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Cessation of limited company

Psc with single shareholder/director ceased trade in Apr 21 with app. £35k reserves.

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Hi,

 

I have a limited company contractor who ceased trade in April 21. Her last accounts were filed to 31st March 20 and she's only just let me know that company has ceased trading as i have just completed 31st Mar 21 accounts and i am about to submit them to hmrc and CH. There is reserves of app. £35k in the company.

 

She is looking to do a voluntary strike off, as soon as 2021 accounts are filed and CT paid, as there will be no creditors or debtors other than obviously the small amount of CT due for the little trading in Apr 21.

 

I have a few queries:

 

1. Should i advise her to take a £10k dividend to reduce reserves to £25k and treat this as CGT with entrepreneurs relief for 2022 tax year.

2. Should i file final accounts to hmrc upto 31st Mar 22 or amend accounting period to 30th April 2021 notify Hmrc of intention to strike off and send final accounts?

3. Is she allowed to take a dividend after the cessation of trade and final CT return period end?

 

4. I believe she is unable to treat the £25k reserves as CGT if she starts same trade again. Does this apply even if done as sole trader?

Any help will be much appreciated. Thanks in advance.

Replies (6)

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Psycho
By Wilson Philips
04th Oct 2021 23:48

You are mixing up your tax rules, but if there’s more than £25k trying to take a dividend in order to bring reserves to below that amount and secure capital treatment is unlikely to be successful. (Well, it might escape HMRC’s attention but it s not something that a professional should be advising.)

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Replying to Wilson Philips:
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By Winnie Wiggleroom
05th Oct 2021 06:55

I would say it is highly likely to be successful given HMRCs lack of any kind of scrutiny, however as you say it should not be advised.

If it was just over the 25k you would probably be able to do something but with 35k you need to look at a MVL

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Replying to Winnie Wiggleroom:
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By Geoff56
05th Oct 2021 09:23

Hmm. Not sure it would be worth the cost of an MVL. Wouldn't an MVL have to be carried out by a licensed insolvency practitioner?

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Replying to Geoff56:
Psycho
By Wilson Philips
05th Oct 2021 09:30

Depends on tax rates. If she's a higher rate taxpayer she's looking at a liability of £11.4k or so. Compared to a CGT charge of possibly only £2.3k or so - a difference of £9k. If there's nothing in the company but cash she may be able to get an MVL done for little over £1k. Even at the more typical rate of £4k to £5k it would be worth it.

Of course, if she's got no other income then the analysis changes significantly.

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Replying to Geoff56:
Lisa Thomas
By Lisa Thomas
07th Oct 2021 09:17

Yes they will need an IP for an MVL.

Most MVLs start from £2-3k, plus VAT plus outlays.

For one this small my fee would be £1,500 plus VAT plus outlays (at cost). Outlays would be c£350 for advertising and insurance. I should be able to recover the VAT if the client Company is/was VAT registered.

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By 1 2
05th Oct 2021 09:21

1) you highlight the problem with this in your Q3.
2) either do long period of accounts for 13 months to cover cessation of trade with 2 CT returns, or you may find it no more effort to do 2 sets of accounts.
3) this is your issue with your proposed plan, no, legally she can't.
4) if she closes the company via an MVL, then she likely can get CGT treatment even with final net assets >£25k. She does need to be careful of the "TAAR", and yes if she were to do a similar business as a sole trader within 2 years, that would be at risk too. It doesn't have to be another Ltd Co.

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