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I am a Director of ltd company with 50% of the shares, joint…

Hi I am a...

Hi I am a Director of ltd company with 50% of the shares, joint owner with my business partner. Business hasn't been great for the past 18 months and I am trying to do a rough calculation of how much I could get by leaving the Company. The business has been trading for 14 years and at this stage I am not sure if my business partner will buy me out or if we will just go into voluntary liquidation, and close the business. Just as a ball park figure the current net worth of the business is approx £600k. I wanted to check that I would be eligible for Entrepreneurs Relief rather than having to pay the full rate of capital gains tax on exiting? So roughly £600k shared between joint owners, being £300k less tax at 10% being approx £270k take home. If we close the business in 18/19 What happens if I then end up getting a job during the year - assume this doesn't affect my income tax at all (other than the salary I may have had so far in 17/18)? Thanks Adam

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3/13/2018
Sam
Sam, Accountant
Category: UK Tax
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Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
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Hi Adam

If you sell then in essence you are selling your shares so are eligible for entrepreneurs relief on that sale - and note that capital gains on the shares has no bearing on income tax, which is what employment is taxed on so this will still allow you the gain at 10%

But if you liquidate the company then its not quite as straight forward as you would need to make sure that you released the profits from the business as salary and dividends which then could not be due entrepreneurs relief and would affect your income position - so ideally you would wnat to sell either to your fellow director OR to a new buyer

Thanks

Sam

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Customer reply replied 1 month ago
Great, thank you Sam

Hi

You are very welcome

Let me know if I Can assist further, or, if you have all that you need, then please do rate me for the level of service I have provided

Thanks

Sam

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Customer reply replied 1 month ago
Hi Sam, thanks for clarifying - I was always under the impression that I could go through members voluntary liquidation, and receive a capital payment as follows: https://www.purnells.co.uk/limited-company/member-voluntary-liquidations/Members-Voluntary-Liquidation-Entrepreneurs-Relief
Can you please confirm this is no longer the case.Thanks Adam

Hi

Capital distributions are liable to income tax not capital gains and Entrepreneurs relief is only allowable on sale of shares (or certain assets)

I personally have never come across this being subject to Capital gains and I do not think this is a valid ay of proceeding - if you look at HMRCs take - it clearly states that the final payout (after liquidation and the bank account frozen) is afinal salary/dividend distribution (as advised originally)

See HMRCs legal advsie on closing a limited company https://www.gov.uk/guidance/corporation-tax-selling-or-closing-your-company

However if you carefully wind up the company rather than liquidate voluntarily (which has more dire consequences and I do not recommend this route) best places you to pay capital gains - so read the information above carefully and find an accountant to handle this properly for you

Thanks

Sam

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Customer reply replied 1 month ago
Okay Sam, thanks for clarifying - I will research further. Obviously you can appreciate that this outcome has a fairly substantial impact on the amount I can potentially end up with from exiting the Company, as well as how I approach my business partner when I wish to leave the Company. I am fairly confident he will want to wind things up also if I leave rather than buy me out so I am likely to be looking at quite a bit more tax to pay / less take home if we end up going down this route. My exit plan is in very early stages so just wanted to understand my options / outcome before making any rash decisions or identifying the best time to leave the Company. Maybe I'll approach Purnells (previous Link) and see what they advise.Thanks again
Adam

Hi

Yes of course I fully understand which is why I recommend you having an accountant to manage this process for you so you extract yourself as tax efficiently as possible

I would not use Purnells as I do not belief their exit strategy has any real merit or validity in HMRCs and Company House view point and they state they are (as in one person)Corporate and Personal Recovery - I would use a proper accountant to safeguard yourself under a professional representation that has professional affiliations with legal membership structures which further protects you as an individual

Thanks

Sam

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