Help required for closure of a company

Weeble

Hi, I've got a query on the closure of a company and how best to account for money already took and what is left in the bank account.

Before I start, I've explained to my client I do not have any experience with the following and she stated that she's quite happy for me to proceed as it will help me to learn. So here goes:

I've recently taken on a client who wanted completion of year end and production of financial statements and CT return.
Client has since informed me she wants to close the company and has asked how best to take the monies out of the company and close it.
The year end was 30th April and ceased trading at this point. All transactions have been completed for the year and I now have all the figures.
The company has just one Director. The Director took a salary through PAYE and drawings but the company made a loss so the drawings cannot be classed as Dividends, although that is what she thought she was taking out.
There is also an amount left in the bank account.
In tax year 2014/15 the total salary through PAYE took was £10,000, Dividends received £2,250 and other drawings £18,000. There is £13,500 still left in the company’s bank account.
The director has been in employment with a different company since May1st.
What is the best way to deal with the £18,000 already taken and the remaining £13,500?
Can the £31,500 be took as Capital Gains, using the annual allowance of £11,000 and then reducing the tax on the remaining £20,500 using Entrepreneurs Relief of 10% in the tax year 14/15.
Are we able to close the company on 30th April or do we have to wait until the final money is paid and the £13,500 left need to be accounted for in year 15/16?
Thanks for all your help in advance.

KernowAccountant

Weeble said:

Hi, I've got a query on the closure of a company and how best to account for money already took and what is left in the bank account.

Before I start, I've explained to my client I do not have any experience with the following and she stated that she's quite happy for me to proceed as it will help me to learn. So here goes:

I've recently taken on a client who wanted completion of year end and production of financial statements and CT return.
Client has since informed me she wants to close the company and has asked how best to take the monies out of the company and close it.
The year end was 30th April and ceased trading at this point. All transactions have been completed for the year and I now have all the figures.
The company has just one Director. The Director took a salary through PAYE and drawings but the company made a loss so the drawings cannot be classed as Dividends, although that is what she thought she was taking out.
There is also an amount left in the bank account.
In tax year 2014/15 the total salary through PAYE took was £10,000, Dividends received £2,250 and other drawings £18,000. There is £13,500 still left in the company’s bank account.
The director has been in employment with a different company since May1st.
What is the best way to deal with the £18,000 already taken and the remaining £13,500?
Can the £31,500 be took as Capital Gains, using the annual allowance of £11,000 and then reducing the tax on the remaining £20,500 using Entrepreneurs Relief of 10% in the tax year 14/15.
Are we able to close the company on 30th April or do we have to wait until the final money is paid and the £13,500 left need to be accounted for in year 15/16?
Thanks for all your help in advance.

I'm afraid a comprehensive reply will take longer than I have at present, but a few quick points:

1. There is no concept of drawings in respect of a company. If the monies distributed were dividends they would have to have been properly declared as such at the time. Deciding that they are dividends after the event is unlawful.

2. Dividends are paid out of accumulated realised profits. While there may have been a current year loss (a terminal loss relief claim may be in point), providing there were sufficient brought forward reserves, the dividends (if properly declared at the time) may not be unlawful.

3. If the dividends were properly declared, that is what they are. Notwithstanding the fact that their payment results in negative reserves. There are, of course, other implications.

4. If the payments were not dividends, they are not "drawings". They may be a salary, upon which PAYE should be operated. They may represent a loan, with possible BIK and s.455 consequences.

5. If the company is to be wound up you may have some joy with s.1030A. If the relevant conditions are not met (what are your net assets?) and you are set on a capital treatment a MVL may be the only option. Be aware of the anti-avoidance in respect of distributions in anticipation of a s.1030A distribution.

6. Of course, depending on other sources of income (and availability of ER) the capital treatment isn't always necessary to obtain a positive tax outcome.