Other considerations for dissolving your company
When you close your company, you have the choice of either closing it down using an insolvency practitioner (a formal voluntary liquidation) or closing it down without an insolvency practitioner (an informal liquidation).
Which route you decide upon will depend on the amount of cash available to be drawn from the company and your total personal income for the tax years in question.
Informal liquidation
With an informal liquidation, we would prepare the company’s final accounts and corporation tax return and once all taxes have been paid, either you or us would apply for the company to be dissolved.
The only potential tax saving by going the informal liquidation route is the ability to withdraw a total of £25k from the company as a capital gain (this is the total for all directors).
Because the calculations for this tax saving are reasonably straight-forward, we would advise as to whether this might be the most beneficial route when we are preparing the accounts.
If you wanted to withdraw money from the company as capital gain, this would be subject to additional fees as a disclosure will need to be made on the shareholders tax return. This fee is usually £795+VAT if there is only one director or £425+VAT per director if there are two or more directors.
Formal voluntary liquidation
The other alternative is for the company to appoint an insolvency practitioner and enter into a formal voluntary liquidation for the company.
The advantage of this route is that up to £1m of cash can potentially be extracted from the company and will be chargeable at capital gains tax rates of 10%.
This can be particularly beneficial if your personal income level means that some income is being taxed at the higher rates of tax.
However, there are costs associated with this approach – the insolvency practitioner’s fees will usually be in the region of £3.5k to £6k and our average fees will be in the region of £1,850. Exactly how much these fees are will depend on the complexity of the insolvency and the amount of tax saved.
Because of these fees, if the only income you have is salary and dividends from the company, it is usually only beneficial to consider this approach if the cash in the company is above £85k as a minimum.
In order to determine if this is beneficial for your personal circumstances, we would need to compare your personal tax payable under both the formal and informal routes. This work would be subject to additional fees – usually £305+VAT if there is only one director or £215+VAT per director if there are two or more directors. Please note that these fees are not refundable should the formal voluntary liquidation route not prove beneficial.