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can client get benefit of CGT at 10% on "income"?

My doctor client has been approached by another firm of accountants with a proposal that the client incorporates the medical private practice.

Facts: NHS salary £90k, sole trader private practice profits £200k. IR35 would not apply if incorporated and the client is unmarried.

Proposal: put private practice into ltd co. Live off NHS salary plus say £50k of dividends in order to fund large mortgage on own home. Leave reserves to accumulate over a number of years until retained profits reach say £750k. Then pay a liquidator say £5k to wind up the company, distribute net assets, pay CGT at 10% on the £750k.

Being a cautious soul, I pointed out some possible problems, if only that in say 5-6 years time, the tax rules on which the plan is based may have been changed.

However, assuming no change in tax law – or HMRC’s interpretation of it! – do you think it would work as proposed?

Thanks in advance.

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Usual?

Doesn't everybody do this if they don't need all the company income?

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@Peter

It just seemed to be too easy to transform income taxable at 50% into capital gains taxable at 28%*. HMRC attack sole trader earned income being converted into unearned dividend income where the saving is only about 10% - in the example I've given the saving is 22%.

* 20% CT + 0.8x10% = 28%

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Too easy?

Doesn't it seem too easy to transform income taxable as salary into income not taxable as dividends?

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Might work

I think this will work provided the doctor is retiring at the same time. If he continues through a new company there may be an issue with deemed disposal of goodwill and/or HMRC might try the artifical transactions in securities rules.

 

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Simpler way

Contact me and I'll explain a much easier way ... thats worked for many years and is used extensively by medical professionals in the UK.

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Incoporation?

Sounds interesting. Please let me have your contact details.

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Trading Company

Could the large surplus of cash cause HMRC to question whether this would impact on the trading status of the company and if so deny entrepreneurs relief.

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investment company

too much cash, no ER

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Investment Company

As per Justphil - I have read somewhere that there is a chance of company being treated as an investment company instead in similar circumstances.

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Tax-efficient ways to earn income from one's own business

I used to have a business over a decade ago and was subject to my accountant dealing with the issues.

Decade later, I have retrained and am an accountant in commerce.

What are the tax-efficient ways to earn income (or rather extract income) from one's own business - assuming all tax rules remain constant ?

 

Thank-you

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@cliver23

Just PM me with the details.

Thanks.

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TRANSFORMING TRADING PROFITS INTO CAPITAL GAINS

WHAT BROUGHT  ABOUT IR35 WAS OVER ZEALOUS ACCOUNTANTS ADVISING OF NO SALARY OR MINIMAL AMOUNTS AND STUPIDLY HIGH DIVIDENDS THAT HAD NO OR LITTLE COMMERCIAL SENSE.

LET'S NOT DO THE SAME THING AGAIN WITH THIS SMALLER WINDOW OF OPPORTINITY WHICH I AM SURE WILL BE SHORT LIVED. THE TREASURY NEEDS ALL THE REVENUES IT CAN MUSTER AND YOUR APPROACH WILL BRING FORWARD ALL THE INEVITABLE COUNTER ATTACKS  WITH FURTHER LEGISLATION. CAUTION PLEASE.

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What !

Our clients engage tax advisors to advice them on how to ensure they pay the correct amount of tax. The correct amount of tax is the amount they are required to pay under the legislation that has been enacted. If there are tax efficient ways to structure their arrangements to reduce the amount of tax they have to pay under the existing legislation then it is our duty to advise our clients accordingly. 

There is nothing morally or ethically wrong in doing so. It is very unprofessional of you to suggest otherwise. 

Was your post tongue in cheek?

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TRANSFORMING TRADING PROFITS

         WHAT'S  THAT STORY ABOUT A GOLDEN GOOSE !!!

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What about other taxes?

Using your reasoning perhaps we should suggest to all our clients that they register for VAT regardless that their turnover is below the registration threshold. After all we all have a duty to pay as much tax as we should, or perhaps not?

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Was somebody shouting something?

I thought I heard somebody shouting...

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Please....

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Does this not come under esc16 ?

As I understand it; you want to disolve the company and make a capital  distribution to shareholder/s. As I remember it there has been some developments over esc16 recently.

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ESC C16

"Once ESC C16 becomes legislation on 1 March 2012, a company with capital and/or retained reserves of more than £25,000 will need to undertake a formal liquidation to obtain capital treatment for distributions". (With thanks to my most excellent external tax consultant who flagged this up in January this year).

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