However, with the changes to the IR35 rules coming in April this year, many contractors operating in the public sector are being left with no choice but to close their limited companies and find other ways of working.
If you have taken the difficult decision to cease trading via your limited company, then you will be asking yourself how this can be done in the most tax efficient manner. How this can be done in practice depends on how much cash your company holds:
Company holding less than £25,000
If the company holds less than £25,000 then the process if actually fairly simple. You can release the assets of the business to shareholders and these assets will be taxed as a Capital Gain rather than as dividends. Prior to 2012, you would have needed to obtain permission from HMRC to do this however this is no longer required.
Company holding more than £25,000
If you want to distribute more than £25,000 then you have a couple of choices: You can have the company formally wound up (using the services of an insolvency practitioner) and have all the funds treated as a Capital Gain.
Or you can withdraw funds as salary and dividends until there is £25,000 remaining in the business. You can then withdraw the balance as a capital gain.
The key thing to remember when considering the options is that it is essential that you take professional advice before doing anything.
The team at One Click Accountant have many years of experience in advising contractors and we would be happy to assess your situation and provide a solution that suits you.
The clock is ticking
The end of the tax year is only a little over 6 weeks away and the new legislation comes into force at the same time so you’ve little time to lose. Whether or not you are a One Click Accountant client, get in touch with us and we will make sure you get the right advice.