With IR35 reform looming, you may be preparing to change your employment status and close down your company.
The government’s reform of IR35 rules are forcing many contractors operating limited companies (also referred to as Personal Service Companies) to review their options.
Closing down your company
If you are left with a company that has no useful purpose, you will need to consider how to close it down and extract your cash in a tax-efficient manner. One way to do this is to use a Members Voluntary Liquidation (MVL).
There are often substantial tax advantages in conducting an MVL as the monies that will be distributed to shareholders represent a return of capital, on which capital gains tax is payable by the shareholder.
The primary advantage for contractors is that, if the circumstances are correct, monies received as a capital distribution may qualify for Entrepreneurs’ Relief (at a rate of 10% on qualifying disposals).
Where Entrepreneurs’ Relief is not available, a UK individual will typically pay a rate of 20% on capital gains, so an MVL may still offer a substantial tax saving over taking dividend income.
An insolvency practitioner can assist with the process of closing down your company.
The insolvency practitioner cannot advise on tax. For specific queries regarding your personal tax position, it’s a good idea to also speak to a personal accountant or tax adviser.
If you’re thinking of closing down your company in favour of a different employment status, please contact us – we offer free consultations.
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You can read more about using an MVL to close down your limited company in our article: Members Voluntary Liquidations for Contractors
If you’re thinking of closing down your limited company and want to know more about Members Voluntary Liquidations.