Closing company

Closing company

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My client has closed her company with. 55k of dividends in final accounts last year but now wants to see is she can reduce her tax bill . Two months before it closed it has 20k, can this be classed as capital or will this trigger an enquiry. If she reinstated the company through the courts what happens to the money taken out. Does this need to go into SElf assessment or can she say earlier costs paid were actually dividends reducing the final bill to 33k. She's a young mum and in a real state about this so any advice would be good. Thank you!

Replies (39)

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By johngroganjga
11th Jun 2014 08:04

Not clear

You are not explaining the position very clearly.

Has the company already been dissolved or not?

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Replying to Novakova:
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By Joanne Dixon
11th Jun 2014 08:09

Yes already dissolved, last August

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By johngroganjga
11th Jun 2014 08:13

So what's the question?  Tax

So what's the question?  Tax treatment of sums taken out by shareholder before dissolution?  If so, how much did she take out over and above the £55k dividends you have already mentioned?  Was a liquidator appointed or was it a DIY dissolution?

 

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By Joanne Dixon
11th Jun 2014 08:25

Hi John I'd so appreciate your advice. In your experience do hmrc look closely at capital when companies are dissolved? Also do they check lists of shareholders.

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By Joanne Dixon
11th Jun 2014 08:31

It was DIY. She took out
26k in 2011, £17.5 of which was dividends, £26k in 2012, 2.5 of which was dividends. Can we say the final payments in the best tax year we're costs owed for admin wages etc rather than dividends so the final tax bill is £33k. If dividends have been stated do hmrc check where they go or can this be reallocated and some of it used as capital. She's not taken anything had shouldn't have, it's a timing issue and not realising the higher rate tax implications.

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Replying to User deleted:
Stepurhan
By stepurhan
11th Jun 2014 09:53

Can is a dangerous word

Joanne Dixon wrote:
Can we say the final payments in the best tax year we're costs owed for admin wages etc rather than dividends so the final tax bill is £33k.
You CAN say whatever you want to. However, saying something was for "costs owed for admin wages etc" when it was nothing of the sort is extremely inadvisable for what I would hope are quite obvious reasons. I am surprised that any professional should even consider asking such a question.
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By Joanne Dixon
11th Jun 2014 08:33

If the company is reinstated what happens to the money taken a year ago?

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Replying to User deleted:
By johngroganjga
11th Jun 2014 08:42

Re-instatement

Joanne Dixon wrote:
If the company is reinstated what happens to the money taken a year ago?

Why would anyone want to go to the trouble of re-instating the company?  Is there a problem or difficulty you have not shared?

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By johngroganjga
11th Jun 2014 08:35

Advice about what?  Still not

Advice about what?  Still not sure what you are asking for.  Is there some problem or difficulty you have not shared?

Why does it matter what HMRC do or do not look at?

If you want advice on how the final distribution of the company's assets to your client should be treated for tax purposes you will have to answer the questions in my last post.

If you want advice on something else you will have to explain what it is.

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By johngroganjga
11th Jun 2014 08:39

You said she took £55k of

You said she took £55k of dividends in the period covered by the company's last accounts.  Which period was that, and how does £55k reconcile with the figures of £17.5k and £2.5k you now mention?

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James Reeves
By James Reeves
11th Jun 2014 09:08

Rewriting history?

@OP

Are you saying that the company had £20K cash, then made £35K in the last two months, then the owner took the entire £55K cash out of the company as dividends and then dissolved the company, but has now spent the money and cannot pay the tax on the higher rate dividends, so wants to somehow rewrite history and do some fiddling of the books to resurrect the company, pretend she received the cash over two years and thus avoid the tax bill?

Forgive me but that's what it sounds like. You seem hung up on what HMRC will check - are you acknowledging that it's probably fraudulent but asking if you think your client can get away with it? Again, apologies if that's not what you meant but that's how it is coming across.

You are probably going to have to tell the client to live with the historical facts...

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By johngroganjga
11th Jun 2014 09:40

James has done a valiant job of trying to read between the lines of what you have been saying, but the conclusions he has reached may or may not be what you actually mean.

If you want help you will have to explain what you want. 

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By Joanne Dixon
11th Jun 2014 10:01

Hi there, I don't think it's dodgy she's just very nervous and didn't take any money out so a lot sat on the account and it wasn't wound up with much thought about the tax. The total profit was 75,155 with 10,800 in the final year. There's 55,530 to dispose of. Her partner is a lower rate tax payer. Can he receive a payment? Do payments have to be paid before the company closed. He's not a shareholder but is that checked ? That would be the reason for reinstating the company so he can be made a shareholder and receive dividends at a lower rate. What's the most tax efficient way to solve this? Really appreciate your help.

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By johngroganjga
11th Jun 2014 10:11

What accounts were prepared?

The company no longer exists so what is done is done.  Just explain what happened if you want get advice.

If the company is reinstated it has no profits and no cash to distribute so that plan is obviously a non starter.

Any payments to the shareholder's partner can't have been dividends.  Was anything in fact paid to him at all?

How much was paid to the shareholder over and above the dividends of £55k that you say appeared in the last accounts?  Which period did those accounts cover again?

 

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By Joanne Dixon
11th Jun 2014 10:12

Hi there, I don't think it's dodgy she's just very nervous and didn't take any money out so a lot sat on the account and it wasn't wound up with much thought about the tax. The total profit was 75,155 with 10,800 in the final year. There's 55,530 to dispose of. Her partner is a lower rate tax payer. Can he receive a payment? Do payments have to be paid before the company closed. He's not a shareholder but is that checked ? That would be the reason for reinstating the company so he can be made a shareholder and receive dividends at a lower rate. What's the most tax efficient way to solve this? Really appreciate your help.

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By Joanne Dixon
11th Jun 2014 10:17

Hi John he was paid small amounts for copywriting to his personal account. With a joint account could of the money paid could be put on his tax bill. 17,125 and 2,500 in dividends were paid to the shareholder. In addition there were costs for a home office some travel etc. Thanks again

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RLI
By lionofludesch
11th Jun 2014 10:20

What is this money ?

I've read this whole thread twice and I've still no idea what the client has taken out.  Was it declared as a dividend ?  Was it shown as a salary on form P35 or RTI ?  Or is it just a "piggy bank" type withdrawal because the client reckoned it was her money anyway ?

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Replying to johnjenkins:
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By Joanne Dixon
11th Jun 2014 10:25

Good point listed as div in final return but no other paper work more piggy bank if that's a term we can use!

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Replying to C Graham:
Stepurhan
By stepurhan
13th Jun 2014 14:43

Then tough luck

Joanne Dixon wrote:
Good point listed as div in final return but no other paper work more piggy bank if that's a term we can use!
This is done and dusted. If she is stuck with a high tax bill as a result now, that is the price she pays for not taking advice in advance. Directors treating companies as personal piggy banks is precisely why they should not have companies in the first place.

You keep saying "this is not dodgy" but then you keep making suggestions that misrepresent historical transactions. Almost everything you suggest could have worked if put in place in advance of payment. I cannot believe you are now saying "He.s not a shareholder, but is that checked" at the same time as saying nothing dodgy is going on.

This query basically boils down to "If I lie to reduce my client's tax bill, will I get caught?". If you really think that is a suitable question for a professional to be asking, then I sincerely hope the answer is yes.

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Replying to johnjenkins:
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By Joanne Dixon
11th Jun 2014 10:56

Good point listed as div in final return but no other paper work more piggy bank if that's a term we can use!

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By Joanne Dixon
11th Jun 2014 10:24

Amounts received in total were 26,602 including 17k dividends in 2010, 14437 in 2011 including 2500 dividends and in 2012 31,565 with no dividends and in 2013 25016 but 5677 was paid back in to pay the final hmrc bill and the vat. Hope that's clear, sorry if not.

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By johngroganjga
11th Jun 2014 10:26

I am not prepared to waste any more time on this until you start answering the questions I ask.

If you want help explain what has happened and what help you need.

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By johngroganjga
11th Jun 2014 10:34

Starting to get there

What about accounts?  Up to what date have the company's accounts been finalised and sent to Companies House and HMRC?

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Replying to andy.partridge:
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By Joanne Dixon
11th Jun 2014 11:40

Accounts are up to date. Can I say the final £25k was capital not dividends.

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Replying to lionofludesch:
RLI
By lionofludesch
11th Jun 2014 12:13

It depends

Joanne Dixon wrote:
Accounts are up to date. Can I say the final £25k was capital not dividends.

It depends.

Was it dividends ?  Or was it capital ?

You need to establish the facts rather than ask what you can say.

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Replying to andy.partridge:
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By Joanne Dixon
11th Jun 2014 12:17

Accounts finalized to May 31st company year end these stated divs as 55k but I would like to amend to 25 in final quarter and 30 in year before. Is that likely to be ok?

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Replying to Brian Ogilvie:
By johngroganjga
11th Jun 2014 12:36

Point?

Joanne Dixon wrote:
...but I would like to amend to 25 in final quarter and 30 in year before. Is that likely to be ok?

What would be the purpose of doing this? What difference does it make to anything?

Presumably part of the £55,000 was paid to the shareholder in the period up to 5 April 2013, and was included on the shareholder's 2012/2013 tax return.  How much was that?

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Replying to Brian Ogilvie:
RLI
By lionofludesch
11th Jun 2014 12:39

Rewriting history

Joanne Dixon wrote:
Accounts finalized to May 31st company year end these stated divs as 55k but I would like to amend to 25 in final quarter and 30 in year before. Is that likely to be ok?

No it wouldn't.

Why are you asking if it's OK to tell lies ?

Nobody's going to be daft enough to publicly say it is.

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Replying to Brian Ogilvie:
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By andyjdicker
11th Jun 2014 12:53

Dividends are dividends.

Joanne Dixon wrote:
Accounts finalized to May 31st company year end these stated divs as 55k but I would like to amend to 25 in final quarter and 30 in year before. Is that likely to be ok?

No it's not.

1) Firstly they were in the accounts as dividends, and those accounts should have been finalised and signed by the director(s).

2) When they were paid, they should have been agreed at a board meeting, with minutes and documentation showing them to be dividends.

So can you go back and say...hmmm maybe this was a capital distribution. Answer No.

If you're an accountant for these people you really should have been aware of this, and made the client aware of this.It's as simple as that.

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RLI
By lionofludesch
11th Jun 2014 10:51

Afraid so

If you've already said some money is dividend or salary, then that's what it is.

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By neileg
11th Jun 2014 11:03

@joanne

I must say I have sympathy with your client. It appears to me that you don’t have the skills or experience to resolve these issues.

I agree with other posters that you seem to be proposing actions that are at best unethical. Your client has the excuse of not knowing or understanding what she should have done, but you are a professional advisor (at least I assume that’s how you see yourself).

You have has some of the most knowledgeable contributors trying to help you despite you providing scant and contradictory information. If they give up on you then they are not to blame. 

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By johngroganjga
11th Jun 2014 11:31

I have not quite given up yet, but will do very soon if you continue to refuse to answer the simple questions I have asked.

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By johngroganjga
11th Jun 2014 11:44

Up to what date?

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By johngroganjga
11th Jun 2014 12:32

So final accounts to 31 May 2013 showed dividends paid during that year of £55,000?  Please confirm.

They were final accounts in every sense and were submitted to Companies House and HMRC.  Please confirm.

In addition to the dividends did those accounts include any loan to or from the shareholder, and if so how much?

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By Joanne Dixon
11th Jun 2014 15:19

Yes they showed final accounts of 55k and were final accounts submitted to companies house. There were no loans in the final accounts but she did have to pay £5677.81 back to the company to cover a final vat and tax bill. The amount paid out in 2013 2014 tax year was £25016.4 and in the tax year before was £35, 000. Can the 25k minus the £5k be seen as capital gains/ ent relief?

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By johngroganjga
11th Jun 2014 15:27

Thank you.  Now we are making

Thank you.  Now we are making progress.  Next two questions:

When did the company cease trading?  Had it already ceased before 31 May 2013, or did it continue to a later date?What were the net assets in the balance sheet at 31 May 2013? 

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By Joanne Dixon
11th Jun 2014 17:46

Hi thank you. She had read about capital gains of up to 25k but will advise her that it is not possible and this full tax on the dividends will need to be paid.

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By johngroganjga
11th Jun 2014 18:00

But until you answer my questions we don't know what the tax treatment of the final distribution is.  Have you decided you no longer need help?

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RLI
By lionofludesch
12th Jun 2014 18:58

Eh dear

Another happy customer, John.

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