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Consultation requested on Ltd Company closure

Director facing large personal tax bill following cessation of trading and switch to employment

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I'm seeking (and happy to pay for) a second opinion, as this set of circumstances is not something I'm overly familiar with. 

Sole director Ltd company.

Normal company year end 30th September

Effectively ceased trading 31st March 2020 and commenced full time employment April 2020. (Small amount £1700 final invoice issued 17.5.20).

Final company accounts prepared to 30th September 2020, filed with CH & HMRC 24.6.21

Current application to strike off CH filed 7.11.21

£108,265 Directors Dividend dated 6.4.20 (minimum required to balance directors loan account)

£119,000 - employment income 2020/21 (Tax paid £39,892)

£17,392 - Rental property income 2020/21(£17,392 releif for finance costs)

£42,523.31 - 2020/21 personal tax libility

I don't think there is anything I can do to reduce this large amount but I'm conscious that I don't know what I don't know.

Looking for afirmation that there is nothing that can be done, or requests for addition information, or pm me if I'm issing something and you think you can help save my client some tax.

 

Replies (13)

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By Wanderer
26th Nov 2021 10:02

colinx wrote:

£42,523.31 - 2020/21 personal tax libility

I don't think there is anything I can do to reduce this large amount but I'm conscious that I don't know what I don't know.

I'd start with your ability to accurately calculate tax. I'd say you are £1,000 light.
Thanks (1)
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By colinx
26th Nov 2021 10:20

Thanks Wanderer,

I use Taxfiler software, which performs the calculation. Actually just checked and typo, tax should be £43,523.31 - Well spotted.

Regards

Colin

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By Wanderer
26th Nov 2021 10:32

Okay, having established that, MAKING A NUMBER OF ASSUMPTIONS & BASED ON EXPERIENCE, this line:-

colinx wrote:

£108,265 Directors Dividend dated 6.4.20

is probably a work of fiction.
What your client is experiencing is a catch up and a coming home to roost of a timing difference that they have benefited from in the past.
Unless you are looking to rewrite history your calculations are correct.
Thanks (2)
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By paul.benny
26th Nov 2021 10:35

Given that everything is now in the past - and filings have been made that solidify those events - there's probably little to be done. A little more thought and planning at an earlier stage by client might have helped.

Thanks (3)
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By Wanderer
26th Nov 2021 10:46

If you stand back & consider the overview all your client is being asked to pay is the tax on previously untaxed income:-
Tax on dividends£39,800
Tax on rental £3,500
Doesn't seem unreasonable?

Thanks (2)
Replying to Wanderer:
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By colinx
26th Nov 2021 11:03

I think it's an unfortunate combination of circumstances.
Client was buying an apartment so needed large capital withdrawal and combined with 12 months employment takes a lot of income into the higher rate bands.
Her employment income is circa £134,000 this year so there would not have been any benefit in keeping the company open and deferring the dividend . This would also have caused complications with overdrawn directors loan.

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Replying to colinx:
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By Tax Dragon
26th Nov 2021 11:08

I'm sure many people who weren't so unfortunate might wish they were.

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Replying to Tax Dragon:
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By Paul Crowley
26th Nov 2021 11:26

Agree
Really awful to have had so much income during a pandemic

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Replying to colinx:
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By Wanderer
26th Nov 2021 11:29

colinx wrote:

Client was buying an apartment so needed large capital withdrawal and combined with 12 months employment takes a lot of income into the higher rate bands.

But she didn't need a large capital withdrawal in 2020/2021, that 06/04/2020 dividend was to clear an overdrawn DLA.
Or are we saying she's had the benefit of a nice deferral of the tax payment date by a year?
Thanks (3)
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By Tax is always taxing
26th Nov 2021 11:24

Think you are to late in the day to solve the issue now. There may have been decent savings in structuring an MVL around the DLA - but this need thought about a year ago not now.

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Replying to Tax is always taxing:
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By 1 2
26th Nov 2021 16:17

This was my thinking...but as others have said, too late now.

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By carnmores
26th Nov 2021 14:22

presumably there are enough reserves for the 'dividend'

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Replying to carnmores:
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By colinx
26th Nov 2021 14:36

Yes, the dividend amount is optimised between reserves and DLA.

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