Whether you have been planning to close down your company or fear that as a result of the pandemic that your company may fail in the months to come, then now is the time to act before it’s too late.
The specialist insolvency and recovery team at Haslers Chartered Accountants, based in Loughton, is calling on directors and shareholders of companies stuck with difficult decisions about their future to think about the tax implications of winding up.
With the Chancellor’s next Budget just on the horizon on 3 March 2021, and rumours of changes to the tax system, the team at Haslers believes that shareholders should take advantage of Asset Disposal Relief now.
This relief, previously referred to as Entrepreneurs’ Relief, allows shareholders to draw funds out of their business as capital through a solvent liquidation.
Thanks to the relief, shareholders pay tax at a rate of 10 per cent, which is lower than the typical Capital Gains Tax rate of 20 per cent and much lower than what they would pay on dividends or income.
Asset Disposal Relief is currently available for individuals up to a lifetime amount of £1,000,000. However, to benefit from this the company must have ceased trading in the last three years, with the shareholder(s) claiming relief having held at least five per cent stake in the company and have been a director of the company for at least two years. They must also not start a similar business within 2 years of the distribution.
Nick Nicholson, Insolvency Partner at Haslers, said: “Taking money out of a business in this way is more efficient than drawing it as income or dividends. To achieve this tax-efficient withdrawal of company funds, the business would need to be placed into members’ voluntary liquidation so that the distributions made after liquidation are treated as capital and not income.”
While this would involve the company being wound up, Mr Nicholson said that in certain cases business owners already faced the potential of having to close their business in the months to come when restrictions and support is lifted. A structured solvent liquidation would allow for shareholders to make the most of the tax relief while it was still available and before the Company’s financial position deteriorated.
Mr Nicholson said it was important that directors and shareholders took advice at this time, as their ability to make use of the relief may not be around for much longer.
