Limited Company - drawing down your stash?

Discussion in 'General Business Forum' started by Pish_Pash, Feb 19, 2019.

  1. Pish_Pash

    Pish_Pash UKBF Ace Free Member

    2,375 599
    If a company makes more profit than it pays out in divis, then over time the shareholder's equity will mount up.

    What's to stop a husband & wife team to allow this 'shareholder's equity' cash pile to increase, then simply stop work ...paying themselves a salary & divis over a number of subsequent years until there's squat left? (a pseudo pension if you will)

    there's sure to be something that disallows this (as technically every year, the company would be making a loss (2 x salaries) ...presumably you can't draw a salary if the company isn't actively trying to make a profit?
     
    Posted: Feb 19, 2019 By: Pish_Pash Member since: Feb 1, 2013
    #1
  2. pentel

    pentel UKBF Regular Free Member

    394 65
    Depending on the company liquidate by way of a MVL and pay 10% tax
     
    Posted: Feb 20, 2019 By: pentel Member since: Mar 12, 2011
    #2
  3. SteLacca

    SteLacca UKBF Ace Free Member

    1,285 255
    There's nothing to stop it, but what's the point? If trading has stopped, the loss will never be utilised and will, ultimately, vanish when the company is eventually dissolved.

    Better just to take dividends.
     
    Posted: Feb 20, 2019 By: SteLacca Member since: Jun 16, 2016
    #3
  4. UKSBD

    UKSBD Not a real duck Staff Member

    9,115 1,705
    If a company makes £50k profit in year 1 (pays about £10k corporation tax) can it make £50k loss the next year and claim back the £10k?

    If so, how many years (if any) can you backdate this?
    ie.
    based on pish_pash's question, can a company make a profit for a number of years, then make a loss for a number of years and effectively get back the corporation tax previously paid?
     
    Posted: Feb 20, 2019 By: UKSBD Member since: Dec 30, 2005
    #4
  5. SteLacca

    SteLacca UKBF Ace Free Member

    1,285 255
    The loss can only be carried back to the earlier 12 month period, and so after the first year loss, there's no where to utilise subsequent losses.
     
    Posted: Feb 20, 2019 By: SteLacca Member since: Jun 16, 2016
    #5
  6. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    2,876 343
    Why not wash it through an MVL, claim the entrepreneurs relief and live off the distribution instead?
     
    Posted: Feb 20, 2019 By: Lisa Thomas Member since: Apr 20, 2015
    #6
  7. Pish_Pash

    Pish_Pash UKBF Ace Free Member

    2,375 599
    I'd never heard of an MVL ...(hence asking the original question) ...sounds like a strong possibility, but what's the cost of an insolvency practioner for closing down a husband/wife Limited Co (ooh the irony...having to get an insolvency practioner to close down a solvent company!).

    My preferred option (when the time comes) would be to flog my good solvent business, but I know it's not easy (as is often said round these parts...who wants to buy a job)...so looking at tax efficient ways to extract my stash

    Thanks.
     
    Posted: Feb 20, 2019 By: Pish_Pash Member since: Feb 1, 2013
    #7
  8. UKSBD

    UKSBD Not a real duck Staff Member

    9,115 1,705
    Get the company to pay as much as is allowed in to your pension pot.
     
    Posted: Feb 20, 2019 By: UKSBD Member since: Dec 30, 2005
    #8
  9. Pish_Pash

    Pish_Pash UKBF Ace Free Member

    2,375 599
    Because as a husband & wife team, we can extract 2 x £8,400(ish) tax free as salary out the company (whereas divis attract tax) ...I'm not actually bothered about the resulting 'accounts' loss (i.e not trying to offset them against ealrier years) ...
     
    Posted: Feb 20, 2019 By: Pish_Pash Member since: Feb 1, 2013
    #9
  10. Clinton

    Clinton UKBF Big Shot Full Member

    3,966 1,369
    There's an option for you better than an MVL. Shall PM you about it.
     
    Posted: Feb 21, 2019 By: Clinton Member since: Jan 17, 2010
    #10
  11. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    2,876 343
    Costs will depend on the figures and wish Insolvency Practitioner you choose to instruct. Shop around for quotes.

    Most IP's will charge a fixed fee which will by far be outweighed by the taxes the shareholders will save on with the entrepreneurs relief.
     
    Posted: Feb 21, 2019 By: Lisa Thomas Member since: Apr 20, 2015
    #11
  12. UKSBD

    UKSBD Not a real duck Staff Member

    9,115 1,705

    You still get your allowance even if you take dividends.

    As the company would have stopped trading you will have already paid corporation tax on what is in the pot - £44k dividend each and you only pay about 5% tax
     
    Posted: Feb 21, 2019 By: UKSBD Member since: Dec 30, 2005
    #12
  13. UKSBD

    UKSBD Not a real duck Staff Member

    9,115 1,705

    Can this happen more than one year?
    example;

    company makes healthy profit in year A
    Year B company makes loss
    Year C, D, E company makes profit
    Year F company makes loss

    Can the company claim back the loss of year F from E if they have already claimed back the year B loss from A?

    (hope that makes sense)
     
    Posted: Feb 21, 2019 By: UKSBD Member since: Dec 30, 2005
    #13
  14. SteLacca

    SteLacca UKBF Ace Free Member

    1,285 255
    Yes
     
    Posted: Feb 21, 2019 By: SteLacca Member since: Jun 16, 2016
    #14
  15. UKSBD

    UKSBD Not a real duck Staff Member

    9,115 1,705
    Thanks,
    so in theory the company could make a £50k profit in one year, the directors could go on a paid holiday 12 month world cruise the next year (company loses £50k because still paying wages) and you get the previous years £10k corporation tax back?

    Edit: I assume the Director would have to give a justifiable reason why they are paying so much holiday pay as it's not in the Company's interest
     
    Posted: Feb 21, 2019 By: UKSBD Member since: Dec 30, 2005
    #15
  16. SteLacca

    SteLacca UKBF Ace Free Member

    1,285 255
    It's not as simple as that. In order to create a loss the expenses giving rise to the loss must have been incurred for the purpose of the business. HMRC could, arguably, contend that paying £50k of wages when no-one has done anything is not for the purpose of the business and disallow it for tax purposes.
     
    Posted: Feb 21, 2019 By: SteLacca Member since: Jun 16, 2016
    #16
  17. UKSBD

    UKSBD Not a real duck Staff Member

    9,115 1,705
    thanks, so Pish-Pash's idea of ceasing trading but still paying a salary is a bit risky?
     
    Posted: Feb 21, 2019 By: UKSBD Member since: Dec 30, 2005
    #17
  18. SteLacca

    SteLacca UKBF Ace Free Member

    1,285 255
    As I said originally, in those specific circumstances probably not. It may be possible to justify a small (c.£8k) director's remuneration (which is salary, but specifically for being a director), and since only the first year would qualify, the treatment in subsequent years is of only academic interest.
     
    Posted: Feb 21, 2019 By: SteLacca Member since: Jun 16, 2016
    #18
  19. UKSBD

    UKSBD Not a real duck Staff Member

    9,115 1,705
    So ideally you would still pay a small Directors salary for efectively the work involved in mothballing the company and try and get all the expenses and costs of closing it down within that 12 months?
     
    Posted: Feb 21, 2019 By: UKSBD Member since: Dec 30, 2005
    #19
  20. The Byre

    The Byre UKBF Ace Free Member

    8,367 3,240
    There are far, far better ways to harvest and nurture equity than just building up inactive reserves!

    Property springs to mind, but I am sure that a competent accountant will be able to structure some activity or instrument to build equity in a tax 'efficient' manner. For example, in Germany any property investments are zero-rated for tax on the sale of that property, if the property has been held for over a certain period (usually ten years).

    The UK must have schemes like that.

    Isn't it time to make the jump out of the living-room and buy a small property and employ someone to pack-n-ship?
     
    Posted: Feb 21, 2019 By: The Byre Member since: Aug 13, 2013
    #20