How to Close Your Business Tax Efficiently with Undistributed Retained Earnings

Posted by on Dec 2, 2014 in Guides | No Comments

For many individuals working through their own Limited Company is a choice that gives them control over their career.

However, there comes a time when they may wish to retire or simply no longer run the business.

This guide looks at the most tax-efficient alternative when the sale of the business is not an option.

Once the company has ceased to trade, there are a number of tasks to be completed that might include:

–          Selling the assets of the business;

–          Collecting remaining monies due from the customers;

–          Paying any trade creditors;

–          Notifying HMRC and deregistering from VAT and PAYE;

–          Paying any outstanding PAYE, VAT and Corporation Tax due to HMRC;

–          Preparing accounts to the date the company ceased to trade;

–          Filing any outstanding tax returns;

–          Transferring pensions out of the company.

Once this has been done, hopefully, there will be a pot of money left.

The most tax-efficient method for this is via a Capital Distribution which allows the individual shareholders to claim Entrepreneurs’ Relief so long as they have held their shareholding for a minimum of a year.

Entrepreneurs’ Relief can be claimed by an individual on multiple occasions but has a lifetime limit which is currently £10,000,000.  This relief reduces the rate of Capital Gains Tax to 10% on qualifying assets such as Capital Distributions.

If the amount of money is no more than £25,000.00, the HMRC have granted Extra-Statutory Concession (ESC) C16 that allows this process to be undertaken in-house.

However, if the total is more than £25,000.00, this requires a Members Voluntary Liquidation (MVL).

There is a six step process to this:

–          Download a ‘Declaration of Solvency’ form (if your company is in Scotland, you will need to obtain a Form 4.25 from the Accountant in Bankruptcy).

–          Fill in the Declaration that must be signed by the majority of Directors.

–          Call an Extraordinary General Meeting with the shareholders that must be a minimum of five weeks later and ballot them to pass a resolution for voluntary winding up.

–          Advertise the resolution in the Gazette within fourteen days of it being passed.

–          Appoint an authorised Insolvency Practitioner as liquidator who will take control of the winding up of the company.

–          Send the signed form to Companies House or the Accountant in Bankruptcy within fifteen days of passing the resolution.

Once the liquidator has paid any remaining creditors in full and distributed the surplus funds to the shareholders, they will seek to close their file which triggers the company to be dissolved from the register at Companies House.

At CooperFaure, we have extensive knowledge of both opening new businesses and closing out companies.

If you would like to discuss your circumstances or have any questions, please contact welcome@cooperfaure.co.uk to arrange an initial free consultation.