UKH

Entrepreneurs Relief Tax

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 James Malloch 16 Sep 2021

Boring Topic Alert…

I have a limited company which is dormant and I want to close down. I will go via the capital gains tax route which has a MVL fee, and then CG tax of 20% on retained profit (all previous liabilities are fully paid to HMRC already). 

I know there is also an Entrepreneur Tax which drops the 20% to 10% if I am eligible. 

My company was set up about 26 months ago, but for the last 14 months it has been “dormant”. I moved it to dormant as I secured full-time employment and therefore didn’t see to find any new work via my company in this time. 

My accountant said a year ago (when I made it dormant) that to qualify for Entrepreneur Relief the company the company would need to remain operational. The response (combined with my question) implied that making the status dormant would mean that I wouldn’t meet the 2 year rule as I had only been operating for 12m at the time. 

However the same accountant told me yesterday that I am eligible despite making it dormant. 

They have made mistakes in the past with this kind of thing so I want to get another opinion. 

Does anyone have any experience of this or know a good accountant whom I could pay for a second opinion?

EDIT - part of it could be me not knowing what “dormant” really means. It might just be something from an accountant fees classification (no income/expense so less work) rather than something that actively impacts the company…

Post edited at 11:09
1
 MG 16 Sep 2021
In reply to James Malloch:

No idea,but remember you have a CGT tax free allowance and dividend allowance, which may be simplify things, depending on how much money is in the company.

Post edited at 11:26
 GAE 16 Sep 2021
In reply to James Malloch:

Hi James,

I went through the MVL process last year and currently applying for BADR (Formerly ER). As far as I am aware, you'd qualify, but check out "MVL Online", they have some good info on their site regarding whether or not you qualify for BADR. They're helpful and quick to respond, so if you pop them a message I'm sure they'll clarify whether or not you'd qualify. I used these guys for my MVL, and they are excellent.

Also, I do know that MVL is only viable if your Ltd co has over 25k of cash. If it's less than this, you can wind up the company much more cheaply and quickly. If it's over 25k a lot of people will put a lump sum into their pension to bring cash reserves down to 25k in order that they can wind up without an MVL. If you go the MVL route, you cannot open another Ltd company in the same line of work for 2 years, so another factor to think about. Also make sure you maximise your dividend allowance of 2k - you can take a 2k dividend tax-free and won't be impacted by your current employment.

 James Malloch 16 Sep 2021
In reply to James Malloch:

Thanks for the replies. 

I had forgotten about the tax-free allowance for capital gains. That makes the tax difference much smaller in my calculations than I thought, which means the MVL fee is biggest expense at around 3k.

GAE, thanks for the tips as well. I hadn’t thought of putting money into a pension (something I’ve been meaning to to anyway). I could make a payment which brings me to under the 25k limit which would simplify the process a lot. I’ve checked with my accountant if it’s possible as I’m currently not taking any salary due to the company being dormant so unsure of the rules there…

If I can then I’ll go down that route I think. Seems to be much simpler and avoids the long wait for cash which can happen with an MVL.

thanks!


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