then 'capital treatment' automatically applies, however if they are in excess of £25,000 they are treated as income in the shareholders' hands.
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Whilst winding down a limited company is far from the minds of contractors who are just starting out, with luck every contractor will reach the point of retirement or may even at some point re-enter the world of the permanent employment.
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There have been various mechanisms over the years that have allowed contractors to close their companies as tax-efficiently as possible.
Historically contractors looking to close their company would make a request to HMRC under ESC C16 to treat any final distribution as capital rather than income.
Even following the new rules, assets distributed under a Members Voluntary Liquidation (MVL) are still taxed on the shareholders' as capital, which is why this has now become the most popular method for contractors to close their company.