Entrepreneurs Relief – 10% Tax
If, having worked hard over the years, managing risk and uncertainty, you have successfully built an enterprise with an accumulation of cash reserves, you may be able to release that cash to the shareholders paying as little as 10% tax under entrepreneurs relief (ER) for capital gains.
If you are approaching the end of a contract, it may be an ideal opportunity to seize the initiative and utilise this natural resolution in trading. ER can only be claimed when you cease to trade, outside of selling your shares to a third party, in effect you are winding the company up and selling your shares back to the company in return for the assets of that company.
HMRC will not allow a claim for ER if they deem the company an investment company, that is to say it does not exist wholly or mainly to trade. This is to prevent members accumulating vast cash reserves in a company then avoiding income tax by taking these and applying for ER.
A indicator of this would be if the revenue from reserves is greater than that of the trade, however it is essential you get the correct advice and planning around this as being deemed an investment company would not only prevent a claim for ER on winding up, it would also attract a higher rate of corporation tax.
The end game
Winding up a solvent company with net assets in excess £25,000 will require the assistance of a licensed insolvency practitioner. This will allow the cash received to be treated as a capital gain as opposed to additional income. Our licensed IP is ex HMRC and has over 20 years experience, they will manage the liquidation process working closely with F9 to ensure the personal tax declarations and returns accurately reflect the final capital distributions.
Life goes on…
There are no restrictions should you wish to start a new company from which you intend to operate new trading activity. You would obviously hope it would become as successful as the last and likewise we would support you through this process and the ongoing running of that entity.
If you would like to discuss what we can do for you and your business please do not hesitate to contact us, based in Canary Wharf, The City of London and Brentwood we look forward to meeting you and giving you a free no obligation consultation.
TheTeam@F9consulting.co.uk or call +44 207 712 1684.
We have Chartered Accountants and Tax Advisors available 6 days a week in Canary Wharf and Brentwood, Essex, with appointments available from 8am through to 21.00.