Winding Down to get money out?

Hi there,

I have a limited company but don't plan on using it for a while. I have not taken a wage for a while and there is a build up of cash in the bank. If I wind down the company is this a tax effecient way of getting my cash out or should I just pay myself through PAYE and take the hit? What is the tax liability? Do I have to produce accounts and pay corporation tax on profits or can I just pocket the lot (says he, optimistically)

Also, my company year end was last month - I presume it is impossible to wind it up retrospectively and save myself having to do accounts for the year?

Thanks,
Gumby.

You will need to get professional tax advice, but this is the rough situation:

The profits you leave in the company will be subject to Corporation Tax at 12.5%

When you wind up the company, the net proceeds you will receive after costs will be subject to Capital Gains Tax at 25%.

If it's a professional services company, there may be a further tax charge on the "undistributed income". I am not sure about this.

As per Brendan's post, you should seek professional advice.

It should be possible to extract the funds and obtain CGT treatment (i.e. pay 25% tax).

Thanks guys. I'll ask my accountant if he knows or could recommend somebody. That would be a significant saving if it is 37.5% liability, let alone if it was down to 25%.

Would there be a problem with the CRO if I wanted to set up another limited company in the future at some point? Or even a sole trader?

Thanks again,
Gumby.

No. Theres no problem with CRO. However, you would need to check Revenue anti avoidance rules. Revenue may relook at short term businesses i.e. less than 3 years for example.

If you had planned your exit properly, you should have paid yourself salary in last 3 years and you could have taken a tax free lump sum (i.e. termination payment) as a result of losing your job. You could then voluntray strike it off for a few hundred euro.

Another option would be to extract the funds via salary and pension and pay tax at an effective rate of 48%-55% depending on your circumstances and then voluntary strike if off. This is not effective.

If in surplus, pay off all liabilities, receive all debts and voluntary strike off the company. Tax at 25% will be payable. This is the best option.

If not in surplus, you have to liquidate the company and pay tax of 25% on the surplus (if any). The liquidation fees could be anything like 4k-5k, depending on risk and time.

Has the company made a loss in its final year? If so, is terminal loss relief available?

You can strike off your company anytime upto your ARD date plus 28 days and save yourself the costs assosicated with producing accounts. However, you still need to do some accounts for the CT1 but they can be on an excel spreadsheet for example.

NB: Once you stop trading, this is the new CT1 period date, so you have 12 months to get your CT1 in. There is a new 12 month period from here.

Hope this helps a bit.

Hi Paddy,

Thanks for the post but I'm a bit confused. I have been paying myself properly for past three years but since December have been paying myself small fraction of invoices. When you say I could get a tax free lump sum for losing my job does this mean I have to make myself redundant from my own company? I will be invoicing for a job I'm doing now until September - could I fire myself then and take the tax free lump sum (obviously having paid corpo tax on the portion of it that came in before the YE just gone)?

Thanks again,
Gumby.

As well as being a shareholder, I presume you are a director of the company. This is an office holder and as such is an employee of the company.

If you are wrapping up the company, your employment ceases. There are 3 methods for calculating the termination payment.

I suggest you contact an accountant for help on this.

When you say you are paying a fraction of invoices, is this through the payroll system. If yes, you can up it a bit and extract the rest tax free.

I would need the figures in front of me to advise properly.

Feel free to PM me.