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How to set up a company

How do I close down my company?

At some point you might decide to move on from contracting and will then require closing down of your company. Once all assets and liabilities have been stripped out, if there is no cash left in the company, this is quite a straight forward procedure and just requires filling in of form DS01 available to download from the Companies House website.

If there is any money left in the company, there are a few different options. Please feel free to contact us for more information. We specialise in helping contractors, freelancers and small businesses close their companies down.

The main options of taking money out of the company are:

Option 1: Take all the money out as dividends.

All remaining funds after any liabilities have been paid are treated as dividends.  Dividends will be calculated as per normal based on whether you are a basic rate tax payer or higher rate tax payer.  For a basic rate tax payer there will be no tax to pay, whereas higher rate tax payers will pay tax at 25% of the net dividend.  Additional higher rate tax payers will pay tax at 36.11% of the net dividend.

Option 2: Take all the money out as capital

This treats the final distribution (only up to £25,000) of the company as capital rather than revenue and is subject to capital gains tax rules (CGT).

The capital route is useful because of the following reliefs:

  1. The first £10,600 of annual capital gains is exempt from tax and applies to each taxpayer.
  2. Benefit from Entrepreneurs Relief.  Normally, gains after £10,600 are taxed at 18% and above £35,000 are charged at 28%.  With Entrepreneurs Relief, you will only pay capital gains tax of 10%.  The main requirements of the relief are:
  • You own a minimum of 5% of the voting shares and it is a “personal company”.
  • The company is a qualifying trading company.

If on closing your company down, you have more than £25,000 available to release, the most tax efficient method is usually a Members Voluntary Liquidation (MVL) and will allow you to benefit from the above reliefs.  Please contact us for more information, as we can put you in touch with licensed insolvency practitioners.

Option 3: Make a company pension contribution

In 2012-13 the maximum you can contribute to a pension is £50,000 which qualifies for tax relief.

Hence, if you have a pension shortfall, you can make a pension contribution. This will reduce your corporation tax bill for your last year of trading as it is an allowable expense under the “wholly and exclusively” rule.  It will also reduce your CGT under option two.

Any questions? Speak to one of our friendly accountants on 020 7969 2879.