closing a company in UK, extracting profits

closing a company in UK, extracting profits

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I have a company found 18 months ago in the UK (Ltd.). It had a very small activity (IT product sold on the internet), and now, since I have no more time to maintain it I need to close it. I and my partner are the only 2 participating persons, both of us are directors. The company has not maintained any special accounting records, and now we want to close it. I have never closed a company before, but do have some accounting knowledge, so I would like to ask for advice on the following.

  1. How to extract money form the Ltd? For these 18 months we have achieved a profit of just 1,000 GBP and would like to distribute them evenly between ourselves:
  • Option 1: Salary. If we both take the full amount as salary, profit will be reduced to 0 and no corporation tax will be paid. During these 18 moths we have not taken any salary, is it OK to do it now just before closure?
  • Option 2: Dividend. But if we decide for dividends, we will have to pay first the 20% corporation tax on these 1,000 GBP. I understand that there is no difference in terms of personal tax burden if we extract the money as salary or dividends.

So, the question is, is it OK not to pay any tax at all, by reducing the profit to 0 with salary only?

  1. Financial statements: Can you please advise me on how the Profit and Loss account and Balance sheet should look like, if we take everything out as salaries now? Profit will be reduced to zero, e.g. no tax burden. How about the Balance sheet, we have no assets, and our bank account wiil be made empty, will everything in the Balance sheet be zeroed out as well?
  2. Accounting periods: For how many accounting periods do I need to prepare financial statements now? As the company existed for just 18 months, can I prepare I set of accounts, covering the whole period?

Thanks in advance

Stanislava

Replies (5)

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By BigBadWolf
18th Jan 2013 12:18

 

 

How to extract money form the Ltd? For these 18 months we have achieved a profit of just 1,000 GBP and would like to distribute them evenly between ourselves:Option 1: Salary. If we both take the full amount as salary, profit will be reduced to 0 and no corporation tax will be paid. During these 18 moths we have not taken any salary, is it OK to do it now just before closure?

YES - But you need to set up a PAYE Scheme - deduct tax and pay it over to HMRC!

Option 2: Dividend. But if we decide for dividends, we will have to pay first the 20% corporation tax on these 1,000 GBP. I understand that there is no difference in terms of personal tax burden if we extract the money as salary or dividends.

Correct

So, the question is, is it OK not to pay any tax at all, by reducing the profit to 0 with salary only?

YES, but you will have to pay Income Tax under PAYE

Financial statements: Can you please advise me on how the Profit and Loss account and Balance sheet should look like, if we take everything out as salaries now? Profit will be reduced to zero, e.g. no tax burden. How about the Balance sheet, we have no assets, and our bank account wiil be made empty, will everything in the Balance sheet be zeroed out as well?

Get an accountant who knows what they are doing, to do it!

Accounting periods: For how many accounting periods do I need to prepare financial statements now? As the company existed for just 18 months, can I prepare I set of accounts, covering the whole period?

NO! Depends on you date of incorporation + ARD

 

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Replying to Montrose:
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By stann_zl
18th Jan 2013 15:42

Thanks for your quick reply.

Regarding PAYE, isn't it applicable for income above the personal allowance of 8,105 GBP?

On your last comment, what do you mean by ARD?

Can you recommend an accountant, that would not charge too much for these services (max 100 GBP?)

Thanks again:)

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Replying to Kent accountant:
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By Ken Howard
19th Jan 2013 09:35

what is your total personal income

stann_zl wrote:
Regarding PAYE, isn't it applicable for income above the personal allowance of 8,105 GBP?

£8105 is for total personal income, not per job.  I assume you both have other income which uses your pers allow, so these extra wages would be taxed under paye at 20%.

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By imbs
18th Jan 2013 20:50

It's worth more than £100
There's quite a bit of annoying admin required to tie the whole lot up. Although there are no technical difficulties or anything which requires much thought, time spent by a qualified accountant on the admin of the whole palaver would exceed £100 in value in my opinion. Which is probably why you haven't received any replies with recommendations of accountants who will do it for £100. Particularly as it is January and our time is precious right now.

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By BigBadWolf
19th Jan 2013 13:00

Recommendation
I can't recommend someone who will be willing to do all this for £100.

Perhaps try posting on peopleperhour.com - you might find someone on there - but make sure they are adequately qualified.

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