David Franks
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Idiots guide to Entrepreneurs relief

Idiots guide to Entrepreneurs relief

If someone has £100,000 of undistrbuted profits in a Limited company and wants to close it through choice to start a new venture, what is the best way of extracting the funds. I have been looking into ER but I believe from 1/3/12 anything over £25,000 means it will be treated as income not capital and thus not ER. Does this mean the entire distribution or that exceeding £25k? Also is self winding up on Companies House eleigible in this case or must a liquidator be appointed? I was told the latter but have found things online saying that that is not mandatory and doing it yourself would not make this ineligible for ER. I have googled ad infinitum on thi sbut as usual just get loads of long winded contradictory twaddle. In anyone can explain the basics in plain English, I will be forever grateful..

Dave

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05th Dec 2012 11:16

Partly right

As the value exceeds £25k, the informal winding up route means that the distribution will be income, not capital. If a liquidator is appointed then the distribution will be capital and ER can apply.

This should work if the new venture is different from the old one. However, if the same or very similar, HMRC might challenge it under the artificial transactions in securities rules and tax the distribution as income even if under a formal liquidation.

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